If a company has been struck off the register at Companies House, it can be restored through administrative restoration or by the court.  Being struck off the register means that a company is dissolved and therefore ceases to exist.

The Legal Fiction

When a company is restored to the register, a legal fiction arises which deems that the company has  continued in existence, as if it had not been dissolved in the first place!! 

But, what happens where an innocent party to a contract has terminated the contract in accordance with its termination rights under the contract because the other party has been struck off – will the termination be undone and the contract resurrected?

A recent decision of the High Court has provided some useful guidance on this issue.  The High Court ruled that restoration would not invalidate a party’s decision to terminate a contract.  This is the case even where strike-off or dissolution was the trigger for termination (provided that under the contract, such events give rise to a right for the innocent party to terminate the contract).  

This decision not only clarifies a point of law but helps businesses to act with certainty when terminating contracts if the other party has been struck off the register.

Caution!

However, some caution should still be exercised because there are different ways of restoring a company: administrative restoration and court-ordered restoration. This decision related to administrative restoration, so it is possible that a different decision could be reached in relation to court-ordered restoration.  As the legal provisions relating to both processes are very similar, we consider this unlikely, however under the court process there is an additional right for the court to make directions to place the company and all other persons in the position they would have been in if the company had not been dissolved or struck off.  This is a wide discretion and so it might be possible for the court to use this power to restore certain contracts, even where they have been validly terminated.

This decision has provided clarification to what was a previously untested element of the law and, in most cases, it now seems clear that terminations that take effect due to the company’s strike-off will stay in effect.  However, companies that are restored and wish to reinstate contracts that have been terminated could seek to try to do so under the court-ordered process, to test whether it might be possible to invalidate terminations retrospectively using the court’s discretion.

If you have any questions about company strike-off or restoration, please do not hesitate to contact our expert corporate lawyers on 0161 941 4000 or by email.