Company restoration: Time limit removed for insurers

Insurers will now be able to bring proceedings in the name of companies no matter when they were dissolved.

Insurers will now be able to bring proceedings in the name of companies no matter when they were dissolved, thanks to the Third Parties (Rights Against Insurers) Act 2010 (Consequential Amendment of Companies Act 2006) Regulations 2018.

From 23 November 2018, an insurer of a dissolved company will be able to bring proceedings against a third party in the name of the dissolved company, without being restricted to the existing six-year time limit to do so.

Insurers who have paid damages on behalf of a dissolved company and are seeking contributions towards that payment from third parties (such as other insurers) will now have the right to restore the dissolved company to the register of companies, no matter when the company was dissolved.

Michael Budd, Associate in the Corporate team at Weightmans, stresses that the new rules will also apply no matter what the reason for a company’s dissolution:

"There are numerous reasons why a company may have been dissolved. Some are voluntary, such as the company not being required following a restructure, or the business being wound up. Involuntary dissolution is when the registrar of companies has reasonable cause to believe that the company is not carrying on business or in operation.

"In such a situation, the registrar has the power to strike the name of a company off the register of companies and dissolve it, without the consent of the company’s directors. The registrar may hold this view if mail the registrar has sent to a company’s registered office has been returned undelivered, if the registrar has not received company documents that should have been sent - such as annual accounts - or the company has no directors."

The need for this legislative change has arisen because of the interaction of the Companies Act 2006, the Compensation Act 2006 and the Third Parties (Rights Against Insurers) Act 2010 (TPRAI Act 2010, which came into force in August 2016).

Michael adds:

"From 1930 until 2016, a claimant wishing to sue the insurers of an insolvent company would first have to obtain judgment against the company (and first restoring the company to the register if necessary). The effect of 2016’s TPRAI Act 2010 was to enable such a party to recover damages from the company’s insurers without first restoring the company to the register. This meant the company’s insurer could no longer rely on the claimant having restored the company to the register, and would have to make its own application to restore the company, should it wish to bring a subrogated claim against a third party.

"The removal of the six-year time limit for insurers to restore a company for the purpose of using it to bring claims against a third party will be of benefit to insurers, and will now allow them to bring restoration claims that might otherwise have been out of time."

Alex Marler, Partner at Weightmans, believes the new regulations are good news for insurers:

"When an insurer pays out on behalf of an insured, it has a right to step into the insured’s shoes to bring a subrogated claim against any other liable third.

"The TPRAI Act 2010 streamlined the process for claims against insurers of insolvent companies - but by removing the need for the claimant to restore the company to the register, in some cases it deprived insurers of their vehicle for any subrogated claim. This unintended consequence was unfair to insurers: the policy behind the Act was to facilitate claimants’ access to insurance that was intended for their protection - not to stop insurers going after other liable third parties, or effectively after other insurers who should be contributing a share."

"The new regulations are good news for insurers, carrying through the logic of the TPRAI Act 2010 to keep subrogation rights on an equal footing. The net effect on the insurance industry as a whole is likely to be fairly neutral – the targets of the subrogated claims that will be facilitated will generally themselves be insured – but it will help ensure that liabilities are allocated fairly between appropriate parties."

Michael Budd is an Associate and Alex Marler is a Partner at Weightmans

Share on Twitter