New important case on restoring a company to the register

Directors of companies who are of the view that an application to restore a company to the Companies Register is a formality should think again.

The most common reason for a company being struck off the register is a failure to file an annual return.

Directors of companies should take heed of a recent case involving a company by the name of Allenton Properties Limited where the High Court carried out an analysis of the test for determining whether to restore a struck off company to the register under Section 738 of the 2014 Companies Act (2014 Act). In carrying out its analysis the Court found the test under the 2014 Act is no more onerous than that which had been provided for in previous legislation.

The facts were somewhat unusual in that the purpose of restoring the Company to the register of companies was so that the applicant (who was a fund that had purchased a loan book) wanted to appoint a receiver and enforce security over a particular piece of property. However, the matter was complicated in that prior to the Applicant fund’s acquisition of the loan book, the property had been sold by way of a sale that had not been properly completed. The purchaser of this strip of land who was a ‘bona fide purchaser for value’ had proceeded to build a house on the site in the mistaken but understandable belief that the sale was valid and that there was no impediment to the sale completing. If the court had allowed the Company to be restored to the register such as to allow the fund to appoint a receiver it would have been appointed over a strip of land which had now become the home of a third party who was not a party to the proceedings although joined as a notice party.

The Court had regard to the test which must be considered when making a decision as to whether to restore a company to the register. In this regard, it referred to Section 738(1)(c) of the 2014 Act which allows a Company to be restored where the application is made within 20 years from the date of dissolution provided that two other conditions are satisfied namely,

1. the striking off of the company has disadvantaged the Applicant
2. It is just inequitable to do so.

There was no doubt that striking off the company had disadvantaged the Applicant so the question for the Court to consider was whether it was just and equitable to restore the company to the register.

The High Court Judge namely Judge Butler had regard to the pre- 2014 test which was whether the applicant was aggrieved by the striking-off and if it was ‘just’ to restore the Company to the register.

She then considered the new wording in the 2014 Act i.e. ‘just and equitable’ had to be considered i.e. was the addition of the words ‘and equitable’ of relevance for the Court to consider. The Judge concluded that the threshold under Section 738 i.e. the addition of the words ‘and equitable’ made the test more onerous and in these particular circumstances before the Court Judge Butler deemed the additional words significant because of the potential impact of any order on the 3rd party who had built the house on the piece of land.

She found that the purchase of the property would have been affected in ‘a profoundly prejudicial way’ and accordingly the restoration could not be equitable. The Judge also criticized the Applicant for failing to involve the purchaser in the application process to have the Company restored.

The Court did express some sympathy for the Applicant in that it had purchased a loan and related security without any apparent information to suggest that there was any other claim on it. Having said that the Court concluded that it did not follow from the fact that the Applicant was unaware of the purchaser that a contract for sale did not exist or was not enforceable. It was also interesting to note that Judge Butler felt that the Applicant may not have succeeded even if the old test of ‘just’ had still applied.

Accordingly, it is very important when bringing an application to restore a company to the register to have regard to any third parties that might be affected by such an application. The moral of the story for directors of Companies is to ensure that the Company is not struck off in the first place.

For further information on this or any other company law matter please do not hesitate to contact Brendan Dillon or Conor White on 01 296 0666.