It is fairly common practice for dormant and other unwanted companies to be removed from the register through the more relaxed "strike off" procedure under the Companies Act 2006, rather than a more involved liquidation procedure.

The trade-off of avoiding the additional cost, complexity and formality of a formal liquidation is that it is easier (although not easy) for a company which has been struck off to be restored to the register.

In the recent case of Bridgehouse (Bradford No 2) v BAE Systems Plc [2019] the High Court had to consider how far this principle could extend, and in particular the extent to which it could impact upon the rights and interests of third parties.

The facts

The Bridgehouse case involved a contract to buy property pursuant to which one party, A, had the right to terminate if the other party, B, suffered an event of default, which included B being struck off the register of companies or otherwise being dissolved.

Following the entering into of the agreement, B was struck off the register by virtue of failing to keep up to date with its filings. A in turn served notice to terminate the contract.

B was ultimately restored to the register by administrative restoration, after which B issued proceedings against A on the basis that A's termination was invalid as, in accordance with the principle outlined above, B should be deemed never to have been dissolved.

Judgment

The Court disagreed with B.

It was held that the restoration of B did not automatically undo the termination of the contract which had been affected by A pursuant to an express contractual right following B's strike off.

The Court found that there was no authority in published caselaw for the proposition that company restoration produces a reversal in all circumstances; instead it is directed to the direct or automatic consequences of the removal from the register.

To decide otherwise would deprive clauses (such as the one exercised by A) of effect in circumstances where they give welcomed contractual certainty. Rather, it was more likely that the parties intentionally included the termination clause as a kind of risk management tool; to protect against this kind of "administrative shambles" whereby a contractual counterparty is unable to file accounts or answer the notifications sent by the Registrar.

Indeed, if B's argument was correct, this would bring considerable practical difficulties. It would follow, for example, that A's notice to terminate the contract was invalid and, in itself, in breach of contract.

Practical implications 

Companies must keep in mind that the legal principles do not perfectly achieve an "as you were" position. While the effect of company restoration is that the company is deemed to have continued in existence as though it had not been dissolved or struck off, it is unlikely to reverse the termination of a contract exercised by a non-defaulting third party in reliance on the company being struck off the Register, or affect the secondary consequences of a company's dissolution more generally.

The decision of the Court in Bridgehouse is, however, encouraging from the perspective of contractual certainty; parties can rely on express contractual rights to terminate if a counterparty is dissolved or struck off, even if that counterparty is subsequently restored.