In Contract Natural Gas Ltd v ZOG Energy Ltd [2025] EWHC 86 (Ch) (21 January 2025), the High Court has confirmed that, for limitation, time does not stop running on claims against a company when it goes into administration.

Summary

Under normal circumstances, a party seeking to enforce a claim in the UK must do so within the period set out in the Limitation Act 1980.

The administration moratorium suspends the normal rights that creditors have to bring legal proceedings and take enforcement action. Despite this, it was settled law prior to the Enterprise Act 2002 that the limitation “clock” did not stop running against a company when it went into administration. This was in contrast to the position in a liquidation.

The Enterprise Act 2002 made significant changes to the administration regime and the question arose as to whether those changes altered the position in relation to limitation. The High Court decided that it did not.

What is Limitation?

The Limitation Act 1980 sets out limitation periods for various kinds of claims: for example, the limitation period for a simple contract claim is six years. The limitation period usually begins to run from the date on which the cause of action “accrues” (e.g. the date of the breach of contract), subject to some exceptions such as situations where the claimant only discovers the facts giving rise to the claim at a later date.

A claimant must bring a claim within the relevant limitation period, otherwise, a defendant will have a complete defence to a claim on the basis that it is “time-barred”. While limitation can be extended in certain circumstances, once it has expired there is nothing that can be done.

What is Administration?

Administration is a procedure that allows an insolvent company to be reorganised or for its assets to be realised for the benefit of its creditors. An insolvency practitioner is appointed as the company’s administrator and takes over the control of the company’s business and assets from the directors. The aim is to achieve one of the statutory purposes of administration, such as:

• preserving some or all of the company’s business as a going concern; or
• achieving a better result for creditors than in a liquidation.

A key feature of administration is the statutory moratorium, which restricts creditors from enforcing their rights against the company unless they have the consent of the administrator or the permission of the court. The purpose of the moratorium is to provide breathing space to allow the administrator to reorganise the company or realise its assets without pressure from the company’s creditors.

The existing law

Prior to the Enterprise Act 2002 it was established principle that, for the purposes of limitation, time did not stop running on claims against a company when it went into administration. This was in contrast to the position in a Liquidation. The rationale for the distinction was that, once a company entered liquidation, its assets were effectively held on trust for distribution to its creditors, freezing the limitation clock at the date of the liquidation. In administration, there was no equivalent trust.

The Enterprise Act 2002 however introduced far-reaching changes to the administration regime, including giving administrators a new power to make distributions to creditors.

The case

Contract Natural Gas Ltd (CNG) brought a claim against ZOG Energy Ltd (ZOG) to recover amounts owed under a contract for natural gas supply. Both companies were by this time in liquidation, with ZOG having previously been in administration.

The usual limitation period for parts of CNG’s claim had expired. CNG sought to argue that:

• now the administration procedure included the power to make distributions to creditors, it should be treated as creating a trust of assets similar to a liquidation;
• the prior distinction made between administration and liquidation in terms of limitation periods therefore no longer applied; and
• the administration of ZOG operated to suspend the limitation period in respect of CNG’s claims.

There had been no case law on the point in more than 20 years since the Enterprise Act 2002 came into force, although some textbooks suggested in principle that the law had changed.

The court was therefore asked to consider whether the changes brought in by the Enterprise Act 2002 (in particular the power of an administrator to make distributions to creditors) altered the established principle that a limitation period continues to run while a company is in administration.

The decision

The court held that the changes brought in by the Enterprise Act 2002 did not alter the position in relation to limitation. A distribution to creditors was just one way in which an administration could end, and there was no certainty that the company’s assets would be distributed. No statutory trust arose on the commencement of an administration.

Consequently, the court confirmed that limitation in respect of CNG’s claim did not stop running when ZOG went into administration and that parts of the claim were therefore time-barred. The court did acknowledge however that a trust may arise at a later point in an administration, if and when administrators give notice of a distribution, and that in that situation the limitation clock would stop running.

Conclusion

This case confirms the position, post-Enterprise Act 2002, that time does not stop running on claims when a company enters administration.

Any creditor with a claim against a company that enters administration will need to be alive to the time it has left to commence a claim and take appropriate steps to avoid any claim becoming time-barred. These steps could include agreeing to a standstill with the administrators or seeking the court’s permission to issue proceedings.

If you consider that you have a claim against a company in financial difficulties or one that is going through administration or is in liquidation, Geldards’ insolvency team can assist and guide you through the issues.

Similarly, if you are concerned about insolvency procedures generally or have a potential claim against a third party that you have not taken action on, Geldards can advise you on your options and next steps as appropriate.