Suing an insolvent company – What can I do?

I acted for Ms M in a claim for compensation following an accident at a hotel she was staying at in Cornwall in April 2011. Ms M tripped on a defective staircase and inverted her right ankle causing significant ligament damage. She was off work for 7 months and required surgery.

The hotel where Ms M was staying was owned by a limited company. Ms M brought a claim against the hotel under the Occupiers Liability Act 1957. She alleged that owners of the hotel had been negligent in failing to ensure the stairs were defect free. The hotel had public liability insurance and their insurers acted on their behalf.

The hotel’s insurers denied liability claiming that there was no defect on the stairs even though Ms M had photographic proof and witness evidence confirming that it was there.

The hotel’s insurers refused to change their stance and in this situation the only way to put pressure on them to deal with the claim was to issue court proceedings. Before I issue proceedings against any limited company, I always check with Companies House that the relevant company is still trading.  This is because if the company has been liquidated then any proceedings brought against it are not valid. This applies even if the company had insurance cover.

My heart sank as I checked the companies register to find out that the limited company owning the hotel had been liquidated only weeks beforehand. I knew there was a solution to the problem however unfortunately it involved incurring significant legal costs which would not ultimately be recoverable within the claim.

Whilst claimants have a direct right to sue an insurance company in a claim arising out of a road traffic accident the same rights do not currently exist for other types of personal injury claim.

The solution in this case was to make an application to the Chancery Court under CPR Part 8 to restore the limited company to the Register of Companies under Section 1029 of the Companies Act 2006. This Act enables any person with a potential legal claim against the limited company to apply to restore it to the Register of Companies.

I therefore made the application to the Chancery Division of the High Court and served it on the Registrar of Companies and their nominated solicitors, who dealt with the application on behalf of the Registrar. Fortunately, no court hearing was required and the Registrar of Companies consented to the application but it took a couple of months to be processed. I had to provide an undertaking to the Chancery Court and Registrar of Companies to update them on the progress of the claim at 6 monthly intervals so it could determine the suitable time to remove the company once the claim was completed.

The limited company was then restored to the register and a notice was placed in the London Gazette.

I immediately issued court proceedings against the limited company and their insurers nominated solicitors to accept service of proceedings. The case was settled by the insurers for a significant five figure sum.

The important points to note from this case are as follows:-

1.       It was only worth restoring the company to the register because it had valid insurance cover for the claim. If there was no insurance then there would be no point in restoring it as it would have no funds/assets to meet any claim.

2.      Whilst the insurance company is responsible for paying Ms M’s reasonable legal costs incurred in the personal injury claim, they are not responsible for paying the costs associated with restoring the company to the register.

3.      It is very important for practitioners to regularly check the companies register to ensure that the Defendant is still trading. You do not want to only find this out close to limitation, as whilst it is still possible to resolve the problem it is more difficult!

I hope that the yet to be implemented Third Parties (Rights Against Insurers) Act 2010 will deal with this anomaly. The proposed provisions mean that in most cases you will have the right to sue the insurers direct in this situation and can avoid the procedural headache of restoring a company to the register.

Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.