Termination based on company being struck off not affected by restoration
29 July 2019
In Bridgehouse v BAE Systems, a termination notice based on a company being dissolved remained effective despite the company being restored to the register.
BAE agreed to procure the sale, by one of its subsidiaries, of two airfields for GBP 93m to Bridgehouse. BAE was able to terminate the agreement if Bridgehouse was struck off the register or dissolved. As a result of failing to file its accounts, Bridgehouse was duly stuck off. BAE served a notice of termination. Subsequently, however, after an application to the registrar, Bridgehouse was restored to the register. Was the termination valid?
Bridgehouse pointed to the Companies Act 2006 which states that a restored company "is deemed to have continued in existence as if it had not been dissolved or struck off the register". Statute, it said, created a fiction whereby the parties should act as if it had always existed and never been struck off.
The court agreed the provision in the Companies Act was mandatory and wide-ranging but said it wasn’t universal. The court’s powers could place a company "as nearly as may be" to the previous position, but not if this created an absurdity. Undoing a unilateral action of BAE was deemed a step too far (if not absurd, then anomalous and potentially unjust).
The court also considered a couple of further issues on a hypothetical basis:
- Was it possible for BAE and Bridgehouse to "contract out" of the Companies Act? Following Johnson v Moreton (HL, 1980), the court decided that, since there was a public policy behind the deeming provision in the Companies Act, it was not permissible to contract out.
- Was the termination by BAE immediately effective? Bridgehouse argued it was difficult to see why the parties would have intended BAE to be able to take the "very draconian" step of terminating the agreement immediately upon Bridgehouse being struck off. Provided Bridgehouse was restored to the register within a reasonable time, it said, no prejudice was suffered. The court disagreed. The wording was clear. There was no context that could justify Bridgehouse's reading. Equally a term could not be implied to aid Bridgehouse since this would be being done with the benefit of hindsight.
Update November 2019
The judge refused permission to appeal from her decision. As the proceedings before her were an appeal under section 69 of the Arbitration Act 1996 Act, that refusal was final unless Bridgehouse could satisfy the heavy burden of showing that the refusal “has come about as a result of unfair or improper process such that the decision to refuse permission cannot be categorised as a refusal at all”. Bridgehouse attempted to do so but the Court of Appeal refused permission to appeal on 14 November 2019, finding that the application was totally without merit.