High Court finds time does not stop running for limitation purposes when a company enters administration

The High Court has confirmed that the making of an administration order does not stop limitation periods from running in respect of claims against the company: Contract Natural Gas Ltd v ZOG Energy Ltd [2025] EWHC 86 (Ch).

Although this decision is not unexpected, as it is in line with previous case law relating to administrations, there has been no case on precisely this question since significant changes were made to the administration regime under the Enterprise Act 2002 (the "EA 2002"). Those changes introduced a power for administrators to make a distribution to creditors, bringing the regime closer to a liquidation – and it has long been established that time does stop running on the making of a winding up order. In this case, however, the court held that the mere possibility of a company surviving administration (however unlikely that might be in a particular case) meant that time did not stop time running in that context.

The decision suggests, however, that there may be good grounds for arguing that time stops running in the administration context if and when the administrator gives notice of an intention to distribute the proceeds derived from all remaining assets – which did not happen in the present case. The court also held that time does stop running once a company enters a Creditors' Voluntary Liquidation ("CVL"), just like any other liquidation.

From a creditor's perspective, this judgment is a reminder not to rely on an administration order to preserve claims, even though time would stop running in a liquidation, and (in the judge's words) a creditor who was caught out by the distinction might "reasonably feel aggrieved". Creditors facing limitation issues against a debtor in administration should take steps to preserve their claims by, for example, seeking permission to lift the administration moratorium in order to issue and serve protective proceedings (which could then be stayed) or agreeing with the administrators that no limitation points will be taken.  

The decision also illustrates the courts' approach to interpreting an indemnity cap in an umbrella agreement. While each case will turn on its facts and the terms of the specific clause, the decision suggests that use of terms such as "entire financial liability" and "total liability" are likely to signal an overall cap, rather than one which applies separately to each contract falling under the umbrella.

Background

ZOG Energy Ltd ("ZOG") purchased gas from Contract Natural Gas Ltd ("CNG") under a Master Sales Agreement ("MSA"). The MSA provided for gas to be supplied by CNG to ZOG pursuant to separate contracts known as "Transactions".

In December 2021, following CNG's exit from the UK gas market, ZOG entered administration. CNG entered administration that same month. Both entities subsequently moved to CVL. Each company submitted a proof of debt in the other's liquidation: CNG in respect of unpaid invoices for gas supplied, and ZOG in respect of damages for breach of contract when CNG ceased operating.

ZOG's liquidators rejected CNG's proof of debt on the basis that the claim was time barred under clause 13.5 of the MSA, which was said to bar any claims brought more than 12 months after the claimant ought reasonably to have known of its entitlement to claim. However, CNG argued that limitation had stopped running when the company entered administration (which occurred less than 12 months after the debts became due). It recognised that the courts have previously held that time continues to run for limitation purposes when a company enters administration (in contrast to the position for liquidation), but pointed out that the relevant authorities were all concerned with administrations under the statutory regime which applied before the EA 2002. CNG also argued that ZOG had acknowledged the debt due to it in the statement of affairs produced by ZOG's administrators, such that time was restarted pursuant to s.29 of the Limitation Act 1980 or equivalent common law principles.

CNG's liquidators admitted ZOG's proof of debt in the sum of only £250,000 (significantly less than the proof submitted) on the basis of a liability cap in clause 13.3 of the MSA which provided that "the total liability of each party to the other" would not exceed that amount. However, ZOG submitted that the £250,000 cap applied separately to each Transaction, and not as an overall limit to ZOG's claims.

The court considered the question of limitation and the proper interpretation of the liability cap as preliminary issues.

Decision

The High Court (Andrew Twigger KC sitting as a deputy High Court judge) held that: time stopped running on CNG's claims only when ZOG entered into CVL, not when the administration order was made; and ZOG's claims were subject to an overall cap of £250,000.

Limitation

The judge explained that time stops running when a company enters into liquidation because a statutory trust arises at that point, enabling the creditors to claim as beneficiaries, and no limitation period applies to claims by beneficiaries to recover trust property. It was common ground that no statutory trust arose in relation to a pre-EA 2002 administration, so the question was whether the differences between the two administration regimes justified a conclusion that a statutory trust arose on the making of an administration order under the EA 2002.

The judge noted that, unlike the previous regime, the EA 2002 enabled an administrator to make distributions to any or all creditors. He stated that, once an administrator gave notice of intention to distribute the proceeds derived from all remaining assets, there would be good grounds for saying that the conditions for a statutory trust had arisen. However, no such notice had been given in ZOG's administration.

CNG did not assert that a statutory trust arose at the commencement of every administration, in particular where the objective of the administration is to rescue the company. However, it is not uncommon for administrators to indicate that a rescue is unlikely to be achieved and in those cases, CNG said, the administration can be seen as a distributive process from the outset.

The judge did not accept that submission, finding that the mere possibility of a rescue scenario in an administration – no matter how unlikely it may be in some cases – precluded a statutory trust arising in that context. He concluded, therefore, time did not stop running so far as limitation was concerned upon the making of an administration order under the EA 2002.

The judge commented that he had "considerable sympathy" for creditors who submit a proof of debt in an administration and are then taken by surprise in discovering that their claims have become time-barred, since both the process of submitting a formal proof of debts due at the date of the administration order and the statutory moratorium on claims from that date might lead them to believe their claims crystallised at that date. However, the question was whether an administration order gave rise to a statutory trust, not what creditors might reasonably consider understand.

The judge did, however, confirm that time ceases to run for limitation purposes when a company moves from administration into CVL. At that point a creditor becomes entitled to claim a share in the company’s assets as a beneficiary against a trustee. CNG was therefore entitled to prove for debts which had not yet become time-barred at the point of ZOG's entry into CVL.

The judge rejected the subsidiary argument that the statement of affairs produced by ZOG meant CNG's debt had been acknowledged with the effect of restarting the clock for limitation purposes. There was no reason to think that s.29 of the Limitation Act had any effect on a contractual time bar, as in this case. As for the old common law principles relating to acknowledgements, these had relied on a notion that an acknowledgment involved an implied promise to pay, giving rise to a new cause of action. That legal fiction was swept away by the statutory provisions, and in any event the judge doubted that it had ever applied to a contractual time bar.

Liability cap

The judge said that the first question must logically be whether ZOG was right to say that clause 13 of the MSA should be regarded as incorporated verbatim into each and every Transaction, so that the clause becomes a term of each Transaction. Its argument that the £250,000 cap applied separately to each Transaction depended on such incorporation, since there was nothing in the express words of the clause to indicate that the cap should be applied in that way. The judge concluded that this was not how a reasonable reader would interpret the contracts: the MSA was an umbrella agreement that applied across all the separate Transactions, but its terms were not incorporated verbatim into the Transactions.

Even if that was wrong, however, it did not follow that the £250,000 cap was intended to apply to each Transaction individually, rather than globally. The language of clause 13 most naturally suggested that a global cap had been intended, regardless of the number of Transactions. The opening words in clause 13.1 referred to the "entire financial liability" of each party to the other, and clause 13.3 referred to the "total liability" in respect of all claims under clause 13.1.

Although the court started from an assumption that, in the absence of clear words, contracting parties do not intend to give up valuable rights and remedies, here there were clear words showing that the parties intended a cap of £250,000 and the simple question was whether that cap should be read as applying to each separate Transaction. The judge concluded that there was nothing in the terms of the MSA to justify reading it in that way.

The judge recognised that a single cap produced the seemingly strange result that, if ZOG successfully claimed for £250,000 at the beginning of the relationship, it might then have no recourse for any further breaches during the remainder of the term. However, that point risked applying commercial common sense retrospectively to allow ZOG to escape a limitation which, with hindsight, appeared unfavourable. In any event, in such circumstances, ZOG could have terminated the MSA and found a new supplier, or used the threat of termination to renegotiate the cap.