04/02/2025
The recent case of Contract Natural Gas Ltd v Zog Energy Ltd [2025] EWHC 86 (Ch)[1] has, for the first time, considered whether time continues to run for limitation purposes in a modern (post-Enterprise Act 2002) administration.
The Court held that time generally continues to run while a company is in administration, only stopping if a company enters liquidation.
Background
Zog Energy Ltd (“Zog”) was a retail energy company. It purchased gas from Contract Natural Gas Ltd (“CNG”) under a Master Sales Agreement (“MSA”).
The sharp rise in gas prices towards the end of 2021, combined with four of CNG’s major customers entering insolvency processes, led CNG to notify Zog that it would cease gas supplies to it in November 2021. This led Zog to enter administration in December 2021 and subsequently into creditors’ voluntary liquidation.
CNG also entered administration and, later, liquidation.
The proofs of debt
Each party submitted a proof of debt in the other’s administration and then issued proceedings to challenge the other party’s assessment of its proof of debt.
One of the issues considered by the Court was how a time bar clause in the MSA interacted with Zog’s (1) administration and (2) liquidation. This was an important issue in quantifying CNG’s claim.
The time bar clause
The Court was required, as a separate issue, to interpret an element of the time bar clause. It concluded that its effect was that – subject to the effect of administration or liquidation – either Zog or CNG could only bring a claim if it issued legal proceedings against the other within 12 months of knowing of its entitlement to do so.
The effect of liquidation
Following authority,[2] the Court held that a deemed “statutory trust” arises when a company enters liquidation, as its assets are due to be distributed to others in accordance with insolvency legislation. This statutory trust stops time running for limitation purposes.
The effect of administration
In re Maxwell Fleet and Facilities Management Ltd [2001] 1 WLR 323, the Court had held that no statutory trust arises – and time therefore continues to run – when a company enters administration:
[…] the moratorium on proceedings, strong though it is, is not nearly enough to enable a court to read into a comprehensive modern statute like the Insolvency Act 1986 [under which administration was introduced as an insolvency regime] an implied disapplication of the limitation periods during the tenure of the administrator.
CNG contended that changes to the law made by the Enterprise Act 2002 after the Maxwell Fleet case was decided, particularly to grant administrators the power to make distributions, meant that the statutory trust could arise in a post-Enterprise Act administration.
The Court held that insufficient changes had been made to administration by the Enterprise Act to mean that the statutory trust arises just from a company entering administration. In particular, while distributions can be made by administrators, this is not inevitable.
The Court consequently decided that time continues to run for limitation purposes while a company is in administration. This meant that CNG were unable to recover the amounts claimed under certain of their invoices as their claims had already become time-barred before Zog’s liquidation stopped time from running for limitation purposes.
The judge also commented that:
[…] as and when an administrator gives notice of intention to make a distribution, and assuming it is a distribution of the proceeds derived from all the remaining assets, there would be good grounds for saying that the conditions for a statutory trust had arisen.
However, as no notice of intention to distribute had been given by Zog’s administrators, this did not assist CNG.
Comment
This judgment confirms, for the first time, that time generally continues to run for limitation purposes in a post-Enterprise Act 2002 administration. This conclusion is contrary to some suggestions in existing commentary and is, as was noted by the Court, a potential trap for the unwary:
I have considerable sympathy with creditors who submit a proof of debt in an administration and are subsequently taken by surprise by the discovery that their claims have become time barred. The process of submitting a formal proof of those debts which were due at the date on which the administration order was made might reasonably suggest to anyone not versed in the law of insolvency that their claim had thereby crystallised at that date. An awareness of the moratorium on claims would be likely to reinforce such a view: the restriction on issuing proceedings might reasonably appear consistent with any claim being sufficiently preserved by submitting the proof of debt. Furthermore, such creditors might reasonably feel aggrieved to be told that the identical process would have stopped time running in a liquidation, but did not do so in an administration. Administration is supposed to produce a better outcome than liquidation for all creditors, not a better one for some at the expense of others whose claims have become time-barred.
However, the Court held that these factors are irrelevant to whether, properly interpreted, a statutory trust arises in a post-Enterprise Act administration, and therefore whether time continues to run.
This means that absent any legislative changes – and none followed from the similar decision in Maxwell Fleet well over twenty years ago – there will continue to be a potentially important distinction for limitation purposes between a company in administration and a company in liquidation.
Prettys Solicitors LLP acted for Zog in these proceedings.
[1] https://caselaw.nationalarchives.gov.uk/ewhc/ch/2025/86.
[2] In re General Rolling Stock Co (1871 – 72) L.R. 7 Ch. App. 646 and Ayerst (Inspector of Taxes) v C. & K. (Construction) Ltd. [1976] AC 167.
