The recent ruling in Contract Natural Gas Limited v ZOG Energy Limited [2025] EWHC 86 (Ch) clarifies the impact of administration on limitation periods for claims, offering crucial guidance for creditors. This case saw Judge Andrew Twigger KC determine whether time stops running for limitation purposes when a company enters administration, and what this means for creditors seeking to assert such claims.
Background
The dispute involved interpreting a Master Sales Agreement (MSA) entered into by two companies: Contract Natural Gas (CNG), and ZOG Energy Limited (ZOG). The MSA set out high level terms for the supply of gas from CNG to ZOG, under which the parties could enter into separate sub-contracts for specific gas purchases (Transactions) on terms reflecting the prices of gas at that time.
Both companies became insolvent in 2021 due to rising gas prices, with both eventually moving into Creditors' Voluntary Liquidation (CVL). However, CNG and ZOG found themselves in conflict when each company rejected the other's proof of debt on the basis of specific clauses within the MSA. As a result, the court was tasked with adjudicating on certain preliminary issues regarding the correct interpretation of those provisions.
Of particular interest was a question stemming from the contractual limitation clause in the MSA (the CLC). The CLC stipulated that if either party wished to bring a claim against the other, they must commence the proceedings within 12 months of recognising their entitlement to do so.
The issue
ZOG argued that CNG's claims were time-barred by the CLC. CNG raised several arguments in response to this. In particular, CNG argued that time should stop running for limitation purposes when a company enters either administration or liquidation. They claimed that since ZOG entered administration before the expiry of the 12-month period in respect of their claims under the CLC, the time bar should not apply to their claims. They also argued, alternatively, that ZOG's statement of affairs, which listed CNG as a creditor, amounted to an acknowledgment of the debt which gave rise to a new cause of action and limitation period.
The court acknowledged the well-established principle that a statutory trust arises upon a company's liquidation. This principle is applicable to both voluntary and compulsory liquidation processes. However, the key question at play was whether an equivalent statutory trust arises in the event of an administration, particularly under the regime introduced by the Enterprise Act 2002 (the Act) which allows administrators to make distributions to creditors. CNG argued that the inclusion of this power under the Act meant that the commencement of an administration after its introduction gives rise to such a trust.
Court analysis
The court acknowledged that the question of whether entry into administration should stop the limitation period from running had not been considered since the re-writing of the administration regime by the Act. The court therefore helpfully reviewed the previous law on the effect of administration and liquidation on time limits, and considered whether the position is different under the post-Act regime.
The court turned to the judgment in Re Maxwell Fleet and Facilities Management Ltd [2001] 1 WLR 323, which addressed the effect of an administration on limitation under the pre-Act regime. In that case the judge held that administration did not give rise to a statutory trust, and so did not stop limitation from running:
"The fact that winding up involves the imposition on the available assets at the commencement of the winding up of a statutory scheme of rateable division amongst the creditors at that time provides, as it seems to me, an immensely strong context for the laying down of a principle of law that the limitation periods stop running. An administration has none of this"
In other words, since administration does not impose a statutory scheme of distribution of assets akin to that in liquidation, the assets are not considered to be held on a statutory trust. Consequently, the rationale for stopping limitation periods, as in the case of liquidation, did not apply to administration.
Judge Andrew Twigger KC held that the same principle applied equally to administrations under the regime introduced by the Act. This meant that CNG were unable to recover the amounts claimed under several of their invoices as their claims had already become time-barred. The judge reached this conclusion on the basis that:
"Administration can have different objectives, such as rescuing the company as a going concern. The possibility of rescuing the company means that the company's assets are not necessarily held solely for the benefit of creditors, which is a key feature of a statutory trust."
The decision
Applying the decision in Re Maxwell, the judge took the view that, despite the changes introduced by the Act, the fundamentally distinct nature of administration, as opposed to liquidation, remained.
Therefore, time does not stop running for limitation purposes when a company enters administration, as no statutory trust arises upon the commencement of administration. As a result, the limitation period (in this case under the CLC) continued to run in respect of CNG's claims during ZOG's administration, but not once ZOG entered liquidation.
For some of CNG's claims, the limitation period under the CLC had expired during the administration period. These claims were therefore time barred when CNG commenced the proceedings.
The judge's findings did not, however, disallow the entirety of CNG's claims. The judge held that CNG retained the right to assert claims for debts where the 12-month limitation period had not elapsed before ZOG's transition from administration to CVL on 7 December 2022. The judge concluded that a statutory trust had arisen at this point, stopping limitation for any remaining claims:
"In so far as CNG had valid claims against ZOG on 7 December 2022 which had not yet become time barred as a result of [the CLC], CNG remains entitled to prove for such claims in ZOG's liquidation."
The judge was satisfied that this conclusion underscores the distinct nature of administration compared to liquidation, where a statutory trust clearly arises, ensuring that creditors' claims are preserved from the outset.
Comment and key takeaways
The judgment reaffirms the importance of understanding the legal implications of the differing insolvency procedures, and highlights the need for precise contractual drafting to navigate potential limitations effectively.
It is interesting that in this case, both entities in question were in an insolvency process. However, the findings apply to all creditors who have a claim in a company which is in administration. Creditors should be mindful of the ticking limitation clock if the debtor enters administration.
Creditors of a company in administration should:
- Open communications with the administrator at the earliest opportunity, ensuring that the urgency of the matter is made clear to the administrator (who may have only recently been appointed and may not be aware of the creditor's claim at all).
- Ensure that both statutory and any potential contractual limitation periods are considered as soon as a debtor enters administration.
- If a limitation deadline is imminent, or is likely to be an issue, a creditor should consider:
- seeking the administrator's agreement to a standstill agreement (pausing any contractual or statutory limitation clock); or
- ensure that a protective claim is submitted ahead of any limitation deadline.