Does an administration order stop limitation periods from running?

Julie Hunter, Partner in the commercial department at Stephensons, looks at administration orders and limitation periods following the recent ruling in Contract Natural Gas Ltd v Zog Energy Ltd [2025] EWHC 86 (Ch).

What is administration?

Administration is a process where an administrator is appointed over a company, either by its directors or a qualifying charge holder or secured creditor. The appointment is governed by the Insolvency Act 1986 and is made with the purpose of carrying out one of three purposes:

to rescue the company as a going concern
to achieve a better result for creditors as a whole than would be likely if the company were wound up
realising property in order to make a distribution to one or more secured or preferential creditor

Prior to the Enterprise Act 2002 coming into force, it was settled that in any proceedings under the Insolvency Act 1986, entering into administration did not stop time running for limitation purposes.

In contrast, once a company goes into liquidation, time does stop running, because on liquidation the debtor company’s assets are effectively held on trust for distribution to creditors, who can pursue their claim (provided they are within the limitation period at the date of the liquidation) with the liquidator, who distributes assets to creditors with proven claims.

Pre-Enterprise Act 2002, there was no equivalent trust when a company went into administration, because the administrator had no power to make a distribution to creditors. The 2002 Act gave administrators new powers to make such distributions.

In Contract Natural Gas Ltd v Zog Energy Ltd, the question considered by the court was whether this ‘new’ power created a trust which had the effect of stopping time running for Limitation Act purposes.

What is limitation?

The Limitation Act 1980 provides specific time periods within which a claimant may bring a claim. If a claim is not brought, by the commencement of legal proceedings, before that time period has expired, the defendant will have a complete defence to the claim, which is ‘statute barred’.

Section 21 (1) (b) of the Limitation Act 1980 provides that no limitation period applies to claims by beneficiaries to recover trust property from a trustees, which applies to liquidators.

A commercial contract between two or more parties may include agreed terms which vary the statutory limitation period in which claims under that contract may be brought, by imposing a shorter time frame for any action to be commenced.

Contract Natural Gas Ltd (‘CNG’) v Zog Energy Ltd (‘Zog’)

The question of whether administration orders stop limitation periods from running was recently considered in Contract Natural Gas Ltd v Zog Energy Ltd [2025]EWHC 86 (Ch) when the High Court determined that for the purposes of the Limitation Act 1980, time for a creditor to bring a claim against a company did not stop running when the company went into administration.

This case was notable because it was the first occasion on which the court considered the implications of the Enterprise Act 2002 on the question of limitation periods in cases where the debtor company goes into administration.

The facts

In this case, the parties had entered into a Master Services Agreement (MSA) which contained contractual limitation periods. CNG was an energy utility company which purchased natural gas for resale to gas operators. Zog was a retail energy company which supplied natural gas and electricity to domestic and commercial customers.

The two party’s commercial relationship was governed by the MSA which set out the terms on which they traded and included specific provisions as to:

the financial liability of either party to the other in the event of a breach or non-performance of the contract, which limited the amount payable to £250,000 (‘the financial limitation’); and
the time period within which Zog could bring a claim against CNG was limited to 12 months from the date Zog ought to have known of its entitlement to bring a claim (‘the time limitation’).

In 2021 both parties were so badly affected by the rise in gas prices that they both went into administration, Zog on 9 December 2021 and CNG followed on 17 December 2021. Both parties later exited the administration process by going into liquidation, Zog on 7 December 2022 and CNG on 28 September 2023.

Zog had lodged a claim with the administrator of CNG for £14m in liquidated damages, for breach or non-performance of the MSA by CNG. CNG had lodged a claim against Zog for £1.4m, being the value of invoices it had raised to Zog for the price of gas supplied before Zog had ceased trading.

The liquidator of CNG rejected Zogs full claim and said their claim was limited to £250,000 pursuant to the financial limitation clause in the MSA. The liquidator of Zog rejected CNG’s claim in full, relying on the 12-month time limitation clause.

Both parties challenged the decisions of the respective liquidators, by application to the High Court. The two claims were consolidated and listed for hearing together before Andrew Twigger KC, sitting as a deputy High Court Judge, on 14 November 2024. Judgment was handed down on 21 January 2025.

The arguments

Counsel for CNG argued that administrators under the new regime introduced by the Enterprise Act 2002, which enabled them to make distributions to creditors, set them apart from the rules of ‘old’ administrations and that the position of administrators post Enterprise Act should be the same as that when a company enters into liquidation, so that time stops running from the date the administration order was made.

In response, Counsel for Zog said that if that substantive change to the position had been intended by parliament it would have expressly said so. He said that there was no basis for implying such a fundamental change and that it was most unlikely that parliament intended a change in some administrators, where an administrator exercises the power to make a distribution to creditors, but not in others were no such distribution was made.

Numerous authorities were cited by both sides, but none provided a conclusive answer as to whether in a post Enterprise Act 2002 administration a statutory trust arises.

The outcome

The court concluded that in any administration there was no inevitability that an administrator would make a distribution to creditors and consequently, no statutory trust arises, and the making of an administration order does not stop time running.

The liquidator of CNG had rejected Zog’s claim for £14m in liquidated damages and said the financial limitation in the MSA limited the maximum amount payable in damages to £250,000. The court agreed with this interpretation and said Zog’s claim was properly admitted as a claim in CNG’s liquidation for £250,000.

The liquidator of Zog has rejected CNG’s claim for the value of all unpaid invoices, relying on the financial limitation period in the MSA. The court found that time did not stop running when Zog went into administration and so CNG’s claim was partially time barred under the financial limitation.

However, time did stop running when Zog went into liquidation and so CNG were entitled to lodge a claim in the liquidation, for the value of the unpaid invoices due in the 12 months leading up to 7 December 2022, which were claimed in the region of £481,000.

Summary

This case is notable as it was the first time the court considered the question of whether time stopped running in post Enterprise Act administrations.

There had been commentary in some texts suggesting that it did, because of the new power to make a distribution to creditors available to administrators. However, the court disagreed and said that if there was a gap in the law, that cannot be filled by the courts and is a matter for Parliament.

As a result, creditors of companies in administration need to be alert to the potential expiration of the limitation period to bring their claim and act accordingly to protect their position. This may be achieved by either entering into a Standstill Agreement with the administrator or obtaining an acknowledgement of the debt, both of which does have the effect of pausing time; or by commencing a protective claim.

About the author

Julie Hunter is a Partner in the commercial department at Stephensons. She is highly experienced in litigation and dispute resolution matters covering all aspects of commercial litigation, including invoice and asset finance, secured finance, commercial contracts disputes and general litigation.

Find out more

Insolvency Act 1986 (Legislation)

Enterprise Act 2002 (Legislation)

Limitation Act 1980 (Legislation)

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Publication date

17 March 2025

Any opinion expressed in this article is that of the author and the author alone, and does not necessarily represent that of The Gazette.