UK: Avoiding The Limits On Litigation: A Guide

Last Updated: 31 October 2013
Article by Laura Edwards

Some assets in an insolvent estate may depreciate in value over time. Others may perish and become worthless. Causes of action – claims - also have an expiration date.

The Limitation Act 1980 ("LA1980") provides that claims "shall not be brought" after the expiry of a certain period. The applicable time limit depends upon the nature of the case. A claim brought after this period is often referred to as being "statute barred" or "time barred". Technically, the provisions give rise to a defence, which would be for the defendant or respondent to raise, rather than a prohibition.

This will be of relevance both when the officeholder wishes to litigate (because losing the opportunity to do so may have serious consequences) and when dealing with creditors' proofs of debt.

The limitation period starts to run from "the date on which the cause of action accrued". By way of illustration, if the claim lies in contract law, the date will generally be the date of the breach of contract. Conversely, if the claim lies in tort (e.g. negligence), it will generally be the date on which quantifiable loss or damage was suffered.

The limitation periods commonly of relevance in the insolvency context include:

  • simple contract claims (e.g. book debts)

6 years

  • claims under the law of tort (e.g. professional negligence claims)

6 years

  • claims for sums recoverable under statute (if pecuniary (see below))

6 years

  • actions upon a 'specialty' (e.g. claims under statute if non pecuniary (see below))

12 years

  • actions to recover land

12 years

  • action to recover rent

6 years

  • claims by beneficiaries against a trustee in respect of fraud or fraudulent breach of trust; or to recover trust property or its proceeds

No limitation period

These general rules are subject to a number of exceptions and nuances.

For example, when adjudicating creditor claims or dealing with book debt realisations, it is worth noting that the limitation period in relation to debt claims restarts if the debt is acknowledged or a part payment is made during the usual 6 year limitation period.

Matters become particularly complex when dealing with claims brought by or on behalf of a company or an individual subject to an insolvency procedure.

In relation to preference and transaction at undervalue claims under the Insolvency Act 1986 ("IA86"), the cause of action accrues on the commencement of the relevant insolvency procedure – not the date of the wrongful act. This is because such claims vest in the officeholder rather than the insolvent estate.

In relation to the limitation deadline, such claims arise from the IA86 and are therefore (potentially) actions on specialty to which a 12 year limitation period applies. However, the IA1980 provides that the 12 year limitation period applies only where a shorter period is not prescribed elsewhere in the legislation. Money claims under statute are given a shorter period in the LA1980. Such are afforded a 6 year limitation period. This means that only non-money antecedent actions will benefit from the 12 year limitation period. In some cases it will be difficult to ascertain whether an antecedent claim is for money or some other remedy (e.g. the restoration of real property). Therefore, to distinguish between such claims, the court looks at the "substance or essential nature of the relief truly sought by the applicant" (Re Priory Garage (Walthamstow) Ltd [2001] BPIR 144).

The same principle applies to claims under section 423 IA86 (transactions defrauding creditors). The case of Hill v Spread [2006] EWCA Civ 542 addressed this issue and also addressed the difficulties concerning the accrual date for the cause of action in the insolvency context. In this case, it was held that that the cause of action accrued at the date of the bankruptcy order.

Claims under s213 and 214 (wrongful and fraudulent trading) accrue at the time of liquidation and will always be money claims under statute to which a 6 year limitation claim applies. This is because the nature of the remedy is purely compensatory. There is no prospect of a restorative remedy which might be deemed to be non-pecuniary (as there is with antecedent transaction claims).

Section 212 (misfeasance) brings its own set of complications. This provision merely enables claims for breach of duty / breach of trust (etc) to be pursued by a liquidator or creditor(s) using a summary procedure. It merely facilitates claims in relation to causes of action, which accrued prior to the Company liquidation.

The limitation period therefore runs from the date of the wrongful act or omission, not the date of entry into the insolvency procedure. Breach of duty claims generally have a limitation period of 6 years. However, they may fall within the category to which no limitation period applies i.e. claims by beneficiaries against a trustee in respect of fraud or fraudulent breach of trust; or to recover trust property or its proceeds. This category of claims captures situations where the director's breach was a fraudulent breach of fiduciary duty and/or involved the misappropriation of company assets. In such circumstances, the company would be a deemed to be a beneficiary because the director would become a constructive trustee of the company's property by virtue of the director's wrongful act.

A further point to note is that the limitation period is postponed in cases involving fraud, deliberate concealment or mistake.


Litigating is rarely the top priority following appointment. However, in relation to claims which vest in the estate itself (rather than the officeholder) it is important to be vigilant. Importantly, such claims include misfeasance actions under section 212 in the liquidation context and breach of duty claims actionable by a company in administration.

The above also demonstrates that claims which appear to have arisen more than 6 years ago should not be disregarded. Such may still be salvageable depending upon the nature of the claim.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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