Effect of insolvency

Financial Services Compensation Scheme Ltd v Larnell (Insurances) Ltd (in creditors’ voluntary liquidation) [2005] EWCA Civ 1408; SJ 9 December

The claimant was the assignee of the rights of six investors who alleged that they had suffered loss by reason of the negligence of the defendant in giving pension advice. The defendant was insured against such claims. The primary limitation period under ss2 and 5 of the Limitation Act 1980 had expired by June 1995. Relying on s14A of the Act, the claimant alleged that none of the investors had the knowledge that was necessary under that section until 7 May 1997 and therefore the limitation period under that section would have expired on 9 May 2000. The long-stop period under s14B of the Act expired in June 2004 and on ordinary principles of limitation, the claim was statute-barred when proceedings were commenced in September 2004. However, before the three-year period under s14A had expired, the defendant shareholders had passed a resolution for the winding-up of the company. The general principle is that limitation periods cease to run at the commencement of a winding-up, so long as they have not already expired. In so far as it was necessary to ascertain what the creditor’s rights were, they had to be established in contract, tort, or otherwise as the case might be. The creditor’s cause of action remained as it was before, so that, for example, the claimant correctly sued in tort in the present case. Accordingly, the claimant’s claim against the insolvent debtor in order to establish liability for the purposes of the Third Parties (Rights Against Insurers) Act 1930 was one to which the normal principles of limitation in insolvency applied and it was therefore not statute-barred at the commencement of winding-up and did not become statute-barred by the passage of further time thereafter.