Time's up: Limitation periods spark controversy in Contract Natural Gas Ltd v ZOG Energy Ltd

The Court has confirmed that time does not stop running on claims when a company enters administration pursuant to Schedule B1 Insolvency Act 1986.

The decision represents the first time that the Court has considered the issue of limitation in proceedings brought pursuant to the Insolvency Act 1986 (the "IA") since its amendment by the Enterprise Act 2002 (the "EA").

What are limitation periods?

Limitation periods refer to the periods of time available for claims to be brought, before those claims become time-barred. These periods typically vary depending on the type of claim. The Limitation Act 1980 sets out the limitation periods within which particular kinds of claim can be issued. By way of example, it provides (at s. 5) that claims for breach of contract should be brought within 6 years of the breach, and (at s. 2) that most claims for tort should be brought within 6 years of the date the relevant damage is suffered. Differing limitation periods can also be contractually agreed.

The position on limitation prior to amendment of the IA

It was settled law prior to the amendment of the IA that (i) the entry into administration by a company would not stop limitation periods running in respect of claims against that company; but that (ii) the entry into liquidation by a company would stop limitation periods running in respect of claims against that company. The reasoning behind this position was that once a company entered liquidation, its assets were effectively held on trust for distribution to its creditors, freezing the limitation clock at the date of the liquidation, whereas no equivalent trust arose in the context of administration.

Changes introduced by the EA

The EA introduced widespread reforms in the area of corporate insolvency law which included (i) streamlining the existing administration process and introducing a new out-of-court route into administration; (ii) restricting the right of a secured lender to appoint an administrative receiver to a number of limited exceptions; and (iii) introducing a new three stage statutory purpose for administration with the main focus on company rescue. Relevantly, for the purposes of this article, it also afforded administrators new powers to make distributions to creditors.

The position on limitation following amendment of the IA

The Court addressed the position on limitation following amendment of the IA for the first time in Contract Natural Gas Ltd v ZOG Energy Ltd.¹

In this case, ZOG Energy Ltd (“Zog”) had purchased gas from Contract Natural Gas Ltd (“CNG”) pursuant to a Master Sales Agreement (“MSA”). The MSA contained a limitation clause according to which, subject to the effect of administration or liquidation, either party could only bring a claim if it issued legal proceedings against the other within 12 months of knowing of its entitlement to do so.

Both Zog and CNG entered into administration, submitted proofs of debt in the other's administration and issued proceedings challenging the other party's assessment of its proof of debt. Both parties ultimately entered into liquidation. A key question to be determined by the Court was whether CNG's claims against Zog were time-barred by the time Zog entered liquidation on 7 December 2022.

CNG argued inter alia that the changes to the administration process introduced by the EA and in particular the power to make distributions meant that a statutory trust would arise in the context of an administration governed by the post-EA regime in circumstances where, as in this case, an order for administration was sought where such administration could be described as a "distributive process" from the outset. According to CNG, the administration in this case constituted a distributive process because the administration order had been sought on the basis that the company was unlikely to be rescued but that a better result for creditors than a winding up was reasonably likely to be achieved. CNG contended that none of its claims against Zog were time-barred in such circumstances.

However, the Court did not consider that (i) the fact of entry into administration alone, or (ii) entry into administration in the circumstances described by CNG, had such an effect. The Court therefore held that CNG was therefore unable to recover the amounts claimed under certain of its invoices in respect of which the contractually agreed limitation period had expired prior to Zog's entry into liquidation.

In this regard the Court considered that the fact that no notice of intention to distribute had actually been given by Zog's administrators was significant. Significantly, however, the Court held that, in the context of an administration, there would be good grounds for saying that a statutory trust had arisen (which would in turn stop any applicable limitation periods from running) as and when an administrator gives notice of intention to make a distribution of the proceeds derived from all remaining assets of the company.

Practical takeaways

Although the entry into administration by a company will not of itself stop the applicable limitation period(s) from running, the position is not straightforward. Potential litigants should remain vigilant, be mindful of the options available to them, and, most importantly, take legal advice regarding the prospect of their claims being or becoming time-barred. Potential options in this regard may include (i) where possible, entering into a standstill agreement or formally agreeing with the counterparty to extend the limitation period; or (ii) issuing claims as soon as possible.

¹ [2025] EWHC 86

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