Registrar of Companies owes duty of care to companies whose records it amends to register a winding up order
This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.
In Sebry v Companies House and another [2015] EWHC 115 (QB), the High Court has confirmed that the Registrar of Companies owes a duty to take reasonable skill and care to register winding-up orders against the correct company. The court said that this duty arises under common law and is not mirrored by a statutory duty under the Companies Act 2006.
The court confirmed that the duty:
- is limited to the specific situation in which the Registrar incorrectly records a winding-up order;
- is restricted only to the company against whom the Registrar incorrectly registers the order;
- is not owed to other persons who may suffer loss as a result of that false information; and
- does not include a duty to verify information supplied by third parties (such as insolvency practitioners) to the Registrar of Companies.
Background
In Sebry, a winding up order was made against a company with the name "Taylor and Son Limited". The court order, which did not contain the company number, was sent to Companies House to be registered and Companies House incorrectly registered the order against a company with an almost identical name, "Taylor and Sons Limited".
Companies House was notified of the error on the following business day and corrected it on the Registrar's online system. Unfortunately, the original posting on the Register had come to the attention of a number of people prior to its removal and that information was disseminated by word of mouth. The information also continued to appear in certain "bulk products" produced by Companies House and circulated to a large number of users.
Consequently, suppliers who had previously provided the company with up to 90 days' credit refused to provide goods and services without payment in full for past supplies and payment up front for present and future supplies. In addition, the company's bank refused to supply additional lending. This had a significant impact on the company's cash flow and ultimately resulted in the company entering administration.
The claimant, who was the company's managing director, commenced proceedings against Companies House for negligence and breach of statutory duty. The court considered the following:
- Did Companies House owe the company a duty of care under statute or common law to take reasonable skill and care not to enter on the Register information relating to a different company?
- If so, had Companies House breached that duty? (It was subsequently conceded that if such a duty existed it had been breached)
- If such a duty existed, did breach of that duty cause the company to enter administration?
Judgment
The court held that in circumstances where the Registrar undertakes to alter the status of a company on the Register by recording a winding up order against it, the Registrar does assume a responsibility to that company (although not to anyone else) to take reasonable care to ensure the winding up order is not registered against the wrong company. This special relationship arises as it is foreseeable that if the Register wrongly states a company is in liquidation, the company will suffer serious harm. As a company is not consulted before an entry is made on the Register, there is no way for it to prevent incorrect entries. Accordingly, there is a duty on Companies House to avoid such errors. The duty is limited to circumstances where the record of a company is altered in such a way that it will probably do serious harm if done carelessly. No duty is owed to third party users of the Register: Companies House publish a disclaimer as to the accuracy of the information and third party users could undertake further checks of the information before relying upon it.
The court held that there was nothing in the Companies Act to suggest that a separate statutory duty arose. To impose a statutory duty in favour of anyone who suffered economic loss as a result of an act or omission would create a very wide duty.
Comment
Whilst it may seem common sense that the Registrar should owe a duty of care to a company whose records it incorrectly amends, the existence of that duty had not been previously confirmed. The court emphasised, however, that the decision should not be considered an indication of how all cases of a similar nature would be decided (for example, it would not follow that harm would be foreseeable if the name of a company secretary was recorded against the wrong company). In the circumstances, it appears that the duty will only arise if a serious harm is caused by the error.
Given the clarification of this duty, it is likely that Companies House will now be exceptionally vigilant in rejecting forms which do not include the company number for registration. It is important to ensure that, where applicable, the relevant company number is included in all documents provided to Companies House to prevent any delay in registration.
The court also observed that any adverse consequences of imposing a duty of care on Companies House could be remedied by an increase in the fees paid by companies and users of the Register and/or by Companies House securing appropriate insurance.
