The Liability of the Registrar of Companies for Negligent Entries

It was widely reported
last week that Companies House in the UK had been ordered to pay damages of
£8.8 million for making a spelling mistake. The case, of course rather more
complex than that, is Sebry v Companies House
and raised an important question of
law: is the Registrar of Companies liable for loss caused by negligent entries made
in the course of discharging his statutory obligations? One consequence of the
increased availability of such information in electronic form is that it is difficult
to correct a mistake: if, as it often is, the information is disseminated (online,
to subscribers, etc) within minutes of the making of the statement, a
subsequent retraction is often too late to undo the damage. Yet, does it follow
that the Registrar is automatically liable for any loss caused by someone
relying on the negligent statement?

Philip Sebry was the Managing
Director of a company called Taylor & Sons (note, plural) which, at the
relevant time, had been in business for more a hundred years. In 2008 the
Company was facing some difficulties because of the recession but had taken
steps to address this. On 28 January 2009 the Chancery Division made a
winding-up order against a company called Taylor & Son in
Manchester. This order was received by Companies House on 12 February 2009
identifying the company by name (correctly) but not by number. A policy called
the Trove Policy had been instituted in 2006 which required Document Examiners
at Companies House to reject any document that did not provide the company
number; but in practice this was not followed and Examiners simply looked up
the company number on the CHIPS system. On 20 February, the Examiner, Philip
Davies, wrongly entered the winding up order against Taylor & Sons.
The Company discovered this on 23 Feb (Mr Sebry was away on holiday) and
immediately called Companies House; the entry was removed the same day but
corrections could not be made to certain ‘bulk products’ containing notifications
which had been sent to customers. Within three weeks of this mistake Corus,
Taylor’s biggest customer, terminated the relationship; its suppliers also
demanded that they be paid all dues and in advance for any further supplies,
instead of the 30-day credit policy which Taylor previously had (in practice
90). Banks refused to lend because of these rumours and the company was
eventually placed in liquidation. In short—and Edis J rejects any suggestion to
the contrary—a hundred-year old company became insolvent in three weeks because
of a mistake made by the Registrar.

Edis J begins by observing,
correctly, that this was actually not a misrepresentation
case: there was, it is true, a misrepresentation by the Registrar but the claimant did not rely on it. It was
relied on by third persons (suppliers, banks etc) to the claimant’s detriment.
The case was distinct from Hedley Byrne
and Candler v Crane, where the loss
was a result of the claimant’s reliance on the misrepresentation, and closer to
White v Jones. The
question was therefore whether it was foreseeable that loss would be caused (which
it plainly was) and whether the claimant was able to satisfy the requirements
of ‘proximity’ and ‘just, fair and reasonable’. Applying those ‘tests’, Edis J
held that the Registrar was liable to the Company
but would not have been liable to one of the third parties which had
suffered loss by relying on the statement: for example, a supplier who
prematurely terminates a contract with the Company thinking it is insolvent
cannot recover his losses from the Registrar. One reason Edis J gives for this
distinction is that the ‘Company had no way of protecting itself against harm
resulting from the promulgation of a false statement that it was in liquidation’
([91]). Alternatively, it can be
said that the Registrar ‘assumes responsibility’ to a company to take
reasonable care to ensure that a winding-up order is not registered against the
wrong company. As Edis J put it:

[T]hose users of
the Register who did rely on the statement are not in the same position as the
Company, who did not.  Some of those
users will have suffered economic loss by doing so in that they cancelled
profitable hire contracts (for example) when they did not need to, and, had
they known the truth, they would not have done so.  If any of them were to make a claim, they
would face formidable difficulties of the kind which defeated the claim in Reeman
Similarly, individuals whose livelihood depended on the Company may also
have suffered financial loss because of its failure…It appears to me that where
the Registrar undertakes to alter the status of a company on the Register which
it is his duty to keep, in particular by recording a winding up order against
it, he does assume a responsibility to that company (but not to anyone else)
to take reasonable care to ensure that the winding up order is not registered
against the wrong company.  This does not
impose a duty to verify information supplied by a third party such as an
Insolvency Practitioner, but only to ensure that the information is accurately
recorded on the Register.  This special
relationship between the Registrar and the company arises because it is
foreseeable that if a company is wrongly said on the Register to be in
liquidation it will suffer serious harm. 
My finding on the Causation Issue shows that in this case that harm
amounted to the destruction of a company which had traded for over 100 years
and which owned a valuable business.

About the author

V. Niranjan

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