Company Debt Limitation Period

A company debt limitation period is the legal time limit within which a creditor must bring court proceedings to recover money owed by a company. If action is not taken within the relevant period, the debt may become statute-barred, meaning it is no longer legally enforceable through the courts, even if it remains unpaid.

In England and Wales, limitation rules for company debts are set out primarily in the Limitation Act 1980. The applicable time limit depends on the type of debt, the form of the contract, and whether a court judgment has already been obtained.

What Counts as a Company Debt

A company debt arises where a business owes money under a legal obligation. Common examples include:

• Unpaid invoices for goods or services
• Commercial loan repayments
• Rent arrears under a lease
• Supplier credit balances
• Contractual damages converted into a monetary claim

Debt claims may be brought by suppliers, landlords, lenders, contractors, or other commercial creditors.

Standard Limitation Period for Company Debts

Six-year rule for most commercial debts

The general limitation period for company debts is six years from the date the cause of action accrues.

This applies under section 5 of the Limitation Act 1980 for simple contract debts.

When time starts running

Time normally begins when:

• The payment becomes due under the contract, or
• The company fails to make payment on the due date

Examples:

• Invoice payable on 1 March 2020 → limitation runs from that date
• Loan repayment missed on 1 July 2021 → limitation runs from that date

The limitation period runs regardless of whether the creditor is actively chasing payment.

Debts Under Written Contracts and Deeds

Simple written contracts (six years)

Most commercial agreements fall into this category, including standard supply contracts and service agreements.

Contracts executed as deeds (twelve years)

Where a debt arises under a deed, the limitation period extends to twelve years under section 8 of the Limitation Act 1980.

Deeds are commonly used for:

• Commercial property leases
• Certain loan agreements
• Guarantees
• Long-term financing arrangements

The extended limitation reflects the formal legal nature of deeds.

Judgment Debts Against Companies

Six-year enforcement period

If a creditor has already obtained a court judgment, the limitation period for enforcement is generally six years from the date the judgment becomes enforceable.

This applies under section 24 of the Limitation Act 1980.

Enforcement options within the period

Creditors may enforce judgment debts through:

• Winding-up proceedings (insolvency route)
• Bailiff or enforcement officer action
• Third-party debt orders
• Charging orders (in appropriate cases)

After six years, court permission is usually required to enforce the judgment.

Acknowledgment and Part Payment

Restarting the limitation period

Under sections 29 and 30 of the Limitation Act 1980, the limitation period can be reset if:

• The company makes a written acknowledgment of the debt, or
• The company makes a part payment

Effect of reset

When this occurs:

• A new six-year limitation period begins from the date of acknowledgment or payment
• The original limitation period is no longer relevant

This is particularly important in ongoing creditor-debtor relationships.

Continuing and Instalment Debts

Some company debts are structured as instalment obligations.

Instalment agreements

Each missed payment may create a separate cause of action, meaning:

• Each instalment has its own six-year limitation period
• Older instalments may become time-barred while newer ones remain enforceable

Ongoing supply arrangements

In long-term supply contracts:

• Each invoice is treated separately for limitation purposes
• Time runs individually from each due date

When Company Debts Become Statute-Barred

Once the limitation period expires:

• The debt is no longer enforceable through the courts
• The company gains a complete legal defence if sued
• The creditor loses the right to obtain judgment

However:

• The debt may still exist morally or commercially
• It may still be pursued informally, though without legal compulsion

Practical Issues in Recovering Company Debts

Identifying the correct cause of action date

Disputes often arise over:

• When payment became due
• Whether invoices were validly issued
• Whether contractual terms changed over time

Effect of ongoing negotiations

Negotiations do not usually stop time running unless:

• A written acknowledgment is made
• A formal standstill agreement is entered into

Impact on litigation strategy

Creditors must consider limitation early because:

• Delay may permanently remove legal remedies
• Evidence may become harder to obtain over time
• Defendants often raise limitation as a primary defence

Company Insolvency and Limitation Issues

Limitation rules still apply where a company enters insolvency.

In practice:

• Liquidators may assess whether debts are statute-barred
• Time-barred debts are usually not recoverable
• Proof of debt submissions may be rejected if out of time

Limitation therefore plays a significant role in insolvency recoveries.

Common Questions

Does sending reminders reset the limitation period?

No. Only a written acknowledgment or part payment resets the clock.

Can a creditor sue after six years?

Generally no, unless:

• The debt is under a deed (twelve years), or
• The limitation period has been reset, or
• Exceptional statutory rules apply

What happens if a company ignores a debt for six years?

The debt may become statute-barred, meaning it cannot be enforced through the courts.

Does interest affect limitation?

Interest claims usually follow the same limitation period as the principal debt unless separately structured.

Key Takeaways

The limitation period for company debt in England and Wales is generally six years from the date payment becomes due under a simple contract. Debts under deeds may have a twelve-year limitation period, while judgment debts are subject to a six-year enforcement limit. Acknowledgment or part payment can restart the limitation period. Once time expires, the debt becomes statute-barred and cannot normally be enforced through the courts, making early action essential in commercial debt recovery.