Restoration riddle

Recent cases where companies have applied to be restored to the register show a differing approach between Scots and English law in relation to property lost during the dissolution process.

The Companies Act 2006, Part 31, chapters 2 and 3 governs what happens when a company is dissolved or restored to the register. Once a company is struck off, its property becomes “bona vacantia” (vacant/ownerless goods) and passes to the Crown (or Duchy of Lancaster or Duke of Cornwall). The Crown may then dispose of the property (even though the company may later be restored to the register), or “disclaim title” to said property.

Where title is disclaimed, the property is deemed never to have vested in the Crown, and “The Crown’s disclaimer operates to determine, as from the date of the disclaimer, the rights, interests and liabilities of the company, and the property of the company, in or in respect of the property disclaimed” (s 1020(1) 2006 Act in relation to Scottish companies; s 1015 provides similarly for England & Wales).

Should a company later be restored to the register, the general effect of the court order is that the company is deemed to have continued in existence as if it had not been struck off (s 1032).

Scottish case law approach

In ELB Securities Ltd v Love [2015] CSIH 67 (15 September 2015), ELB leased premises to Prestwick Hotels Ltd. Prestwick was struck off the register in June 2013 for non-compliance with requirements to lodge accounts or file returns. In July 2013, the Queen’s and Lord Treasurer’s Remembrancer (QLTR), as agent for the Crown, provided a notice of disclaimer. Later in 2013, Love, a former director of Prestwick, successfully petitioned the sheriff for restoration to the Companies Register. Meanwhile ELB had raised an action to recover possession of their premises, claiming that the lease had come to an end due to the dissolution and disclaimer. Prestwick argued that by s 1032, the restoration achieved an “as-you-were” effect in relation to the lease.

The Inner House decided that where property vested in and was subsequently disclaimed by the QLTR, there were two effects: (1) Prestwick’s rights in the lease terminated from the date of the disclaimer; and (2) any rights in the lease were deemed not to have vested in the Crown as bona vacantia. The disclaimer brought to an end Prestwick’s “‘rights, interests and liabilities’ in the lease, and the ‘property of the company’ in the lease came to an end” (para 25). The court agreed with the sheriff principal’s observations that to accept Prestwick’s arguments could lead to “uncertainty and confusion in the commercial world” (para 28).

English case law approach

A few weeks after this decision, Re Fivestar Properties Ltd [2015] EWHC 2782 (Ch) dealt with similar facts. Fivestar was subject to a loan and various securities were held over the company and its property (a freehold commercial property which was leased out). On default, administrators were appointed, who accepted Fivestar’s continued ownership of the property but did not dispose of it. When Fivestar was dissolved, the property fell to the Crown. The tenant served a request on the Crown to renew its lease; the Crown responded by disclaiming its interest. Fivestar’s lenders applied to restore the company to the register (and then place the company in liquidation), and for an order vesting the property with the restored company.

The High Court held that the effect of the restoration would be that the company was deemed to have continued in existence as if it had not been dissolved, and that the property had never vested in the Crown as bona vacantia. There was no reason to treat freehold and leasehold differently. Previous case law (Allied Dunbar Assurance v Fowle [1994] BCC 422) was discussed for authority that when a leasehold title has been disclaimed by the Crown, it is revived when the tenant is restored to the register and no “disposition” occurred due to the disclaimer. The court mentioned that it had received intimation from solicitors representing the Crown and Crown Estates, the administrators and the tenant, none of whom objected to the application. It further noted its surprise that the application had had to be made (given various other options open to the administrators).

Ambiguity

Although the two cases have many similarities, there are differences in that the Scottish case involves a lease whereas the English case involves freehold ownership. The High Court is unlikely to have been aware of the recent Scottish decision. For the moment, however, the different outcomes have caused ambiguity in this area. Hopefully with time this will be clarified.