Restored to the Register?

The recent case of Elb Securities Limited v Alan Love & Prestwick Hotels Limited has clarified the position a particularly messy problem – what happens to a lease when a company that has been struck off the Companies Register is subsequently restored and they try and get the lease back.

The Facts.
Prestwick Hotels Limited (“PHL”) had a lease of an office in central Glasgow. The building was purchased by Elb Securities Limited in January 2013. In June of that year, PHL was struck off the Companies Register and dissolved due to its failure to comply with statutory obligations, including a failure to lodge company accounts over a six-year period.

Elb then raised an action against PHL and one of its directors, Alan Love to seek their removal from the fifth floor.

In September 2013, Alan Love petitioned Hamilton Sheriff Court to have PHL restored to the register, on the basis that PHL was still solvent and carrying on business, and that accounts would be prepared in relation to the six year period. He won, and PHL was restored to the register on 3^rd October 2013. The interlocutor provided that the company was to be ‘restore[d]…to the same position as if it had not been struck off….’, which is the general position under the Companies Act 2006.

What did that mean for the lease?  PHL, in an action for declaratory at Glasgow Sheriff Court, argued that as they had been restored to the register, the lease continued as if there had been no interruption.  The Sheriff found in their favour and the landlords appealed the decision.

They argued that as a consequence of PHL’s dissolution, and the fact that a notice of disclaimer had been issued by the QLTR (the ‘ultimate heir’ of property belonging to dead companies), the lease had come to an end in terms of the Companies Act 2006. Sheriff Principal Scott allowed the appeal for removal of PHL from the premises.

PHL did not give up there – they appealed to the Court of Session for round three.

The Debate.
In the Court of Session, Lady Paton provided opinion on the interpretation of several provisions within the Companies Act 2006 (“the Act”).

As mentioned, the general rule provides for a company to be restored to how it was before it was struck off. However, other provisions within the Act provide specifically for the process of what happens to the property of a company upon dissolution. The general rule is that the property vests in the Crown as ‘bona vacantia’. However, the Crown may disclaim this, which in this case, they had done. The effect is that the property does not vest in the Crown, and anyone who claims an interest in the property (e.g. creditors etc.) can apply to the Court to have the property vested in them.

PHL argued that the general rule had the effect of deeming the company never to have been dissolved, and thereby it was to be interpreted that their property was never bona vacantia, therefore there had never been a valid disclaimer by the Crown, and the more specific rules within the Act did not come into play.

The opinion of the court was that the Act had to be construed as a whole. It accepted that in general terms, the effect of restoration would be to deem there to have been no gap in the company’s existence. However, it noted that the Act allows for restoration anytime up until 6 years from the time when the company was struck off, and that to fully restore a company to exactly the same circumstances as before could cause commercial problems.

The general provision must give way to the special provisions within the Act and s1020 provides that where the Crown disclaims the property, the company’s rights in the property are specifically brought to an end. It was found that on this basis the property as at the date of the QLTR disclaimer was neither the Crown’s nor the company’s.

The court commented that it could not have been Parliament’s intention to produce results where, after a period potentially as long as six years, restored companies could receive their property back, meaning that any transactions over that period in relation to that property would be deemed to have never occurred.   It does not take much imagination to realise the chaos that would have resulted, and therefore the court found that the Sheriff Principal had been right in his decision to hold the lease as ended.

Summary.
This case gives insight into the Court’s interpretation of the rules provided within the 2006 Act when a company is restored to the register. It highlights that even where a company may have only been dissolved for a short period, the general rule must give way to the specific rules that apply in order to avoid commercial uncertainty. It also highlights the discretion available to the Court in deciding how to interpret this general rule.

Disclaimer 
The matter in this publication is based on our current understanding of the law.  The information provides only an overview of the law in force at the date hereof and has been produced for general information purposes only. Professional advice should always be sought before taking any action in reliance of the information. Accordingly, Davidson Chalmers LLP does not take any responsibility for losses incurred by any person through acting or failing to act on the basis of anything contained in this publication.