It seems inevitable that we will see a rise in tenant insolvencies in 2021. However, we are also likely to see an increase in tenant companies being struck off the Register of Companies. This can happen simply because of a failure to file accounts.
This blog will look at:-
- what happens to a lease when a tenant company is struck off and dissolved, and
- what happens if that tenant company is subsequently restored to the Register.
Bona Vacantia
The Companies Act 2006 provides that when a company is dissolved or struck off, its interests, including any interest in a leasehold property, falls to the Crown as they become bona vacantia, or ownerless property.
The Crown's title can then be disclaimed by a notice signed by the relevant Crown representative. The disclaimer ends any rights, interests or liabilities that the tenant might have in the lease. Importantly, it does not affect the rights or liabilities of third parties. It was the case of Hindcastle Limited v Barbara Attenborough Associates Limited and Others [1997] AC 70 that established that liability of a guarantor remained when the tenant became insolvent and the lease was disclaimed.
Restoration
What happens if a tenant is subsequently restored to the Register?
Section 1028 of the Companies Act 2006 provides that the tenant is deemed to have continued in existence as if it had not been dissolved or struck off the register. However, if a disclaimer has been issued prior to the company's restoration, does the lease "re-vest" in the tenant company?
The effect of restoration in those circumstances was considered in the High Court decision of Mistral Asset Finance Limited issued just last month. A company had granted a legal charge over leasehold property in Kent. On 31 December 2019, that company was struck off the Register of Companies and, on 7 January 2020, it was dissolved. In July 2020, a former director of the company submitted an application for administrative restoration and the company was duly restored to the Register. However, not before the Crown had issued a notice of disclaimer. Mistral sought a declaration that it remained entitled to the legal mortgage of the leasehold property.
The judge held that where there has been a restoration, the deeming provision in the legislation meant that a disclaimer by the Crown was not a "disposition", as the property was deemed never to have vested in the Crown in the first place and so the Crown are deemed not to have disclaimed the lease.
In Scotland, the position would appear to be different. In the case of ELB Securities Limited v Love, the tenant company was dissolved and the Crown disclaimed the lease on 15 July 2013. Following restoration of the tenant company, the Court was asked what effect this had on the disclaimed lease. The Court concluded that the tenant's rights in the lease came to an end on 15 July 2013. While the judge in Mistral considered the decision of ELB Securities, he was unable to agree with the analysis of the court in that case. It would therefore appear that the effect of disclaimer might be different depending on whether you are dealing with Scottish or English leases.
Conclusion
The number of companies facing the prospect of insolvency, or being simply struck off the Register of Companies, is increasing daily. If you find out that your company has been inadvertently struck off the Register, you should take immediate steps to restore the company to the Register. As in the Mistral case, it might be possible to do that administratively without the need for a court application.
From a landlord's perspective, if you discover that your tenant has been struck off, you will want to carefully consider the effect this has on the lease. It might be thought that a landlord thinks twice before granting a new lease for fear that the tenant may be restored to the Register. However, when the company is restored, the court has the power to give directions and in the case of Shire Court Residents Ltd v Registrar of Companies [1995] BCC 821 the court directed that a lease held by a restored company should take effect subject to new leases of certain parts of the premises that had been granted by the owner of the freehold interest after disclaimer of the lease by the Crown and before the company was restored.
A landlord might also want to consider the position regarding any fit out by the tenant. Generally, the position will be governed by the terms of the lease, or any Licence(s) for Work in place. If there are express provisions in the lease or Licence for Works that the fit out belongs to the tenant, the Crown must be given the opportunity to decide whether they wish to retain it. If the Crown decides to disclaim the fit out, then with no tenant company to claim it, the likelihood is that it would fall into the hands of the landlord, although as noted above the prospect of the tenant company applying to be restored should always be borne in mind.
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Senior Associate
