Many companies could be forgiven for believing that if their previously struck off company is restored to the Companies Register; then they can continue their affairs exactly where they left off. However this is not always the situation, as the recent case of ELB Securities v Love and Prestwick Hotels Limited showed in an interesting intersection of the Companies Act 2006 (2006 Act) and the law of leases.
The Case
Prestwick Hotels Limited (PHL) enjoyed the lease of prime Buchanan Street real estate until they were struck off the Companies Register on 14 June 2013 and their landlords raised an action for their removal in the August. The reason for PHL’s striking off was a failure to comply with statutory obligations, including failure to lodge accounts. Within months the directors of PHL, applied for the company to be restored to the register claiming that the failures were an “administrative oversight”.
A company is restored to the Companies Register under S1032 of the 2006 Act which states: “(1) The general effect of an order by the court for restoration to the register is that the company is deemed to have continued in existence as if it had not been dissolved or struck off the register”.
A sheriff at Hamilton Sheriff Court allowed the directors’ application and PHL was restored to the Companies Register on 3 October 2013. The interlocutor stated that PHL was restored “to the same position as if it has not been struck off”. However, in the intervening time a notice of disclaimer had been issued by the Queen’s and Lord Treasurer's Remembrancer (QLTR) in relation to PHL’s interest in their Buchanan Street lease.
The QLTR is the Crown’s representative in Scotland. According to S1012 of the Companies Act 2006, when a company is dissolved its property and rights are vested in the Crown as bona vacantia, which means ownerless property. When this happens the Crown can disclaim their title to the property by issuing a notice, effectively terminating the tenant’s interest in the property.
PHL argued that as they had been restored to the Companies Register then the lease between them and the landlords continued. The sheriff at Glasgow Sheriff Court agreed and dismissed the landlords’ action for removing. The landlords appealed to the Sheriff Principal who disagreed PHL appealed to the Court of Session.
The Court of Session agreed with the Sheriff Principal and found that PHL’s rights in the lease terminated on 15 July 2013 when the disclaimer was issued.
Arguments of the parties
Relying on the wording on the interlocutor restoring them to the register, PHL argued that the effect of their restoration under S1032 had four ”as-you-were” effects: i) the company was never dissolved, ii) the company’s property never vested in the Crown, iii) there was never a disclaimer by the QLTR, and iv) sections 1014 and 1020 to 1022 of the 2006 Act (dealing with the effect of a disclaimer) did not come into play.
The landlords took a different stance, arguing that the “as-you-were” argument undermined two key pathways of the 2006 Act; i) where property continues to be vested in the Crown and ii) where the property is disclaimed and no longer vested in the Crown. According to PHL’s position property would have to be returned to a restored company, even if that property had been sold on to a third party, or if in the current case even if a decree of removing has been granted.
Reasoning behind the decision
The Inner House emphasised that s1032 set out the general effect of restoration, namely that the “company is deemed to have continued in existence as if it had not been dissolved or struck off the register”. However where this general provision is qualified by special provisions in the 2006 Act then that general provision must give way to the special provisions.
In the case of the 2006 Act the special provisions are the sections dealing with the property of a dissolved company. The court confirmed that where property is bona vacantia and not disclaimed then it remains vested in the Crown who can then dispose of it to another. Importantly, where a disposal has occurred and the company is restored, the disposal is not affected by the disposition. Now where the property has vested in the Crown but has been disclaimed then this means that the property is considered not to have vested in the Crown but it is also no longer the company’s.
The court’s view was that s1032 sets out the general approach to be taken when restoring a company to the register and PHL’s “as-you-were” position would lead to uncertainty which cannot have been intended by Parliament.
Therefore the interlocutor issued in October 2013 did no more than reflect the wording of s1032 which needs to be read in the context of the act as a whole.
What does this mean in practice?
Companies should already be aware of the importance of complying with their statutory obligations but this case highlights the fact that even if they are able to be restored to the Companies Register then this does not automatically mean that they can carry on their affairs where they left off.
Where a lease is concerned landlords should be ensuring that a disclaimer is obtained from the QLTR in order to terminate their previous tenant’s rights under the lease.
This case is also an important lesson of the role the QLTR plays where a tenant company is struck off the Companies Register, especially as many companies, or landlords may have never heard of her.
