Effect of dissolution of tenant on lease of premises

Prestwick Hotels Ltd (“PHL”) were the tenants of fifth floor premises at 166 Buchanan Street, Glasgow. The company failed to file Accounts and Returns timeously at Companies House and the consequences were severe.

In December 2011 and July 2012 the Registrar of Companies intimated that he intended to strike off the company. The 2009 annual return was filed in September 2012, and the striking-off was suspended. However the 2010 return was still not filed and there had been no accounts since 2005. Striking-off proceedings were started again in December 2012, and these eventually lead to the company being dissolved on 14 June 2013. When a company is dissolved, its property falls to the Crown – so the Crown inherited the Buchanan Street lease.

The landlords ELB Securities Ltd (“ELB”) acted promptly – perhaps opportunistically - and a month later the Crown's representative in Scotland – the wonderfully named Queen’s and Lord Treasurer’s Remembrancer - disclaimed the Crown’s whole right and title in and to PHL’s interest in the lease. That mean that the property reverted to the landlord who could then re-let.

PHL's directors took steps to restore the company to the register and on 3 October the Sheriff at Hamilton ordered restoration. Section 1032(1) of the Companies Act 2006 provides that:

“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.”

The Court was then asked to consider the competing claims of the tenant PHL and the landlord ELB. In the first instance the Sheriff accepted that the lease continued. On appeal, however, Sheriff Principal Scott decided that would be a “recipe for commercial chaos”. In practice the landlord would have had no certainty until six years had elapsed and there was no possibility of restoration. The Sheriff commented:

The property of a dissolved company is deemed to be bona vacantia (section1012(1)). That provision is, indeed, expressly subject to the possible restoration of the company to the register. However, as Mr Young submitted, once the property has been disclaimed by the Crown, such disclaimer is not qualified by any discrete statutory provision similar to that found in section 1012(2). In the present case, the Crown’s disclaimer operated to terminate the lease. (See section 1020(1)).

Accordingly, from 15 July 2013 onwards, the lease was at an end. Where there is a specific, unambiguous statutory provision to that effect, I conclude that it would be wrong to superimpose a temporary or transitional state of affairs upon something which is prescribed as constituting a finality.

… section 1034 deals with the effect of restoration to the register where property has vested as bona vacantia. The person in whom any property or right is vested by way of its becoming bona vacantia is permitted to dispose of such property “…despite the fact that the company may be restored to the register…” Any such restoration does not affect the disposition. (Section 1034(2))...

Dissolution of a company is rightly associated with very significant consequences not only for the company itself but also for other parties with whom they have contracted.

The tenant would no doubt regard the decision as harsh, but they could have avoided the consequences by filing accounts and returns on time, or by reacting to the stiking off notices when issued.

The full decision is available at https://www.scotcourts.gov.uk/search-judgments/judgment?id=c25da4a6-8980-69d2-b500-ff0000d74aa7