ELB Securities Ltd v. Alan Love & Prestwick Hotels Ltd, 26 August 2014 – effect of dissolution of tenant on lease of premises
Sheriff court case relating to a lease of premises on Buchanan Street in Glasgow. ELB were the Landlords and Prestwick Hotels Ltd, the tenants.
Prestwick were dissolved in June 2013 and then restored to the register of companies in October 2013. In terms of the Companies Act 2006 when a company is dissolved its property (including leasehold property) falls to the Crown as bona vacantia and the Crown must then decide whether or not to disclaim the property. In this case the Crown opted to disclaim the property which (in terms of s1020 of the 2006 Act) had the effect of terminating the lease. ELB therefore sought to recover possession of the subjects from Prestwick.
The crux of the case was the meaning of s1032(1) of the Companies Act 2006 which provides:
“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.”
Prestwick argued that the effect of this section was that when it had been restored to the register all matters reverted to the pre-dissolution status quo to the extent that bona vacantia no longer applied to the premises. As such the lease continued and there was no foundation for ELB’s action to recover possession of the premises. The sheriff agreed with those arguments and dismissed ELB’s action.
However, on appeal, the sheriff principal recalled the sheriff’s decision and found that ELB were entitled to recover possession of the premises. In coming to this conclusion the sheriff principal took account of the uncertainty which would result if the restoration of the company were also to restore the lease. In terms of s1030(4) of the 2006 Act a company can be restored to the register up to 6 years after it has been dissolved. Thus if, for example, a landlord recovered possession of the premises following a dissolution and let it to another tenant, following Prestwick’s reasoning, the new tenant would cease to have any rights to the premises, if (at any point during the 6 year period) the original tenant were restored to the register.
As such, the sheriff principal found that Parliament did not intend that 1032(1) should operate so as to re-write history in an unrestrained manner and that the specific provisions contained in s1020 relating to the termination of the lease should prevail over the general effect of s1032.
With regard to the effect on Prestwick the sheriff principal said the following:
“My decision might be seen as somewhat harsh in so far as [Prestwick] are concerned. However, I would reject any such criticism. Firstly, in general terms, the construction placed upon the provisions of the 2006 Act simply serves to highlight the importance to be attached to proper compliance with features such as the regular and timeous lodging of company accounts etc. 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 full judgement is available from Scottish Courts here.
All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.
 Section 1012