Scottish appeal court clarifies effect of restoration on a company's property, says expert

Out-Law Analysis | 01 Oct 2015 | 12:34 pm | 2 min. read

FOCUS: A recent decision by Scotland's highest civil appeals court provides welcome clarification of what happens to a company's former property when it is struck off the register, and subsequently restored.

Companies can be struck off the register for a number of reasons and, in appropriate circumstances, may subsequently be restored to it. The application is generally perceived to be quite straightforward providing that the quite generous time limits for applying for registration are adhered to, and the 2006 Companies Act ("the Companies Act") states that a company which is restored to the registered is "deemed to have continued in existence as if it had not been dissolved or struck off".

Which is all well and good, but the Companies Act also provides that when a company is dissolved, its property and rights vest in the Crown. The Crown is able to disclaim these rights by signing an appropriate notice. The Inner House of the Court of Session had to consider the impact of this earlier this month, in a rarely-reported example of a tenancy dispute involving a hotel firm that had recently been restored to the register.

Prestwick Hotels Ltd (PHL) had been leasing premises in Glasgow from ELB Securities Ltd (ELB), a property investment firm, when it was struck off the register and dissolved for certain administrative failings. Following this, ELB raised an action against PHL and its director, Alan Love, seeking their removal from the tenancy. At the same time, Love applied to have PHL restored to the register and committed to correct the administrative failings.

The court accepted Love's application, restoring the company to "the same position as if it had not been struck off" as set out in the Companies Act. Understandably, when defending the action for removal from the tenancy, PHL stated that as it had been restored to the register its lease with ELB continued as if there had been no interruption. However, the Crown had already issued a notice disclaiming its right to PHL's interest in the lease.

Although the sheriff who initially decided on the dispute agreed with Love and PHL, his decision was overturned by the sheriff principal last year. The appeal court backed the sheriff principal, ruling that the provisions in the Companies Act must be "read as a whole". In doing so, it took the view that the provisions in the Companies Act in relation to a company's property that had vested in the Crown were special provisions, which overrode the general provisions of the Companies Act in that particular set of circumstances.

Lady Paton said that these special provisions had the effect that:

  • if the Crown does not disclaim the vested property, it remains vested in it and the Crown can dispose of it;
  • if the Crown does disclaim the vested property, then all the company's rights in relation to it are specifically brought to an end.

To decide otherwise would lead to "uncertainty and confusion in the commercial world", the court said; echoing the words of the sheriff principal last year. Consequently, PHL's rights in the lease terminated as at the date of disclaimer.

Cases such as this are rarely reported, so the appeal court's clarification of the issue is a welcome one. The judgment is also a salutary lesson that restoration may not be quite as straightforward as originally anticipated.

Craig Connal QC is a commercial litigation expert at Pinsent Masons, the law firm behind Out-law.com.