Scottish court ruling on leases held by dissolved tenant companies gives certainty to landlords, says expert

Out-Law News | 01 Sep 2014 | 3:41 pm | 2 min. read

The general rule that a dissolved company that is later restated to the Companies Register "continues in existence as if it had not been dissolved" does not prevent a landlord from terminating a lease held by that company, a Scottish court has ruled.

Litigation expert Heidi Archibald of Pinsent Masons, the law firm behind Out-Law.com, said that the decision by the sheriff principal would "give certainty to landlords of tenants which are dissolved". "The ruling involved an interesting balance of various provisions of the Companies Act, with the appeal concluding that the determination of the lease 'trumped' the general provision," she said.

Under the Companies Act, a company that is dissolved or struck off has six years in which to seek to restore itself to the register. If it does so, the Act provides that "the company is deemed to have continued in existence as if it had not been dissolved or struck off the register". However, the Act also provides that all property and rights, including leasehold property, held by a dissolved company are deemed 'bona vacantia', or ownerless property, which passes to the Crown and can then be disclaimed.

Prestwick Hotels Ltd was the tenant of premises on Buchanan Street, Glasgow. The company was dissolved in June 2013. By October 2013, the company had been restored to the register. However, by this time the Crown had already disclaimed the property and the landlords had begun repossession proceedings.

Following an initial hearing, the sheriff dismissed the landlords' case on the grounds that the restoration of Prestwick to the register meant that the lease continued. However, the landlords argued that as "a matter of general policy", allowing the restoration of a company to the register to overrule the Crown's disclaimer would lead to "uncertainty or absurdity".

The sheriff principal agreed that there was "little doubt that the argument in favour of what might be described as an unqualified reversion to the pre-dissolution status quo is imbued with uncertainty". In this case, the company was only deregistered for a few months, but the statutory time period allowing for reinstatement could lead to this period of uncertainty lasting for as long as six years, he said. This could lead to problems where the landlord had recovered possession of the property and let it out to a new tenant, he said.

"That sort of consequence would be a recipe for commercial chaos," he said. "It would be absurd to contemplate that, for a six year period, subjects such as those in the present case could be blighted by an indeterminate factor, i.e. whether at any stage during that six year period, any of the individuals listed at section 1029(2) [of the Companies Act] might successfully procure restoration of the company to the register."

"In any event, it is important not to overlook what [the Companies Act] actually says and to attribute meaning to the full extent of its wording ... The property of a dissolved company is deemed to be bona vacantia. That provision is, indeed, expressly subject to the possible restoration of the company to the register. However, as [the landlords] submitted, once the property has been disclaimed by the Crown, such disclaimer is not qualified by any discrete statutory provision," he said.

In this case, the effect of the Crown's disclaimer was to terminate the lease, he said.

"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," he said.