The effect of dissolution and disclaimer on property rights

Introduction

We recently commented on a Scottish case involving dissolution, disclaimer and restoration (read our Law-Now here). There has now been an English case raising the same issues which on the face of it analyses the same provisions of the Companies Act 2006 (UK wide legislation) in a different way to achieve the same result.

The approach of the courts

The Scottish case ELB Securities Limited v Love & Another (“ELB”), involved the dissolution of a tenant, the disclaimer of a lease by the QLTR (the Crown) and subsequent restoration of the tenant company. The Scottish court took the view that the disclaimer brought the lease to an end and the restoration did not recreate the leasehold interest or re-vest this in the company.

The approach of the Scottish court was that the provisions of the 2006 Act needed to be read as a whole and although the “general effect” of a restoration to the register was that the company was deemed to have continued in existence as if it had not been dissolved this had to give way to special provisions in the Act which dealt with company property.

Based on an interpretation of two specific sections of the 2006 Act it concluded that if property vested as bona vacantia in the QLTR but was subsequently disclaimed this (a) brought to an end the company’s rights in the property and (b) the property was deemed not to have vested in the QLTR.

Applying both of these sections, the Scottish court held that the property at that stage belonged neither to the Crown nor to the company and therefore restoration of the company to the register could not restore the property to the company.

In the recent English decision Re Fivestar Properties Ltd [2015] EWHC 2782 (Ch) (“Fivestar”), following the dissolution of a company, disclaimer by the Crown of the property owned by the company and subsequent restoration of the company, the English court took the view that the restoration retrospectively recreated the freehold which re-vested in the company.

The approach of the English court was that the company ceased to exist by virtue of the dissolution. Then, following the disclaimer, the freehold estate no longer vested in the Crown as bona vacantia but had been terminated. The effect of this was that the land nonetheless fell to the Crown under the principle that all “ownerless” land belongs to the Crown. The disclaimer did not extinguish the Crown’s right to the land but only its title to it as bona vacantia. The effect of the restoration was that the freehold estate was retrospectively recreated and re-vested in the company in all respects as if the company had never been dissolved and the property had never been disclaimed.

The Fivestar case also referred to an earlier English case of Allied Dunbar Assurance plc v Fowle and others [1994] BCC 422. This was a case involving leasehold property where sureties for the company’s obligations under the lease were seeking to argue their liability was determined when the lease was disclaimed, and could not subsequently be revived following dissolution, because the disclaimer amounted to a disposition. However the principles applied in both cases were discussed in general terms and the relevant statutory framework was interpreted in a similar manner to Fivestar such that the court held that the disclaimer extinguished the interest disclaimed but that restoration was on an “as you were” basis. The fact that a landlord would be left in limbo if a lease was disclaimed but may be revived if the company was subsequently restored was considered an “anomaly”.

The Scottish court was not required to consider what would happen to heritable (freehold) property post disclaimer.

Comment

In our view, on the face of it “ownerless” property in Scotland would also fall to the QLTR, but on the analysis of the court in ELB, restoration would not retrospectively restore the heritable title to the company. The Scottish courts might instead use the provisions of the 2006 Act which allow them to make such directions, and make such provision as seems just for placing the company and all other persons in the same position (as nearly as may be) as if the company had not been dissolved or struck off the register.

The decision in Fivestar reflects this position if achieved via a slightly different route and confirms that the court will, when restoring a company to the register, endeavour (where allowed by statute) to restore the position as if the dissolution had not occurred. The court also gave guidance as to the possible remedies available although it suggested that the most certain option would always be to seek an order from the court.In practice this situation may occur very rarely but when it does advice should be sought to consider what legal and practical steps should be taken.