ELB Securities Limited V (First) ALan Love : (Second) Prestwick Hotels Limited [2015] CSIH 67

Recent decisions of the Scottish and English courts disagree on whether dissolved companies have any rights to property lost during their dissolution if they are subsequently restored to the Register of Companies.

Background

Prestwick Hotels Limited ("PHL") operated from office premises on Buchanan Street, Glasgow. PHL occupied the property under a lease from the owner ELB Securities Limited ("ELB"). In June 2013 PHL was struck off the Register of Companies and dissolved for failure to comply with statutory obligations. In August 2013 ELB successfully raised an action at Glasgow Sheriff Court to remove PHL from the property.

In September 2013 PHL made a successful application to be restored to the Register of Companies. The Court's decision had the effect of restoring "…the company (PHL) to the same position as if it had not been struck off".

PHL successfully challenged the Court's decision to remove them from the property, only for that decision to be overturned on appeal.  The case was then ultimately appealed to the Court of Session by PHL for determination.

Appeal to the Court of Session

The appeal centred on the parties' differing interpretations of the provisions of the Companies Act 2006 (the Act).  

PHL sought to rely upon the general provisions for restoration of a company contained in section 1032 of the Act which states 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".

PHL submitted that by applying section 1032 the company was deemed to have continued in existence and therefore the lease of the property should remain in force.

ELB's position focused on those sections of the Act which deal specifically with how the property of a dissolved company should be treated. These sections (1012 to 1014) provide that the property of a dissolved company falls to the Crown unless the Crown disclaims its right to the property. If the Crown disclaims its right the property interest is extinguished.

Decision

The Court of Session rejected the appeal and upheld the decision that PHL's interest in the lease was brought to an end on 15 July 2013 upon the grant of the disclaiming notice by the Crown.

The Court held that the Act needs to be considered as a whole. Whilst section 1032 does provide a 'general' position on the effect of restoration of a company to the register, the Act also provides specific clauses to deal with the distribution of the property of a dissolved company. The Court took the view that where a general provision in an Act is qualified by specific provisions, the general provision must give way to the specific qualifications.

Recent Developments

In the last few days the High Court in England has ruled on a case with similar circumstances to ELB (Re Fivestar Properties Ltd [2015] EWHC 2782 (Ch) in relation to the freehold property of a dissolved company). Fivestar owned a property which was subject to a security in favour of a Bank. Fivestar were dissolved and their interest in the property was ultimately disclaimed by the Crown. The Bank applied to have Fivestar restored to the register to allow them to enforce their security. The High Court upheld the application and returned the property to Fivestar. The High Court clarified their interpretation of the restoration provisions of the Act as:

"The general effect of restoration is that the company is retrospectively deemed to have continued in existence as if it had not been dissolved….Subject to the possible effect of s1034 if the Crown has in the meantime made a disposition of the property, the company is deemed always to have been the owner, as if it had never been dissolved."

Both decisions rely heavily on the facts in each case. However, the different interpretations of the restoration provisions of the Act create a level of uncertainty. The High Court decision does not mention the ELB case and further litigation will be inevitable before the issue is determined.  The impact this may have upon cases involving disease whereby companies are routinely restored to the register will remain uncertain until such time. We shall keep our clients updated on the position both north and south of the border.