Summary

A recent decision of the Inner House of the Court of Session on appeal from the Sheriff Principal has confirmed the effect a company’s striking off and subsequent restoration to the Register has on a lease when the lease is disclaimed by the Crown prior to restoration.

The facts

ELB Securities Limited ("ELB") was the landlord and Prestwick Hotels Limited ("PHL") the tenant. On 14 June 2013 PHL was struck off the Companies’ Register and dissolved for, amongst other things, failing to lodge accounts over a six year period.

The Queen’s and Lord Treasurer’s Remembrance ("QLTR") subsequently disclaimed the lease on 15 July 2013.

On 13 August 2013 ELB raised an action in the Sheriff Court against PHL and a director seeking PHL’s removal from the premises. In September 2013 in a separate action a director of PHL petitioned to have PHL restored to the Register. The petition was granted.

PHL opposed the action of eviction on the basis that the restoration meant that the lease continued as if there had been no interruption caused by its striking off. This argument was successful before the initial sheriff hearing the case, but lost on appeal to the Sheriff Principal. PHL (and one of its directors) appealed to the Court of Session.

The decision

The Inner House considered the effect of the disclaimer and the proper construction of the Companies Act 2006 and section 1032 (restoration of the company by the court) in particular.

The Inner House held that on the date PHL was dissolved and struck off, its rights vested in the QLTR as bona vacantia. The QLTR’s disclaimer of the lease had two effects (1) that PHL’s rights in the lease terminated on that date and (2) that any rights in the lease were deemed not to have vested in the QLTR as bona vacantia. As a result PHL’s rights, interests and liabilities in the lease and the ‘property of the company’ in the lease had come to an end.

Commentary

For tenants the case is a helpful reminder of the serious consequences that can occur for failing to comply with obligations under the Companies Act, and that restoration to the Register, previously seen by some as a remedy, is unlikely to assist when a lease has been disclaimed.

For landlords it confirms the importance of obtaining a speedy decision from the QLTR on the issue of a disclaimer following the striking off of a tenant company.