Between 1 April and 30 June 2023, there were 6,342 registered company insolvencies, which is the highest number of insolvencies since the second quarter of 2009, and a 9% increase on the previous quarter of 2023.
With an increase in insolvencies, whether voluntary or compulsory, will come an increase in dealings with the assets of insolvent companies. Whilst many companies will dispose of any outstanding assets and liabilities during the insolvency process, there are sometimes circumstances where assets are left behind, and it is only after a company is dissolved that they are disposed.
What happens to leasehold interests when a company is dissolved?
When a company is dissolved and there is an existing lease, unless the property that was owned by a company has been disposed of prior to the dissolution, any property that is beneficially owned by the company will pass to the Crown and the Crown will become the beneficial owner. This occurs under the concept of Bona Vacantia.
What is Bona Vacantia?
Bona Vacantia means "ownerless goods" and is the concept where property that was previously owned by a company which has been struck off the register, wound up or dissolved is transferred to the Crown. The property can revert back to the former company if it is reinstated on the register, provided that it has not been disposed of by the Crown before this happens.
There is a wide variety of property or rights that can become Bona Vacantia, including land and interests in land, bank accounts, cash, insurance policies, shares, intellectual property rights and pre-emption rights. Any liabilities held by a company will not transfer to the Crown.
Bona Vacantia and commercial leases
Bona Vacantia does apply to commercial leases. The Bona Vacantia Division (BVD) will disclaim a commercial lease that is referred to it and it will not assign a commercial lease. It will not take the interest in the lease for the benefit of the crown. To disclaim the lease, and end all tenant's rights, interests and liabilities, the lease needs to be referred to the BVD and the following information needs to be provided:
- the name, company number and last registered office of the dissolved tenant company;
- if the lease is registered at the Land Registry, Official Copy Entries (OCE) and a title plan from the Land Registry for the leasehold property;
- a copy of the lease;
- a copy of any assignments of the lease, if any; and
- details of any solicitors who are acting for you.
The lease then becomes the subject of sections 1014 and 1019 of the Companies Act 2006, which has the effect as if the lease was never vested in the Crown at all. Anyone can refer an asset to the BVD, not just those involved in the former company.
The lease contains forfeiture provisions that allow the landlord to forfeit the lease under the usual insolvency provisions. It is possible to forfeit a lease after the company has been dissolved, but any part of the term that continued after the company was dissolved, and before the lease was forfeited, would be vested in the Crown as Bona Vacantia. The right to seek relief from forfeiture would also have passed to the Crown. The Crown may apply for relief whilst the landlord is proceeding with the forfeiture proceedings, either by taking action or re-entering the property, and the Treasury Solicitor usually does this as part of the landlord's application, instead of its own action.
If an application is made to the Land Registry, the Land Registry will wait for the Crown to respond and confirm whether it wishes to seek relief from forfeiture before dealing with the application. The Crown has 12 months to make a decision so there may be a period of waiting required but, since the Crown's policy is to disclaim commercial leases, the right to relief is generally not exercised. If the Crown's solicitor is contacted, they usually decide quickly to disclaim the lease. The notice of disclaimer can then be sent to the Land Registry and the leasehold title can be closed.
If someone is looking to get rid of a lease, the most efficient way would be to contact the BVD and refer the lease. This can be done in writing or by email, but it is advised to refer the lease via email as this is a non-cash asset. The BVD will then check the lease and confirm whether it can deal with it.
How can Bona Vacantia be avoided?
The simple answer is for a company to terminate or surrender any leases before the company is dissolved. This would avoid the entire Bona Vacantia process and having to disclaim a lease. However, this is not always possible in some insolvency situations, and here is where the Bona Vacantia process would operate to ensure that leasehold interests in commercial property can be disposed, even when the company that had the interest no longer exists.