Katie Cohen & Graham Jaffe, Partner at JPC Law
A DISSOLVED COMPANY FREEHOLDER
It can be a nightmare for a lessee to discover that their freeholder is a company which has been dissolved. Ascertaining the best way to acquire the freehold requires the assistance of a solicitor with the relevant expertise. The following article has been reproduced by kind permission of the authors, Katie Cohen (a former Partner) and Graham Jaffe, Partner at JPC Law. The article first appeared in the Property Law Newsletter, October 2010.
There are two scenarios that are discussed below. The first is where the freehold is owned by a company that has been dissolved. In this scenario, the freehold may be acquired under the rules of Bona Vacantia. In such a case where the company is incorporated in England and Wales and in the case of some Commonwealth countries such as the British Virgin Islands, the freehold is vested in the Crown under the rules of Bona Vacantia.
The second is where the lessees are directors and/or shareholders of a company which owns the freehold through a company which has been dissolved. The freehold may be acquired under the rules of administrative restoration.
Where the freehold is owned by a company that has been dissolved, the lessees can acquire the freehold from the Treasury Solicitor. Under section 27(5) of the Land Registration Act 2002, if the company owned asset(s) at the time of its dissolution, all of its property rights (but not its liabilities) will have passed in bona vacantia and vest in the Crown.
Bona vacantia means “vacant goods” and its origins lies in common law. It is based on the principle that all freehold estates originally came from the Crown, and therefore if there is no one legally entitled to the freehold, it reverts to the Crown.
Note that property that is held on trust for another does not pass to the Crown as bona vacantia.
The Crown (acting by the Treasury Solicitor) is not obliged to register itself as the proprietor of property which vests in it as bona vacantia and indeed, does not normally do so.
The companies group of the bona vacantia division of the Treasury Solicitor’s office deals with property and rights that were beneficially owned by companies which have now been dissolved. When a company is dissolved any assets owned by the company at the date of its dissolution pass to the Crown under section 654 of the Companies Act 1985. If the company was dissolved after 1 October 2009, the assets vest in the Crown under section 1012 of the Companies Act 2006.
Upon request, the Treasury Solicitor will confirm that the company’s assets have vested in the Crown and will set out detailed requirements for the acquisition of the freehold.
This will include the submission of a questionnaire giving details of ground rent payable under the leases, names of the lessees, how many are willing to participate in the acquisition and the premium that will be payable to the Treasury Solicitor for the freehold. Lessees are liable to pay the costs of the Treasury Solicitor which usually amount to around £500 plus VAT.
The Treasury Solicitor is obliged to realise the full market value of the property on a sale and will usually seek independent advice from the district valuer in order to achieve the best possible price.
Note that the Treasury Solicitor is not obliged to take possession of the property, manage the property or transfer the property with any form of title guarantee.
If lessees follow this option they will need to form a new company to acquire the freehold and an accountant should be appointed to act for the company.
The second option is to reinstate the company that owns the freehold when the lessees are directors and/or shareholders who have, for one reason or another, allowed the company to become dissolved and struck off the register.
The Companies Act 2006 created a procedure whereby dissolving companies may be re-instated to the Register by means of a simplified and faster procedure which allows for a direct application to be made to Companies House as opposed to the High Court. The procedure is set out in sections 1024 to 1028 and has no parallel in the Companies Act 1985.
There are several conditions which must be met before the Registrar will restore the company. If the registrar decides not to restore the company, an application may then still be made to the Court for restoration.
The procedure is called administrative restoration and involves three key conditions that must be met if the Registrar is to consider the application.
- The Registrar must be satisfied that the company was carrying on business or in operation at the time of its striking off – this would be obvious by the fact that at the time of being struck off the Register, the company’s main asset was the freehold and an up to date office copy entry of the freehold will serve as evidence to satisfy this condition
- If any property previously vested in the company has vested bona vacantia, the Treasury Solicitor representative must signify to the Registrar in writing consent to the company’s restoration. This is called a “Bona Vacantia Waiver Letter.” The Treasury Solicitor’s current fee for applying for such consent is £79.00.
- The final condition is that the lessees will need to provide to the Registrar such documents as are necessary to bring up to date the records kept by the Registrar and pay all penalties outstanding at the date of striking off.
Only a former director or former member of the company, who was a director or member at the time the company was dissolved, can apply.
The lessees will need to appoint an accountant to assist them in satisfying condition 3 and this will include setting up the statutory books, issuing share certificates, filing return of allotments and bringing the accounts up to date.
The application for administrative restoration must also be accompanied with a statement of compliance which will confirm that the above conditions have been complied with and that the lessees have the standing to make the application.
The application is made using form RT01 and the fee is £100.00. In addition the Treasury Solicitor may demand costs or expenses for their work undertaken. The Companies House Registrar may also demand any unpaid penalties outstanding on accounts delivered late before the company was struck off as well as any penalties due for accounts delivered on restoration. The late filing penalty is dependent on how late the accounts are received by the Registrar. The Registrar will normally disregard the period during which the company was dissolved. For example, a set of accounts that should have been delivered 2 months before a private company was dissolved are normally regarded as 2 months late if you deliver them on restoration. The company will not be deemed liable for late filling penalties for accounts received on restoration but which became due while the company was dissolved. The following table provided by Companies House exhibits the potential level of penalty that may be payable.
|Length of delay (measured from
the date the accounts are due)
|Not more than 1 month||£150||£750|
|More than 1 month
but not more than 3 months
|More than 3 months
but not more than 6 months
|More than 6 months||£1,500||£7,500|
The general effect of restoration of a company to a register is that it is deemed to have continued in existence as if it had not dissolved or struck off.
Alternatively if the lessees cannot meet the conditions to satisfy the Companies House registrar, an application can be made directly to the High Court for restoration of the company. Naturally the costs will differ; the court application fee is £130.00 and our costs will also need to be taken into consideration in compiling the court application.
Which option is best?
This will depend on whether the lessees are directors and/or shareholders of the company that owns the freehold. If they are, they can reinstate the company via administrative restoration or the rules of bona vacantia. If the lessees are not directors and/or shareholders, the only option is bona vacantia.
Both methods can be relatively quick so long as all information required by either the Treasury Solicitor or the Company’s Registrar is made available.
Note that it is not possible to restore a company to the Register for the purposes of “retrieving” property that has become bona vacantia, if the company was struck off the register more than six years before the date of application for restoration. It is essential therefore to ascertain when the company was struck off as this may well determine which route is taken.
In any event, remember that lessees will need to contact the Treasury Solicitor in the first instance even if they decide to progress under the rules of administrative restoration.
In the complex minefield of dissolved companies and their freeholds, it goes without saying that you should instruct those with the expertise to property advise.
Jaffe Porter Crossick LLP
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Jaffe Porter Crossick LLP
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