What happens to property when the owning company is dissolved and the Crown disclaims any interest? The High Court considered the question in Re Fivestar Properties.
When a company is dissolved, any property still owned by it passes to the Crown pursuant to section 1012(1) of the Companies Act 2006. Such property is known as bona vacantia. The Crown then has various options as to how it treats bona vacantia property and, where the property may carry with it liabilities, the Crown may disclaim any interest.
In Re Fivestar Properties a bank provided a loan Fivestar. The loan was secured over a commercial property, which Fivestar leased to a tenant. When Fivestar failed to repay the loan, it was discovered that the tenant had, in fact, paid the rent to another company. Administrators were appointed to recover those rent monies and then to dissolve Fivestar. The administrators’ final report stated that there were no further assets to be realised, and appeared to ignore the fact that the freehold to the commercial property was still vested in Fivestar. Following dissolution, the property vested in the Crown. The tenant sought to renew the lease and served notice on the Crown accordingly, but the Crown disclaimed any interest.
The tenant and the bank were left in a difficult position. Fivestar no longer existed to grant a new lease and the Crown had disclaimed any interest and therefore declined to do so. The tenant wanted to renew and the bank wanted to enforce its charge and sell the property with the benefit of a new lease. The bank applied to restore Fivestar to the Register of Companies. The High Court had to consider:
- What interest in the property still existed after the Crown’s disclaimer? If there was an interest, in whom did it vest?
- What was the effect of the restoration to the companies register?
- Should Fivestar be restored and then immediately wound up?
The court found that all land is ultimately owned by the Crown and so, even though the disclaimer extinguished Crown’s title under section 1012 of the Companies Act, nevertheless the property vested in the Crown (albeit to a different part of the Crown Estate). The court also held that, on restoration, the freehold estate was retrospectively re-created and re-vested in Fivestar, as if the company had never been dissolved and as if the property had never been disclaimed. It was therefore just to make a restoration order, to be followed by a winding up order, to enable the property to be dealt with accordingly and more readily realised for the benefit of the bank.
Scenarios such as occurred in the Fivestar case ought to be avoided if possible. Therefore, from a practical point of view it is always best for any secured creditor to liaise closely with administrators to ensure that a company is not dissolved until all its assets have been discovered and dealt with appropriately.
For further practical advice, see our more detailed briefing.