A company “dies” when its name is struck off the register of companies and it is deemed dissolved. However, unlike human beings, companies can sometimes be “resurrected” by being restored to the register. In limited circumstances, generally where the company has failed to comply with statutory requirements relating to the filing of an annual return or accounts but has continued to carry on business, this may be done by the Registrar of Companies; otherwise, it requires an application to the court, which will always be required where the company was in some form of insolvency procedure when dissolved.
Sometimes a company will still own property when it is dissolved. Where this happens, the property passes to the Crown as bona vacantia. The Crown has a statutory power under the Companies Act 2006 to disclaim its title to property that has become bona vacantia, and will normally do so where there are risks or liabilities associated with the property or it would not be cost effective for the Crown to sell it. Otherwise, the Crown can keep or sell the property.
Where a freehold property is disclaimed by the Crown (acting through the Treasury Solicitor), it will escheat directly to the Crown Estate – in other words, it will revert to the Crown Estate as ultimate owner of all land in England and Wales. According to the Law Commission, there are at least 500 escheats a year. The Crown Estate is not obliged to dispose of property subject to escheat to any particular purchaser or at all. Normally, however, they will dispose of such property to an appropriate purchaser where it is possible to do so, and the Crown Estate has a statutory duty to secure best consideration.
What does escheat do to interests in, encumbrances over and rights benefiting land?
Where the Crown Estate retains escheated property, it does not derive title from the dissolved company and does not have the normal responsibilities of a landowner. Although escheat does not determine interests in the land such as a lease or mortgage or encumbrances to which the land may be subject – see SCMLLA Properties Ltd v Gesso Properties (BVI) Ltd [1995] EGCS 52, where it was held that on a freehold estate in land escheating to the Crown, inferior interests such as tenancies and charges held under it do not determine – the Crown Estate will not assume any liabilities unless it has taken possession of the property or committed an act of management in relation to it. It does not manage or insure escheated property.
Where a freehold that is subject to a lease becomes bona vacantia (due to the dissolution of the freeholder), the interest that the freeholder/landlord has in the lease will also become bona vacantia. Rent under the lease should continue to be paid to the Crown until such time as the lease is sold or disclaimed by the Crown.
Where escheated land is sold to a third party, the Land Registry will create a new title and will register the land subject to all the incumbrances that previously affected the old title – paragraph 7.6 of Land Registry Practice Guide 35. However, it has been its practice to put only a qualified note on the new title in relation to any easements and rights that may have benefited the old title, as the position with regard to easements surviving escheat was not clear. The position has now been clarified in the recent case of Pall Mall 3 Ltd v Network Rail [2021] EWHC 1835 (Ch); [2021] PLSCS 124, where land that had the benefit of a drainage easement escheated to the Crown Estate. The land was later sold to a third party and was registered under a new title number. The third party successfully sought a declaration that the land retained the drainage easement, with Briggs J holding that the easement had not been extinguished by the freehold’s escheat and had passed to the third party pursuant to section 62 of the Law of Property Act 1925.
What happens to its land when a company is restored to the register?
Where a company is restored to the register, any land that it owned may or may not be returned to it:
- Where land has vested as bona vacantia and the Crown has disposed of it before the company has been “resurrected”, the disposal will be unaffected by the company’s “resurrection”, but the Crown is required to pay to the company any consideration received for the disposal (or the value of the property on disposal, if no consideration was received) after deduction of the costs of disposal.
- Where land has vested as bona vacantia and the Crown has neither disposed of it nor disclaimed it, it will re-vest in the “resurrected” company unless a third party has obtained a vesting order under section 181 of the Law of Property Act 1925 vesting the property in the third party (this will normally only happen where the third party would have been entitled to the property if the company had continued to exist, as in Quadracolour Ltd v Crown Estate Commissioners [2013] EWHC 4842 (Ch), where an option holder obtained land that had been subject to escheat).
- Where land has vested as bona vacantia and the Crown has disclaimed it:
- where the land is freehold, it will re-vest in the “resurrected” company;
- where the land is leasehold and is situated in England or Wales, it will re-vest in the “resurrected” company; and
- where the land is leasehold and is situated in Scotland, it will not re-vest in the “resurrected” company, as the disclaimer will have brought the lease to an end.
Leasehold property law in England, Wales and Scotland
A series of cases illustrate the divergence between the law of England and Wales and the law of Scotland with regard to leasehold property that has been disclaimed by the Crown where a company is “resurrected”.
In the most recent case, that of Mistral Asset Finance Ltd v Registrar of Companies and HM Attorney General [2020] EWHC 3027 (Ch), HHJ Halliwell (sitting as a High Court Judge) held that the restoration of a dissolved company to the register will restore its ownership of a leasehold, despite the Crown having disclaimed the lease in the meantime. The decision followed that in Allied Dunbar Assurance plc v Fowle [1994] 1 EGLR 142, the court rejecting the finding in the Inner House of the Scottish Court of Session in ELB Securities Ltd v Love [2015] CSIH 67 that Allied Dunbar should be distinguished and that the company’s rights in the lease ended when the Crown disclaimed it and could not be revived when the company was restored to the Register. The High Court also did not consider a different approach in the Scottish courts to be problematic, stating that Scotland had a different statutory regime and underlying law. However, the decision in Mistral is technically obiter.
In the earlier (English) case of Re Fivestar Properties Ltd [2015] EWHC 2782 (Ch); [2015] PLSCS 277, which related to a freehold property subject to escheat, the court held that the effect of the company’s restoration to the register was that the freehold title to the property was retrospectively re-vested in the company as though it had never been dissolved and the property had never been disclaimed by the Crown, and considered that there was no reason to treat freehold and leasehold property differently, relying on Allied Dunbar as authority. It is not clear whether HHJ David Cooke was aware of the ELB Securities decision when giving his judgment in Fivestar.
The only English case that appears to deal specifically with what happens to a lease when the tenant company is dissolved is that of Hastings Corporation v Letton [1908] 1 KB 378, in which the court held that on the dissolution of the then tenant company, the land reverted to the landlord, the lease merged in his reversion and there was no bona vacantia to vest in the Crown. The decision in Hastings was, however, seriously criticised by the Court of Appeal in Re Wells; Swinburne-Hanham v Howard [1933] 1 Ch 29, when Romer LJ described the decision in Hastings as erroneous. In the subsequent case of In re Strathblaine Estates, Ltd [1948] Ch 228, Jenkins J refused to follow Hastings and instead followed Wells.
Peta Dollar is a freelance lecturer, trainer and writer
