Mistral Asset Finance Ltd v Registrar of Companies & Anor

Introduction

By these proceedings, the Claimant seeks a declaration that it remains entitled to a legal mortgage of leasehold property at 3A-3B Defiant Close, Hawkinge, Folkestone, Kent (“the

At the hearing before me, Dr Nathan Smith appeared on behalf of the Claimant. The Defendants did not attend. Since it was not in existence when proceedings were commenced, the Company was not joined as a Defendant at that stage and it has not been formally joined as a party subsequently. However, I shall make an order providing for notice of the judgment to be served on the Company which will then be entitled, for a period of 28 days, to apply for an order varying or setting judgment aside and seek further directions under Section 1032(3) of the Companies Act 2006.

The registered leasehold title is based on a lease dated 25^th April 2016 between Pentland Properties Limited and the Company. It is for a term of 999 years at a yearly rent of £1.

The Claimant is a specialist provider of vehicle purchase finance to bus and coach operators. In December 2017, it advanced funds to Buzzlines Travel Limited (“Buzzlines

On 31^st December 2019, the Company was struck off the Register of Companies and, on

At common law, land was never entirely ownerless. The editors of Megarry and Wade on

“the Law of Real Property” (9^th edn) (2019) observe, at Para 2-023, that, in the absence of a freehold owner or mesne lord, the freehold would historically return or escheat to the Crown. However, leasehold ownership was treated differently. Until the Companies Act 1929, a lease of land vested in a company simply came to an end if and when the company was dissolved, Hastings Corporation v Letton [1908] 1 KB 378. At that point, the reversion was accelerated and the company’s immediate landlord became entitled to an estate in possession.

Following the Companies Acts 1929 and 1948, a dissolved company’s property vests in the Crown as bona vacantia subject to the Crown’s right of disclaimer. This includes freehold and leasehold property. In the event that the Crown disclaims the freehold title, it escheats in accordance with common law principles, Scmlla Properties Ltd v Geso Properties (BVI)

In the case of freehold land, the dissolution of the company and the exercise of the Crown’s rights of disclaimer did not extinguish derivative interests at common law, such as leases or mortgages, see Scmlla Properties (supra) p808.

It has now been authoritatively established, in Hindcastle Ltd v Barbara Attenborough Ltd

The relevant statutory provisions, in Part 31 of the Companies Act 2006, are as follows.

In my judgment, the answer to this question is yes. This is so regardless of whether the Crown’s disclaimer ever took effect. Section 1015(2) of the 2006 Act provides that the disclaimer “…does not, except so far as is necessary for the purpose of releasing the company from any liability, affect the rights or liabilities of any other person”. It is thus in the same terms as Section 178(4) of the Insolvency Act 1986. In Hindcastle v Barbara Attenborough (supra), Lord Nicholls dealt specifically, at 89E-G, with the rights of third parties, such as sub-tenants, who acquired a proprietary interest under the lease before disclaimer. “In order to free the tenant from liability, it is necessary to extinguish the landlord’s rights against the tenant and also the subtenant’s rights against the tenant. The tenant’s interest in the property is determined, but not so as to affect the interest of the subtenant. Determination of the subtenant’s interest in the property is not necessary to free the tenant from liability. Hence the subtenant’s interest continues. No deeming provision is necessary to produce this result. Here the deeming relates to the terms on which the subtenant’s proprietary interest continues. His interest continues unaffected by the determination of the tenant’s interest. Accordingly, the subtenant holds his estate on the same terms, and subject to the same rights and obligations as would be applicable if the tenant’s interest had continued…”

In the present case, the 2017 Charge took effect as a charge by way of legal mortgage for the purposes of Section 86(1) of the Law of Property Act 1925. As mortgagee, the Claimant thus became entitled to the rights it would have had if granted a sub-term one day shorter than the term vested in the Company, LPA 1925 s87(1). Following disclaimer of the Company’s lease, it would have remained entitled to the same rights and obligations as would have been applicable if the Company’s interest had continued consistently with the observations of Lord Nicholls in Hindcastle v Barbara Attenborough (supra).

Was the Crown’s disclaimer precluded from taking effect by the provisions of Section

In my judgment, the answer to this question is, again, yes. Section 1016(1) (above) precludes the disclaimer from taking effect until notice has been served on every person claiming under the company and 14 days has elapsed without prompting an application for a vesting order unless the Court makes a direction to the contrary.

In the present case, the notice of disclaimer was first served on the Claimant on 19^th May and the Claimant issued the present proceedings less than 14 days later, on 1^st June 2020. Since the present proceedings included an application for a vesting order, the disclaimer cannot have taken effect. I am not invited to make a contrary direction under Section 1016(1)(b) of the Act and I can see no reason to do so.

On the hypothesis that the Crown’s disclaimer took effect, did the Property

In my judgement, the answer to this question is, also, yes. Upon restoration, the Company was deemed to have continued in existence as if it had not been dissolved or struck off by virtue of the provisions of Section 1028(1) of the 2006 Act. On that basis, the Company’s property and rights could no longer be deemed bona vacantia under Section 1012(1) of the 2006 Act and there could thus be no room for the Crown to have disclaimed such property under the provisions of Section 1013(1) of the 2006 Act. Section 1034(2) of the 2006 Act provides that restoration does not affect any disposition of property by a person in whom bona vacantia is vested. However, it has been adjudged in three first instance decisions of the High Courts of England and Wales, and Northern Ireland that a disclaimer is not a disposition of property for these purposes. In Scotland, the Inner House of the Court of Session have reached a different conclusion. However, the statutory regime in Scotland is not precisely the same as the regime applicable in England and Wales.

In the trilogy of High Court decisions, the judgment of Garland J in Allied Dunbar Assurance plc v Fowle and others [1994] BCC 422 came first. A landlord sued the sureties of a corporate tenant after the company was dissolved and the Crown disclaimed the lease. Garland J adjudged that, whilst the disclaimer had initially operated to release the sureties from liability, their liability was retroactively revived when the company was restored to the register under a statutory regime mirrored, for material purposes, by the provisions of Section 1028(1),(3) and 1032(1),(3) of the 2006 Act. In ruling that the disclaimer had initially operated to release the sureties, Garland J followed the judgment of the Court of

The issue was next raised before the Inner House of the Court of Session in ELB Securities

Shortly after ELB Securities (supra), the issue was considered again; this time by HHJ

The final judgment in the trilogy of High Court decisions was delivered by McBride J in re

Consistently with the judgments in Allied Dunbar, ELB Securities and re Five Star Properties and Carrowreagh Management Company (supra), I am satisfied, in the present case, that the Property automatically re-vested in the Company upon restoration to the register of companies.

Firstly, if the general effect of Sections 1028 and 1032 of the Companies Act 2006 is for a company to be deemed to have continued in existence, following restoration, as if it had not been dissolved, transmissions of title are prima facie avoided if they are a function of

In the present case, the Crown’s disclaimer is a function of the dissolution and is thus prima facie avoided by the provisions of Section 1028 and 1032. It is thus necessary to ask whether it is rescued by one or more of the other provisions of the 2006 Act. At [22] of their Opinion, the Court of Session identified as “special provisions”, sections 1012-1014 and 1020-1022, but not section 1034. I shall not comment on sections 1020-1022 since these relate exclusively to the effect of Crown disclaimer in Scotland. However, sections 1012-1014 set out the statutory scheme under which, following the dissolution of a company, its property is deemed to be bona vacantia together with the Crown’s rights of disclaimer. They are not intended to qualify, in some way, the provisions in Section 1028 and 1032 about the effect of a company’s restoration to the register. In my judgment, sections 1012 to 1014 do not derogate from Section 1028 and 1032; the real question is whether sections 1028 and 1032 are apt to qualify or vary the statutory regime for bona vacantia and disclaimer in Sections 1012-1014. If the general effect of Sections 1028 and 1032 of the Companies Act 2006 is to avoid transmissions of title, the latter are not rescued by sections 1012 to 1014.

In my judgment, if a transmission of title under sections 1012 to 1014 can be statutorily rescued following restoration, the means for doing so is provided by Section 1034. Since Section 1034 provides, in specific terms, that the restoration of a company does not affect the disposition of an interest or right in the property, the critical question, in the present case, is whether the Crown disclaimer itself took effect as a disposition under section 1034(1).

This is by no means a straightforward question, particularly given the unique nature of a statutory disclaimer of bona vacantia. Section 1034(1) is in wide terms. When construed together with Section 1034(2), it encompasses the “disposition” of an “interest” or “right” in property. However, there is no statutory definition of “disposition” in the 2006 Act. In this sense, the 2006 Act is distinct from the Law of Property Act 1925 in which

“‘disposition’ is defined widely so as to ‘include a conveyance and also a devise, bequest, or an appointment of property contained in a will” on the basis “‘dispose of’ has a corresponding meaning” and “conveyance” is sufficiently wide to “include a mortgage, charge, lease, assent, vesting declaration, vesting instrument, disclaimer, release and every other assurance of property or of an interest therein by any instrument, except a will…” (My italics). Under this legislation, the statutory definition is not comprehensive and it remains necessary to identify the point at which the disposition takes place (Footnote: ¹) but it provides a list of transactions which are deemed to be included. However, unlike other legislation (Footnote: ²), the Companies Act 2006 does not provide for “disposition” to bear the same meaning as it does in the Law of Property Act 1925 nor does it otherwise incorporate any part of the statutory formula in the 1925 Act.

In the trilogy of High Court cases, each judge was thus able to conclude that a statutory disclaimer of bona vacantia was not a statutory disposition within the meaning of sections 655 and 1034 of the Companies Act 1985 and 2006 respectively. The logic of Garland J’s judgment in Allied Dunbar (supra) was that a disclaimer operates by way of avoidance, not

As McBride J observed (at [49]), it is not without significance that judgment in the Allied Dunbar case was delivered in January 1994, upwards of ten years before the 2006 Act was enacted and can be taken to have accurately stated the law at the time. Although Parliament was thus afforded the opportunity to make amendments to the statutory regime, it did not do so. In ELB Securities (supra) (at [32]), the Court of Session sought to distinguish Allied Dunbar on the basis it related to the liability of the sureties. However, this can have had no logical bearing on the question of whether a disclaimer amounts to a disposition within the meaning of Section 655 or 1034 of the 1985 or 2006 Acts. Garland J’s conclusion, in Allied Dunbar, that the sureties were initially released by the disclaimer can no longer stand following Hindcastle v Barbara Attenborough Associates Ltd (supra). However, on the hypothesis that the sureties were initially released, his conclusion that the sureties’ liability revived on restoration has not been reversed; indeed, one of the main purposes of Lord Nicholls’ speech in Hindcastle v Barbara Attenborough Associates Ltd was to re-align the liability of sureties with the liability of the original tenant on the basis that the separate treatment of sureties was a historical anomaly.

In my judgment, it can now be taken to be settled law in England and Wales that a statutory disclaimer of land deemed bona vacantia does not, in itself, survive the restoration of a dissolved company. Whilst statutory protection is accorded, under section 1034, to third party transferees of property deemed bona vacantia, the same is not true of the restored companies and their successors in title. When, in Hindcastle Limited v Barbara Attenborough Ltd (supra), Lord Nicholls concluded the time had come to over-rule Stacey v Hill [1901] 1 KB 660, he was confident guarantors did not assume their obligations in the expectation they would “not be liable in the very circumstances at which the guarantee [was] primarily aimed”. However, no analogy can be drawn with transactions in relation to the title to disclaimed property. Consistently with Allied Dunbar Assurance plc v Fowle, Re Fivestar Properties Ltd and Carrowreagh Management Company Ltd (supra), it is more than conceivable that transactions have been concluded or parties have otherwise acted on the basis that, upon restoration to the register, a company’s leasehold or freehold title revests in the company notwithstanding any disclaimer.

In these circumstances, I shall follow these judgments. I recognise that the opinion of the Inner Court of Session in ELB Securities Limited v Love [2015] CSIH 67 has gone the other way. However, the statutory regime in Scotland and the law to which it apples are not the same as the law of England and Wales. There is no reason to believe that ELB Securities has been followed or relied upon in England and Wales and I do not recognise the distinction drawn by the Inner House of the Court of Session with Allied Dunbar v Fowle (supra) on the basis that the latter related to the liability of sureties and, by implication, is thus confined to such liability.

In the present case, I am satisfied that the Property automatically re-vested in the Company on restoration.

I am invited to declare that the Crown’s disclaimer did not take effect since notice of disclaimer was first served on the Claimant less than 14 days prior to the issue of the present proceedings and that, if not, leasehold title to the Property would have re-vested in the Company when it was restored to the register of companies. I shall do so. I am also minded to declare that the 2017 Charge remains vested in the Claimant.