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Have your rights just dissolved away?

A judgment of the Court of Session has illustrated the risks of a company being allowed to dissolve by default.

ELB Securities Limited (“ELB”) owned a commercial property in Glasgow, which they let to Prestwick Hotels Limited (“PHL”). PHL had failed to submit its annual returns to Companies House and was struck off the register. Striking off means that the company no longer legally exists and therefore any property it owned (or in this case, rights in the lease) belonged to the government as abandoned property.

Companies can be restored to the register. When a company is restored it requires to submit all returns and accounts for the intervening period as if it had never left the register. PHL’s argument was that the rights in the lease were not terminated on the basis that it was deemed never to have been dissolved.

The relevant public body waived their rights in respect of the lease. PHL was restored to the register and sought to enforce its rights in the lease. The sheriff principal (and Inner House of the Court of Session on appeal) decided that PHL’s rights in the lease had been terminated.

This is really the only sensible commercial result in this matter. The alternative being that companies which have been dissolved for years can be reinstated and re-assert their rights under any contracts (a lease is just a special type of contract relating to property)! Not only that, but they would seem to have a preferred right over the current tenant, if the company was deemed never to have been dissolved.

Let’s not forget how PHL got into this pickle. Failure to file annual returns and accounts is not something that should be taken lightly. Directors may be personally liable for trading liabilities if the business carries on in the absence of an incorporated structure. There is also the potential for directors to be found guilty of an offence.

Keeping the register up-to-date is not an optional extra. If you do not understand your company’s filing requirements please get in touch to discuss how our company secretarial services could help you to avoid getting into the same mess. If it is already too late for you please speak to us to get help reinstating your company.

Alan Stalker on 01383 721621.

Alan Stalker:

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