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Purchasing property from insolvent companies? Mind the gap!

By Lucie Barnes, a partner at Brodies LLP

When will an insolvent company be dissolved?

There are several circumstances where a company can be dissolved, including voluntarily (where the company itself makes a strike off application) or involuntarily (where the Registrar of Companies strikes off a company that is not carrying on a business or operation).

A company can also be dissolved where a company is in administration and a notice has been filed by the Administrator of the company, and it has been concluded that the company has no property to make a distribution to creditors, under paragraph 84 of Schedule B1 of the Insolvency Act 1986 (“Paragraph 84“). The company will move to dissolution 3 months from the date of registration of the notice. Under sections 201 to 205 of the Insolvency Act 1986, there are also provisions for the dissolution of a company in liquidation.

What happens if, at the point of dissolution, your application has not yet completed at Land Registry?

After a purchase of property is completed, but before a purchaser is registered as the proprietor, the purchaser will be the beneficial owner of it, but not the legal title owner which remains with the seller. Where a seller company moves to dissolution before the transfer of property is registered, the legal title would vest in the Crown bona vacantia albeit that the purchaser would remain beneficially entitled to the property.

The purchaser could look to restore the company to the register to allow the registration to complete or, prior to the dissolution, make an application to court to extend (or suspend) the dissolution date of the company as an interested party under Paragraph 84 if the company was in administration (or the equivalent provision in liquidation).

In practice this is often all academic, because, once a purchaser’s application has been processed by Land Registry, registration is backdated to the date of the application (not the date of registration). But issues can and do still arise during this limbo period, for beneficial owners wanting to serve time-critical statutory notices upon sitting tenants, which only a legal title owner is entitled to serve. The issues are further compounded when the insolvency company is imminently moving to dissolution.

How does this work in practice?

Brodies LLP made an urgent application to the Insolvency Court in London, on behalf of a commercial landlord client who had recently purchased £multimillion commercial property in Birmingham, seeking to prevent the dissolution of the selling-company that had formerly been in administration.

The company was due to move to dissolution on 15 July 2022, following a notice filed under Paragraph 84 by the company’s former joint administrators. The client’s application to Land Registry had been expedited, but by 4 July 2022, it was still not the registered proprietor of the property and there was no guarantee that registration would be completed by the dissolution date.

Our client had purchased the property with a view to undertaking a major redevelopment. It urgently required to become the registered proprietor, in order to serve a counter-notice upon the occupational tenant in the property to oppose its request for a new tenancy pursuant to section 26 of the Landlord and Tenant Act 1954, which it had served upon the landlord on 17 June 2022. In accordance with the 1954 Act, the landlord had until 16 August 2022 to serve any counter-notice, otherwise the tenant would be automatically entitled to a new tenancy and the landlord would lose any right to oppose the request.

The landlord could reasonably expect its registration as legal owner to be completed by 16 August 2022, but not by the date of dissolution.

In the High Court application, Brodies LLP (instructing Evie Barden) argued that not only should the dissolution be delayed (given the risk the applicant was exposed to), but, before the Court could even look to that point, the Court had to decide whether it was possible for the company to be dissolved under Paragraph 84. If it did not, what was the status of the proposed dissolution?

The case as to whether or not the dissolution should proceed was therefore made on two alternative grounds:

  • The factual matrix was that the joint administrators had previously applied to extend the company administration to 3 April 2022. Pursuant to the Insolvency Act, in the absence of a further extension, the administration came to an end by effluxion of time at midnight on 3 April 2022. Therefore, the joint administrators could not be said to be in office at the time of registration of the notice by the Registrar of Companies on 15 April 2022, resulting in the notice being of no effect; and
  • In the alternative, if the notice was valid and the dissolution should proceed, given the risk exposed to the application by the registration gap, the Court should use its powers to extend that period to allow our client to be listed as the registered proprietor.

Ruling on a novel point of insolvency law, ICC Judge Firth agreed with counsel on the first point and held that the joint administrators were not in office at the date of registration of the notice, therefore, the notice was a nullity and had no effect. Therefore, the Company would not be automatically dissolved on 15 July 2022.