Pink Floyd guitarist David Gilmour recently hit the headlines for not being able to sell a £10 million seafront mansion (‘The Property’) because it turns out that he doesn’t actually own it.
In short, Gilmour did not purchase the Property himself; instead, he purchased it in 2011 through his former company, Hoveco Limited. Then, in 2014, Hoveco was dissolved, and a subsequent administrative error meant that the Property was not transferred into Gilmour’s ownership and, as a result, has drawn attention to the phenomenon known as ‘bona vacantia’ (ownerless goods).
This article will explore the voluntary strike off procedure that can be used to dissolve a company before explaining what happens when company property is not identified and transferred prior to a company’s dissolution.
The voluntary strike off procedure
The voluntary strike off procedure allows for companies to be dissolved voluntarily and to cease to exist as legal entities. Various scenarios can lead to a voluntary strike off including company reorganisations, business and asset transfers and scenarios where a company was set up for a purpose that is no longer needed. Once struck off, the company will be dissolved and will cease to be a legal entity.
The directors (or a majority of them) make the application to strike off a company on the company’s behalf. They are then obligated to notify the members, any directors who did not make the application, creditors or prospective creditors and employees of the application.
It should be noted that an application to strike a company cannot be made if in the previous three months, the company has carried out certain activities, including changing its name, trading, disposing of property or rights for value or engaging in activities other than ones necessary for making the striking off application. An application also cannot be made where a company is subject to certain insolvency proceedings, so seeking legal advice before proceeding with a dissolution is essential.
Property of a dissolved company
Once dissolved, the company no longer exists as a legal entity, and therefore, it can no longer own property. This means that any property owned by the dissolved company will pass to the Crown (or the Duchies of Lancaster or Cornwall) and become bona vacantia. Nearly all types of property can become bona vacantia, including:
- land and interests in land;
- cash, including bank accounts and insurance policies;
- intellectual property; and
- the benefit of assets, agreements and mortgages.
There are two situations where the property owned by a dissolved company cannot become bona vacant. The first is where the dissolved company owns property on trust for third parties. The second is where the dissolved company owns property overseas, as this property will likely be subject to the law of the jurisdiction of where it is located. As a result, it may be necessary to restore the company so that the property can be disposed of in accordance with the relevant local law.
The Crown (acting through the Treasury Solicitor) can disclaim their title to bona vacantia if the Crown decides not to keep or sell the property. Similarly, if there is a risk or liability associated with ownership of the property (such as a tenancy of a commercial lease, contaminated land, property subject to security or to competing claims). Where the disclaimed property is freehold land, the freehold title to that property will be extinguished.
The property will then escheat (revert) to the Crown Estate (the statutory corporation that administers the monarch’s land) so that freehold land is never without an owner. The Crown Estate cannot take any action that would be construed as management, possession or ownership of the property, as to do so could render the Crown Estate responsible any liabilities arising from the property.
There are several situations where company property may become bona vacantia, for example, when Hoveco was dissolved, an inadvertent oversight meant that the Property was not disposed of and therefore became bona vacantia. Other scenarios include liquidators failing to dispose of assets that were not known about or disclaiming onerous property (such as unprofitable contracts or unsellable property) under the Insolvency Act.
Recovering bona vacantia
There are several ways to recover bona vacantia:
Restoration of a dissolved company
Under the Companies Act, a restored company is treated as never having been dissolved, hence any property that had become bona vacantia on the dissolution of the company will automatically revert to the company’s ownership.
However, this may not be possible where the Crown has sold the property. In these cases, the Crown will pay the company the amount of any consideration it received from the disposal of the property or an amount equal to the value of the property if no consideration was received.
The court also has the power to restore the company to the position it would have been in had the company not been dissolved.
Vesting orders
This is the approach that Gilmour is understood to have adopted in relation to the Property. Parties can apply for a vesting order under one of:
- the Companies Act in relation to property disclaimed by the Crown.
Applications made under the Companies Act can only be made by parties who can claim an interest in the property such as creditors, tenants and parties who had paid to purchase the property.
- the Insolvency Act in relation to property disclaimed by a liquidator;
Applications made under the Insolvency Act must be made within three months orf earlier of the applicant becoming aware of the disclaimer or of the applicant receiving a copy of the liquidator’s disclaimer.
- the Law of Property Act 1925 in relation to escheat property;
Under the Law of Property Act, the court can order the creation of a corresponding freehold title to the one that was extinguished through escheat. This requires the applicant to have held a legal right to the property. There is no time limit on an application under the Law of Property Act.
- the Trustee Act 1925 in relation to property held by a corporate trustee.
Where property becomes bona vacantia following the dissolution of a corporate trustee, the court can vest the dissolved trustee’s interest in a new trustee. Alternatively, in the case of joint trustees, the court also has the power to vest the dissolved trustee’s interest in the joint trustee.
Discretionary grants
Where a company was solvent on its dissolution and where it would be impossible or cost-prohibitive to restore a company, the Crown can exercise its discretion to make payments to former shareholders as owners of the company. It is important to note that a director cannot make any application for a discretionary grant unless they are a shareholder as well. Conversely, where the company was insolvent, this discretion extends to the liquidators and administrators of the dissolved company.
This power is limited to the payment of cash received by the Crown from the disposal of bona vacantia and the grant is subject to a maximum limit of £3000 and, where it would be possible to restore a company, the applicant will be forced to undertake to not restore the company in the future.
Purchasing Escheat
The Crown Estate has greater powers over the land acquired through escheat and is not subject to a deadline to sell the freehold land. However, as the Crown Estate cannot undertake acts of management, it can only sell the whole of the property. Assuming that the purchaser is an “appropriate person or body” and that the sale is in the public interest, the Crown Estate will sell with a view to its legal requirement to obtain the best consideration for the property. Any transaction will also require the purchaser to make a contribution to the Crown Estate’s legal fees.
Purchasing from the Crown
The Crown has three years to disclaim their title to any bona vacantia. This period runs from either the date that the Crown was notified of the bona vacantia or from the date that the Crown established the ownership of the property. Should the Crown decide not to disclaim their title, they will seek to sell the property for full market value within these three years.
As such, there are numerous considerations that business owners and directors should be aware of when dissolving a company. Identifying and correctly disposing of a company’s assets can prevent business owners from the expense, complexity and delays of dealing with bona vacantia.
The multidisciplinary approach adopted by Tees’ Corporate & Commercial, Litigation and Commercial Property teams means we are always ready to assist both with the dissolution of a company or with retrieving bona vacantia.
