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Dissolution: Practical Advice to Mortgagees on Asset Realisation

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Dissolution: Practical Advice to Mortgagees on Asset Realisation INSIGHT Eversheds LLP and its worldwide offi ces have over 4,000 people who provide services to the private and public sector business and fi nance community. Access to all these services is provided through 55 international offi ces in 29 jurisdictions. Eversheds is ranked in all regions of the UK for restructuring & insolvency with many of its lawyers listed as experts in their fi eld, thus combining local market knowledge and access through them to international specialisms, resources and capability of one of the world’s largest law fi rms. Authors James Williams and David Gray Dissolution: practical advice to mortgagees on asset realisation KEY POINTS The recent case ofRe Fivestar Properties Ltd highlighted an instance where the In relation to (i), one would hope that company’s administrators filed a dissolution notice despite the company continuing the insolvency practitioner would have dealt to own a freehold asset with substantial value. This is just one example of how a secured with all realisable assets of the company creditor may find itself having to realise a valuable asset following a formal insolvency prior to making the appropriate filing for process and subsequent dissolution. dissolution. However, the recent case of If a lender identifies an asset of value, the first question it will ask is how best to realise Re Fivestar Properties Ltd [2015] EWHC that asset. The second will be how much that method will cost. The next steps will depend 2782 (Ch) (8 October 2015) highlights an on whether the asset has been disclaimed by the Crown and whether the disclaimed asset instance where the company’s administrators is freehold or leasehold. filed a dissolution notice despite the Without an insolvency practitioner in place, the active over the passive approach is to company continuing to own a freehold asset be preferred in relation to dissolved companies. Given that each realisation process in with substantial value. The reason why the dissolution is lawyer-led, this can be a good opportunity to gain a client’s respect and be administrators chose to file such a notice seen to offer cost-effective problem-solving without ‘over-lawyering’ the issue. (which was not considered in the case) is less important for the purpose of this article INTRODUCTION an asset to repay a debt due from a dissolved than to note that a secured creditor can At some point, every lender will company. find itself having to realise a valuable asset n have to deal with an insolvency or This article offers a brief overview of following a formal insolvency process and dissolution of one of its borrowers. While the challenges facing secured lenders upon subsequent dissolution. most bankers in recoveries teams will be dissolution and possible solutions. For In relation to (ii), it is easy to see several relatively familiar with the liquidation obvious reasons (value etc), the article will permutations by which the company is process and have trusted insolvency focus on realisation of real property, dissolved while still holding assets and practitioners they can call upon, the but one should keep in mind that much of retaining liabilities. The simplest is that situation in which a corporate borrower’s what is said is applicable to chattels. If the the directors simply do not know that the assets have to be realised while the lender is unsecured, its only recourse is to company owns the asset in question. It is borrower is dissolved is relatively apply to restore the company to the register easy to forget about the small parcel of land unfamiliar territory. Added to this is that in conjunction with follow-up actions to obtained (and retained) by the company upon dissolution there is no person acting bring about a realisation of the company’s many years before, or to believe that all as a guide, nor sending prompts/updates to assets and repayment of its debt. The options the company’s property was transferred to creditors, and it becomes easy to open to secured creditors are wider. another member of its group as part of the forget about a dissolved company, or let it fall to the bottom of a pile, particularly if ‘It is not that uncommon for a secured lender to find the lending is low and the asset(s) difficult to realise. itself needing advice on how to realise an asset to If the company’s affairs are conducted repay debt due from a dissolved company’ properly, one would not expect that a secured lender would have any need to deal with a company which has been dissolved/ ROUTES TO DISSOLUTION restructure which left the now dissolved struck off. The liabilities should have been Broadly speaking, the main routes to company dormant years before. Small repaid, security released and the company’s dissolution are (i) following a formal parcels of land are easily forgotten about, realisable assets transferred. However, insolvency process (administration/ but can be vital to the operation of a site and experience suggests that companies’ affairs liquidation); (ii) director-led voluntary therefore valuable. In relation to outstanding are not always conducted properly and that, strike off; or (iii) involuntary strike off liabilities, although the company should whether through design or ignorance, it is by the Registrar of Companies, most not have been dissolved with outstanding not that uncommon for a secured lender to commonly resulting from a failure to file current liabilities, it could be dissolved find itself needing advice on how to realise documents. while still contingently liable, for example Corporate Rescue and Insolvency April 2016 43 Insight INSIGHT pursuant to a guarantee. With no insolvency Solicitor. Practitioners should read the that right will depend on a number of process preceding the dissolution that Government’s guidance paper on bona factors (again see BVC1). Below we consider contingent liability has not been dealt vacantia property for a good overview the alternatives for disclaimed and non- with at law and could later be crystallised. (BVC1). Significantly, the rules in relation disclaimed property. At this point it is worth highlighting that to a mortgagee seeking to sell bona vacantia while the specific legal mortgages may have property under a power of sale changed Non-disclaimed property been released, any ‘forgotten’ land should from 1 July 2015, cutting down the For a mortgagee of freehold/leasehold still be captured by mortgages contained Treasury Solicitor’s involvement in such a property, this is the simplest case and the in unreleased debentures. The rest of this sale to rare cases where there is a possibility mortgagee may proceed to sell that real article keeps such equitable mortgages of a surplus returning to the Crown. property under its power of sale or to in mind, since the power of sale is still Although this simplifies things in relation appoint receivers in the usual way. exercisable and will be recognised by the to a sale (cutting out correspondence with The position in relation to receivers Land Registry (Swift 1st Ltd v Colin & Ors the Treasury Solicitor), a client would is more complicated than the position [2011] EWHC 2410 (Ch) (27 July 2011)). be well advised to use the checklist of of a mortgagee. This is due: (i) to the By far the most common circumstance information which the Treasury Solicitor receiver’s special position between lender for lenders is (iii), where their borrower previously required (reputable valuation, and borrower; (ii) the termination of allows itself to be struck off. Not all lenders certificate of debt etc), which are good the receiver’s agency upon liquidation/ will have systems for automatic notification practical steps, as a matter of good practice. dissolution; and (iii) the lack of any guidance in instances where the Company Registrar from the Treasury Solicitor on the position files a strike off notice in relation to their ASSET REALISATION of receivers on dissolution. However, the borrowers. Combine this with inevitable If a lender identifies an asset of value, the general consensus appears to be that the oversights where such systems are in place, first question it will ask is how best to realise receiver may still fulfil his role despite the and a company with disinterested directors that asset. The second will be how much that company’s dissolution. (who perhaps operate the trade through method will cost. The first option most will An observant purchaser may pick up on parallel entities), and one can easily imagine consider is an application to court under the company’s dissolution (in most cases the a situation where the company is dissolved s 1029 of the CA 2006. However, while an company will remain on title at the Land while still owning assets and owing debt. uncontested application can be relatively Registry unless a vesting order has been sought and granted), but a bit of research ‘One can easily imagine a situation where the should make the purchaser comfortable as to the mortgagee’s/receiver’s ability to pass company is dissolved while still owning assets and good title despite the company’s dissolution. owing debt’ To satisfy a cautious purchaser, confirmatory applications could be made under s 181 of the Law of Property Act 1925 (LPA At this stage it is worth pointing out that inexpensive, the lender is then reliant upon 1925) (Quadracolour Ltd v Crown Estate each of the routes to dissolution provide for either an appointment of a liquidator to Commissioners [2013] EWHC 4842 (Ch)) or a period in which objections can be received. realise assets and make a distribution, or s 1017 of the CA 2006, as suggested in the Needless to say, if a lender with outstanding upon the actions of directors who may Fivestar Properties case.
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