With rising cost pressures on many operators’ already stretched margins (and changes announced in the Budget will add to those costs), it was not surprising to read company insolvencies across the sector rose 5% year on year, as reported in The Morning Advertiser last week.
I appreciate that the nuances of licensing law are unlikely to be top of your priorities at this time, particularly with businesses seeking to trade successfully over hopefully a busy festive period.
However, insolvency of a premises licence holder does have an immediate and critical effect on the premises licence, and it is vital for operators to be aware of this so that action can be taken, where possible, to mitigate against the consequences.
A premises licence is a vital asset which can add significant value to a business and the property within which it operates.
Where the licence is lost it can be very difficult to obtain a new licence with the same permissions in terms of hours, licensable activities and conditions, particularly where the premises is situated within a restrictive licensing policy area such as a cumulative impact zone where there is a presumption to refuse new licences (or where the locality such as nearby residents has changed).
Clear link
Therefore protecting the licence from events that can cause the licence to be lost is often a priority, and one of those is insolvency of the holder.
In terms of the link between insolvency and the premises licence, the position is clear; if the premises licence holder becomes insolvent (whether an individual or a company), then the premises licence lapses immediately, it happens by automatic operation of law and does not require any notice or action by anyone.
The specific time and date of the insolvency will depend upon the type of insolvency it is (and it is always advisable to obtain advice from relevant insolvency and licensing experts).
Where the licence holder is an individual, the insolvency that triggers lapse of the licence occurs on the approval of a voluntary arrangement (IVA), being made bankrupt / having his estate sequestrated or entering into a trust deed for his creditors.
For a company that holds a premises licence, the insolvency event that triggers the lapse of the premises licence could be the approval of a voluntary arrangement proposed by its directors (CVA); the appointment of an administrator (administration) or the less used approach of appointment of an administrative receiver of the company (administrative receivership) or the company going into liquidation (whether that be compulsory, creditors voluntary or members voluntary liquidation).
Each of these types of insolvency has a specific moment under insolvency law when the insolvency technically takes place, and in all those circumstances the licence lapses immediately at that moment. Once the premises licence lapses, licensable activities cannot take place under that premises licence.
Where a lapse following an insolvency is caught early, the lapsed licence can be reinstated with immediate effect by way of a transfer to an “active” company or person as long as that transfer of premises licence application is made within 28 days of the original insolvency event that caused the lapse of the licence.
Proactive action
An interim authority notice can also be used for example where the holder of the premises licence becomes insolvent and the insolvency practitioner temporarily takes the licence whilst a permanent transfer entity is chosen, with that transfer required within three months of the interim authority.
Therefore, for example you could transfer the premises licence from the insolvent individual or company to a new individual or company which is taking on the premises as the incoming tenant operator (if one can be found expeditiously) or to the insolvency practitioner, or indeed back to the landlord whilst a new tenant is found.
The applicant for a transfer of premises licence in such cases would need to show that they are a person “who carries on, or proposes to carry on, a business which involves the use of the premises for the licensable activities”.
This is a widely interpreted and can include not only those seeking to operate the licensed premises but also those with proprietary interest such as Landlords.
In my experience, the reality is that the premises licence is usually low on the radar for operators struggling and dealing with financial difficulties.
However, the risk of losing the premises licence, additional costs and delay of having to apply for a new licence (where obtaining the same permissions as previously in place is not guaranteed) can often be avoided.
The key is to recognise when an insolvency and lapse is impending, or indeed has taken place, and take proactive action to transfer and reinstate the licence within 28 days of lapse to ensure it is kept alive.
- Suraj Desor is an associate solicitor at Poppleston Allen
