The insolvency of a premises licence holder has an immediate impact from a licensing perspective. Most premises licences are granted in perpetuity. They can be surrendered by the holder, temporarily lapse if annual fees are not paid, or be revoked following a review. These are actions the licence holder either proactively instigates or is given notice of. However, a licence lapsing because of insolvency is different because the premises licence holder may be unaware that a licence has lapsed and it may be too late to rectify matters when the lapse is brought to their attention.

When does a licence lapse due to insolvency?

Section 27 of the Licensing Act 2003 (the Act) states that a premises licence lapses immediately if the holder is an individual where a voluntary arrangement proposed by him/her is approved, they are made bankrupt (either because the individual petitions or their creditors do), has their estate sequestrated, or they enter into a trust deed for their creditors. If the premises licence holder is a company, the licence will lapse on the approval of a voluntary arrangement proposed by its directors, the appointment of an administrator, the appointment of an administrative receiver or it goes into liquidation.

A company can be dissolved, not because it is insolvent, but because it is no longer trading. This is also a trigger event which causes the premises to lapse when Companies House publishes a second notice in the Gazette of the proposed strike-off. If the company is no longer trading, why is this an issue? Some operators have complicated group structures with premises licences not necessarily held in the name of the company directly carrying out the licensable activities. When reordered, companies can get mistakenly dissolved without the operator realising that the dissolved company is a holder of a trading premises licences. Alternatively, strike-off warnings could have been ignored. Beauchamp Pizza Company v Coventry City Council [2010] held that when a company is struck off but reinstated by a process called administrative restoration, the premises licence lapse trigger is deemed to have never taken place, and the premises can trade as before.

Reinstating lapsed licences

If a premises licence has lapsed, carrying out a licensable activity is illegal pursuant to section 136 of the Act. If an offence is committed, a person found guilty can face up to six months in prison or an unlimited fine.

There are two mechanisms to reinstate lapsed licences: the lodging of an interim authority notice or transferring the licence to an entity which is not going through an insolvency process. These applications must be made within 28 days after the day the licence lapsed.

  1. An interim authority notice

This can only be given by a person who has a prescribed interest in the premises (i.e. an insolvency practitioner) or who is connected to the person who held the licence immediately before it lapsed (i.e. a superior lessee or freeholder). Once an interim authority notice is given to the relevant licensing authority, it reinstates the lapsed premises licence for three months. If the premises licence is not permanently transferred during that three-month period, it will then permanently lapse.

  1. Transfer application

This is generally the preferred method. The holder of a premises licence must be a person who carries on, or proposes to carry on, a business which involves the use of the premises for the licensable activities to which the application relates. However, the nexus between the holder and activity can be relatively weak. Hall & Woodhouse v Poole Borough Council [2009] established that a landlord can hold a premises licence where a tenant is the operator. Unless criminal activity is suspected, the exact role a licence holder will take in the operating of the business is rarely investigated and hence this hurdle can be cleared in most cases. Practically speaking, if it is possible, transfer licences prior to any insolvency trigger. This removes any risk of illegality and potential disruption to trade and, for larger estates, allows for the process to be carried out over several days as opposed to hurriedly on the day of insolvency.

It can be months, if not years, before a lapse of licence is discovered. There is no obligation on licensing authorities to regularly check Companies House or the individual insolvency register. Nevertheless, many authorities make such enquiries when a transfer application is received, or the annual fee is due, before duly informing the operator if the licence has lapsed. If the operator’s team has belatedly discovered the lapse, there can be a temptation to lodge a transfer application and hope that the lapse is not uncovered. Making a false statement in the application to transfer is a criminal offence pursuant to section 158 of the Act. Where there has been a genuine oversight, provided that an operator complies with its legal requirements after being made aware, a prosecution pursuant to section 136 of the Act is unlikely. There is a due diligence defence that the act of trading illegally was due to mistake, or to reliance on information given to them, or to an act or omission by another person, or to some other cause beyond their control, and that they took all reasonable precautions and exercised all due diligence to avoid committing the offence.

Where a premises licence has lapsed irretrievably, unless the landlord of the premises has a shadow licence (a ‘back up’ licence on the same terms as the operator’s) which they are willing to transfer, for the business to trade as before, the only option is to apply for a new premises licence. This takes time and there is no guarantee that a new premises licence will be granted on the same terms as previously enjoyed, if at all. If the lapsed premises licence has out-of-date conditions, the statutory authorities usually take the opportunity to request new robust conditions which better uphold the licensing objectives. If the insolvent business has been subject to scrutiny by either residents or the statutory authorities, representations will be raised.

To allow some continuity of business during the period between applying for a new premises and (hopefully) a grant, operators can apply for normal and late Temporary Event Notices (TENs). These can replicate the permitted hours, activities and conditions of the lapsed premises licence. There must be a gap of 24 hours between each TEN, with a week being the longest period a TEN can cover. If TENs do not, or cannot, suffice, some operators may look at opening but not carrying out licensable activities – for example, a restaurant selling hot food up to 11pm but no alcohol.

Alcohol being given away ‘free of charge’ is fraught with difficulty. Even though the licensable activity is the sale by retail of alcohol, shams such as inflating the price of the food to cover the ‘free’ alcoholic drink is illegal. Where there is an element of grey is when the price of the food has not changed and, for example, a glass of wine is provided ‘on the house’. If there is a requirement to purchase food to be given the ‘free’ wine, this is problematic and any business which gives away wine without any other obligations on the customer will quickly find their financial situation worsen further.

If a genuine mistake is made and an oversight has the potential to permanently close what was, fundamentally, a business with good intentions, stakeholders should be sympathetic and do what they can to minimise the further financial impact of the insolvency.

If you have questions or concerns about insolvency and your licensed premises, please contact Niall McCann.

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This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.