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When Insolvency Law and Licensing Law Intertwine: a look at how Insolvency can affect a premises licence

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In the current climate, we know that many businesses in the hospitality, retail and leisure industry are facing financial difficulties and unfortunately for some it may lead to insolvency. It is important for all businesses and individuals which may face insolvency to be aware of the direct impact this can have on their premises licence if they hold one

Section 28 of the Licensing (Scotland) Act 2005 states that a premises licence ceases to have effect after 28 days ‘if the premises licence holder, being an individual, a partnership or a company, becomes insolvent’.

The meaning of insolvent is defined in the Act as:

7) For the purposes of subsection (5)(d) —

(a) an individual or partnership becomes insolvent on—

(i) the approval of a voluntary arrangement proposed by the individual or partnership, (ii) being adjudged bankrupt,

(iii) the individual’s or partnership’s estate being sequestrated,

(iv) entering into a deed of arrangement made for the benefit of creditors, or (v) granting a trust deed for creditors, and

(b) a company becomes insolvent on—

(i) the approval of a voluntary arrangement proposed by its creditors,

(ii) the appointment of an administrator or administrative receiver in respect of it, or

(iii) going into liquidation.

What this means in practice is that if an individual or a company or partnership, becomes insolvent as per the definition in the 2005 Act, they will only have 28 days to lodge a premises licence transfer application with the licensing board from the date of the insolvency event occurring. Otherwise the premises licence will lapse.

In circumstances where it is foreseeable that the current licence holder will become insolvent, or if the insolvency event has already happened, then the only way to prevent the premises licence from lapsing is to have it transferred to another.

Section 33 of the Act allows for the current licence holder to transfer the premises licence to another person, partnership or company. A Section 33 transfer application can also be lodged by someone other than the licence holder if they have a letter, signed by the current licence holder, consenting to the transfer. A section 33 transfer application can be lodged at any time. If the insolvency event is foreseeable then it might be preferable that the application is lodged sooner rather than later. For example, if the licence holder were to become insolvent due to liquidation of their company, then premises licence, as an asset, would fall into the control of the liquidator.

Section 34 of the Act allows for someone other than the licence holder to have the premises licence transferred. This can only happen in four circumstances as specified in the act:

  • where the licence holder dies or no longer holds capacity within the meaning of section 1(6) of the Adults with Incapacity (Scotland) Act 2000
  • the premises licence holder becomes insolvent
  • where the premises licence holder is not an individual, a partnership or a company and they become dissolved.

Importantly, a section 34 transfer application must be lodged with the licensing board within 28 days from the occurrence of any of the events listed above. Again, this is why if the insolvency event is foreseeable, a premises licence holder should apply for the premises licence to be transferred as soon as possible. It is important that a premises licence does not lapse.

It is worth mentioning that if a section 34 transfer application is not lodged within 28 days then the licensing board have been granted a power by virtue of the Coronavirus (Scotland) Act 2020 to accept late applications. This is a discretionary option for the board. At the moment this provision is set to expire on the 31 March 2021 but it may be extended.

A premises licence is a valuable asset to any business and it’s worth should not be understated, particularly as the premises licence can add value to the premises itself. If the premises licence lapses then the premises will no longer be allowed to sell alcohol. This will have a knock-on effect for the business, their customers and possibly their economic sustainability.

It is important to highlight that obtaining a licence is not always easy, particularly in areas of over-provision, where there are already too many premises with a licence. There are also practical difficulties to obtaining a new licence as certificates are required from the planning, environmental health and building control departments of the local council. For older premises they may have difficulty obtaining these certificates and may be required to renovate to meet modern building standards. Whereas a premises licence transfer application is much more straight-forward.

If you think insolvency is something that could affect your business, it is important to start thinking about your premises licence now.

If you require advice on transferring a premises licence please get in touch with our expert team.

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