Clarification on share of freehold when Company bankrupt

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    Clarification on share of freehold when Company bankrupt

    Can anyone please help me gain clarity on what happens to a share in a freehold Company when Company goes bankrupt.

    We own a 1/8th share in the Company owning the freehold for a block of flats (as do 7 other lessess, one of whom owns a majority share, and has probably engineered the bankruptcy).

    The Company is about to declare bankruptcy. What happens next?

    a) The freehold will revert to the Crown.

    b) Someone (possibly the majority lessee) will offer to purchase the freehold at some price.

    c) And then what? Could he purchase the entire company including all of its shares even if the remaining lessees do not wish to sell their share? In other words is this a mechanism for a majority-owner-lessee to gain the entire freehold at practically zero cost?

    To put meat on the concerns, the suspicion here is that the land with all 8 flats burned to the ground would be worth far more than the current property value owned by the majority holding lessee.

    Also what happens the outstanding service charges due from the majority lessee. Can he simply, as the new freeholder, choose to write them off.

    The whole legal structure seems ripe for abuse if I understand it correctly. There are a number of other concerns here, but I'll leave those until the main one is more certain in my mind.

    #2
    The company and the freehold it owns comes under the control of whoever takes control which depends on the type of “bankruptcy” ;in most cases these companies are whether struck off( when the freehold does revert to the Crown) or declare insolvency. Once you establish what is being proposed then you can tell us.

    In most cases therefore the freehold will be sold to meet the debts and liabilities of the company.
    The person controlling the property will attempt to collect all outstanding service charges. If your leases allow legal cost to be recovered expect them to pursue them.


    It is possible to acquire the freehold from lets say insolvency at the market value. In most cases all leaseholders will be offered the freehold first or at auction under first refusal. If the leases however are 999 years at a peppercorn and there is no is no other income or assets it can be disclaimed. It will likely then revert to the Crown and you can purchase it for market value, but again only as a majority.


    What I would suggest is that there are 3 options based on the ability to follow them through, a full understanding of what is owed and whether it can be recovered, the liability of any other directors, and the value of the freehold ( if there are ground rents and lease extensions which could be granted, itr has considerable value
    1 the majority of shareholders seek to remove the person as a director( an injunction may be required) and take control as directors and put affairs in order ( a management audit might be required under the 87 Act)
    2 Consider letting it go and if 5 or more agree exercise right to manage now and take over the running of the company over and above whatever happens to the freehold company
    3 If there is value in the freehold then arrange for it to be sold but put in control of the building into the hands of the owners via RTM.

    It is vital to check that a service charge moneys are paid into a trust account ( they should have been some time ago) so that they are protected from “bankruptcy”

    Have a think and get a solicitor on this asap. By all means pass on my thoughts above.
    Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

    Comment


      #3
      Is the Company going bankrupt becausethe leaseholders have not paid the sevice charges ?

      as that may change some of the answers on the best way forward to reclaim the service charges

      Comment


        #4
        AndrewDod,

        You should study the freehold company accounts and identify if the accounts show the freehold title is held by the company as "nominee purchaser" on behalf of 8 leaseholders. If so, you may be able to arrange transfer of freehold title to another company set up to hold the property on behalf of the leaseholders.

        If the accounts show the freehold title is an investment by the company and was collecting annual grouind rent , then the freehiold title will pass to the Crown after the company becomes bankrupt.

        Comment


          #5
          Gordon999,

          Thats assuming that the company is choosing bankruptcy and even if the nominee, the obstacle is the votes that the OP has alluded to which might prevent this.

          Quite a few times I have come across these set ups where a "golden share" exists which has vastly disproportionate voting rights attached to it.
          Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

          Comment


            #6
            I had assumed 8 flats in block and 8 shares issued. ( one for each leasehold flat owner). Does the "major lesseee" own 4 or more flats and NOT paying the service charge ?

            Comment


              #7
              Many thanks to all and apologies as OP for delayed response (have been away).

              Originally posted by Gordon999 View Post
              I had assumed 8 flats in block and 8 shares issued. ( one for each leasehold flat owner). Does the "major lesseee" own 4 or more flats and NOT paying the service charge ?
              Yes, the lessee for a majority of units belong to members of the same family, and these lessees are failing to pay service charges (no reason supplied).

              It seems likely that there may be a a deliberate attempt to induce Company failure. If the freehold reverts to Crown and these same lessees repurchase it, what is to stop them simply failing to take themselves to LVT/County Court (after purchasing shares of freehold for which others have paid dearly at a knockdown price). How can minority lessees protect themselves in this situation?

              Company law seems to trump every one of the apparent legislative protections which are supposed to protect humble owners against an aggressive or dishonest freeholder.

              I am still not entirely clear as to what happens to a minority share. To take an extreme scenario, if the whole building were to cease to exist, could we end up with a situation that the person who has purchased the company from the crown would own the whole of the land, or would the prior shareholder still hold x% share of whatever happened afterwards.

              Comment


                #8
                Originally posted by AndrewDod View Post
                the lessee for a majority of units belong to members of the same family, and these lessees are failing to pay service charges (no reason supplied). .
                ( Ref post number 3 )

                Can you - before banckrupcy is initiated, sue the company for not obeying the lease and suing the none payers for not paying the service charges.
                Yes, I know the 4 are the ones that will probably have to sue themselves, but that's why you sue the company, and force them to pay the service charges.

                ? ?

                Comment


                  #9
                  Ok that’s clearer; there are eight shares of equal class and voting rights, not a majority or a minority share. One group of shareholders have a majority shareholding and more votes than the other flats owners who have a minority shareholding.

                  Your question is a common one " why not spend a lot of money and become insolvent or bankrupt" etc. It rarely happens intentionally due to the consequences, personally and to the block as a whole, however that might not concern them.

                  While you do then have remedies about their conduct as directors and a deliberate even fraudulent activities, these are more expensive than the alternatives which, even as one or two flat’s apply for the appointment of a manager, which if it precedes any Bankruptcy, can even extend to the role of receiver and take the asset from them.

                  As they will still be leaseholders, its important to avoid a repeat of this and seize control via a manager.
                  Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

                  Comment


                    #10
                    Originally posted by leaseholdanswers View Post
                    While you do then have remedies about their conduct as directors and a deliberate even fraudulent activities, these are more expensive than the alternatives which, even as one or two flat’s apply for the appointment of a manager, which if it precedes any Bankruptcy, can even extend to the role of receiver and take the asset from them.
                    Useful responses as always leaseholdanswers.

                    The practical problem is that the LVT will not impose a manager of their choosing (I think). The individual approaching the LVT would need to do so armed with a manager prepared to manage. For most managers, with £5000 in the kitty, a pending insurance premium of half that, and a crackpot subgroup of lessees, it would be a poison chalise. Their only option would be to sue the lessees, and there is no funding to do that. So who would take it on? And what exactly to ask of the LVT in terms of "extend to the role of receiver".

                    Perhaps an individual minority lessee could ask the LVT to install himself as "manager" (but not Director) with remit to override directors and to use residual funds to take legal action on behalf of the Company as appropriate with minimal legal support. I guess that leseee might even be able to loan the Company money to do so, and would become a creditor in any subsequent bankruptcy and repurchase. It practice there are few options it seems, and lessees are simply left hanging in the wind in these situations......

                    Comment


                      #11
                      The applicant will nominate a manger in most cases a chartered surveyor specialising in management.

                      The service charge monies should be ring fenced and held in trust, and the manager will consider the leases and the facts to see is recovery is possible.

                      It is, yes, a poison chalice, however it is a practical option to be explored. It may be that the applicants might have to put money into it on their own behalf in the meantime. That might be cheaper than the litigation costs of the company route and a lot less than the hit on the sale price.


                      If the appointment extends to being a receiver, then forfeiture is viable option if they persist in not cooperating.

                      The threat of that and the company remedies as well as personal ones might well bring them to their senses.

                      It is not insurmountable
                      Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

                      Comment


                        #12
                        The existing company directors have a responsibility to all leaseholders to collect the arrears of service charge from all the flats in the block. Its not necessary to put the company into bankrupcy when the service charge arrears are owed by leaseholders.

                        Its quite simply for the Management Company to instruct a solicitor firm which advertises online that it offers service for collecting service charge arrears.

                        Comment


                          #13
                          Originally posted by Gordon999 View Post
                          The existing company directors have a responsibility to all leaseholders to collect the arrears of service charge from all the flats in the block. Its not necessary to put the company into bankrupcy when the service charge arrears are owed by leaseholders.

                          Its quite simply for the Management Company to instruct a solicitor firm which advertises online that it offers service for collecting service charge arrears.
                          Agreed hiowever the OPs point uis that the defaulting leaseholders are directors of the company, or relations thereof. The idea is as I explained earlier is to have the benefit of the expense but never pay for it by declaring bankruptcy.
                          Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

                          Comment

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