Keeping the lights on: protecting premises licences with restructuring and insolvency

Claire Morris, Associate

The UK leisure and hospitality sector continues to face acute financial pressure, with rising costs and reduced consumer spending pushing many operators towards contemplating the future of their businesses. This might involve dissolving a company, insolvency, or the restructuring of complex corporate arrangements in order to remain commercially viable.

In the midst of this, it is likely that there will be a need to retain licences for sites you will keep operating or ensure there is a premises licence to pass on. However, change, especially when under pressure, introduces risk and in these circumstances the fate of premises licences can be overlooked or misunderstood. This can result in the automatic lapse of a licence under the Licensing Act 2003. Failing to act quickly can lead to the lapse becoming irrevocable.

We are increasingly coming across operators who are not aware their licence has lapsed until some event triggers discovery. In these circumstances, operators have typically been trading for a considerable period of time (over a year in some cases) before learning they no longer have a premises licence. In addition to stress during an already difficult time, it also prompts a lot of questions about what has happened and what to do next, including whether the licence can be salvaged and how to operate in the meantime. This article will answer those questions.

The flip side is, of course, that one business’s misfortune is another’s opportunity. We shall discuss this and what purchasers of a business need to do during these uncertain times in a separate article.

What causes a premises licence to lapse?

A premises licence will lapse in the following circumstances:

• Where the premises licence holder is an individual and they die, lose mental capacity to hold the premises licence (within the meaning of the Mental Capacity Act 2005) or they become insolvent. In this case, ‘insolvency’ means several things:
  • The approval of a voluntary arrangement proposed by him,
  • Being made bankrupt or having his estate sequestrated, or
  • Entering into a trust deed for his creditors.

• Where the premise licence holder is a company and they become insolvent or dissolved. In this case, ‘insolvency’ means:
• • The approval of a voluntary arrangement proposed by its directors,
  • The appointment of an administrator in respect of the company,
  • The appointment of an administrative receiver in respect of the company, or
  • Going into liquidation.

Dissolution applies when a company is no longer trading. The trigger event for the premises licence lapsing is the publication of a second notice of the strike off in the Gazette.

Those undergoing restructuring should always check who holds the premises licence, particularly if a third party is contracted to provide the daily licensable activities on your site. Never assume they are the premises licence holder.

We have also encountered scenarios where companies have been compulsorily struck off as a result of not filling the requisite accounts and statements with Companies House and the strike off warnings have not been acted upon. Sometimes this can be due to changing relationships with third parties who previously had responsibility for such matters, or changing responsibilities within an organisation (and the task has fallen through the cracks).

The law around when licences lapse seems complicated – shouldn’t the licensing authority tell me if my licence has lapsed?

The answer is no – the licensing authority is not required to check the status of a premises licence.

However, they may check the basic details of the premises licence holder on Companies House at certain times to ensure they are current.

For example, when the annual fee is due, or when any kind of application is made. Such details may not always up to date but once the lapse is discovered, the licensing authority will notify the premises licence holder of the lapse and advise that all licensable activities must stop immediately.

I’ve just been told my premises licence lapsed a while ago. I have been trading in the meantime before I found out. Will I be penalised?

If you have been trading without a premises licence (or a temporary event notice, a “TEN”) then you will have been carrying on unauthorised licensable activities. There is a statutory defence available namely that carrying on the licensable activities was:

• Due to a mistake, or due to reliance on information given to you, or due to an act or omission by another person, or to some other cause beyond his control, AND
• You took all reasonable precautions and exercised all due diligence to avoid committing the offence.

In practice, we find that the risk of being penalised is reduced where:

• It is clear that a genuine mistake has been made;
• All licensable activities stop immediately upon discovery of the lapse; and
• Remedial steps are taken, such as putting a series of TENs in place or applying for a new premises licence.

You can also expect the premises to be visited by responsible authorities once the lapse has been discovered to ensure compliance, so you need to be prepared to provide evidence that e.g. alcohol sales have not continued until such time authorisation is in place.

My company was struck off but was reinstated on Companies House – is my licence still lapsed?

Where administrative strike off is reversed (by administrative restoration), the company is deemed to have continued in existence as if it had not been dissolved or struck off the register. As a result, the premises licence is reinstated as though the ‘lapsing event’ did not have place.

Upon restoration, you can trade as you did before. You do not need to obtain the permission of the licensing authority to start trading again. However, where they are aware of the lapse, you may wish to notify them when the administrative restoration on Companies House has completed.

You might also consider putting in place a series of TENs whilst the company goes through the restoration process (to avoid any potential dispute with the responsible authorities regarding authorisation during this time).

My premises licence lapsed recently – can it be reinstated somehow?

When a premises licence lapses, there follows a period of 28 calendar days when an application can be made to reinstate it with immediate effect. This provides a statutory measures safety net, without which the impact on businesses and employees could be devastating. There are two ways in which a lapsed licence can be resurrected:

1. By way of an application to reinstate post-lapse by the new premises licence holder.
2. By way of an application for Interim Authority Notice (IAN). This resurrects the lapsed licence into the hands of a person with a prescribed interest in the premises (such as the free holder or the superior lessee), or a person connected to the previous premises licence holder (such as an insolvency practitioner). The IAN can last up to three months and during that time, the person becomes the new premises licence holder. If the premises licence is not transferred during that time, it will lapse permanently.

The premises licence has lapsed irrevocably – can I just apply to transfer it to another entity of mine and hope the Licensing Authority doesn’t notice?

No – the transfer application is accompanied by a statement of truth. If you knowingly lie when you sign this, you can be prosecuted under s158 Licensing Act 2003 and receive an unlimited fine upon conviction.

You can also expect the licensing authority to undertake basic checks with Companies House to confirm the existence of the premises licence holder and the validity of the licence before it is transferred.

The premises licence has lapsed completely – what can I do to continue trading licensable activities at a site?

There are three things you can look at doing: if you lease a site, see if the landlord has a shadow licence; apply for a new premises licence; and apply for temporary event notices (TENs).

Check whether the landlord has a shadow premises licence

This type of licence sits in the background and is typically conditioned to become active upon transfer to an operator. A landlord with such a shadow licence might be prepared to transfer it to you for a given term of use, following which it is transferred back to them.

Apply for a new premises licence:

If you wish to conduct licensable activities on a permanent basis, will need to apply afresh for a new premises licence. You can apply for exactly the same licence as you had before but there is no guarantee that it will mirror exactly the lapsed licence. The obvious risk is that licensing policies may have become more restrictive over time. There is also the risk that responsible authorities, residents and councillors object to the application, or seek to restrict its permissions. This may happen if the area has changed – for example, residential accommodation has been built since the licence was granted – or if the premises has been on the receiving end of complaints and enforcement action in the past. The risk of challenge and an unfavourable licence is much reduced where the premises has operated in a considerate and responsible manner prior to lapsing.

Apply for temporary event notices (TENs):

Whilst the application for a new premises licence proceeds, you can also put in place a series of temporary event notices (TENs) to duplicate, as much as possible, the operation of the lapsed premises licence. However, the TENs system is subject to a strict set of capacity limits, annual allowances and maximum duration limits. As a result, you will need to consider the most profitable trading days and develop a schedule of TENs around those – especially if the premises licence application is likely to be challenged and not granted the day after the end of the consultation period. Also note, that the earliest you can lodge a TEN is five clear working days before the TEN starts. That will present you with a fallow period where you are not permitted to operate licensable activities at all.

How can I trade if I don’t have a premises licence or a TEN in place?

In the absence of a premises licence, or a TEN, you cannot undertake any licensable activities. However, there may be parts of your business that you can still operate (hopefully profitably), such as:

• The supply of hot food and hot drink between 5am and 11pm.
• The playing of live unamplified music between 8am and 11pm, and background level music at any time.
• The workplace exemption for live music. This allows amplified live music in a workplace between the hours of 8am and 11pm so long as the audience is 500 or fewer people.
• Additional exemptions operate under certain conditions for other less common licensable activities, including indoor sporting events, playing of films, and performance of dance and plays.

I want to keep my customers engaged while I sort out my licensing – can I give alcohol away for ‘free’ while I do this?

If the premises is trading in other ways, it will be very hard to convince the licensing authority that the cost of the alcohol is not built in or somehow tied to such trade. A common scenario we encounter is where a restaurant wishes to give away a free glass of fizz with a meal. We would suggest you obtain legal advice before providing alcohol ‘free of charge’.

What if I have decided to just sell by business whilst it’s still a going concern with a premises licence – is that it or do I have to do anything with the premises licence?

Be aware that the premises licence does not automatically transfer to the entity that has purchased your business.  The  new operator must apply to transfer the premises licence to themselves.

What can I do to protect myself against a premises licence lapsing?

The following may appear obvious, but they are drawn from real cases we have been involved in:

1. Make sure you are aware of what entity is the premises licence holder for your site(s), particularly if you have complex organisational structures and operational arrangements.
2. If restructuring, ensure you know which parts of the business will be affected, how and when.
3. Transfer the premises licence to another entity before it lapses. Post-lapse, it is easy to forget to take simple steps to preserve the premises licence or lose track of where you are in the 28 day grace period.
4. Keep your Companies House records up to date to avoid involuntary strike off due to a lack of administrative care.

The flip side is, of course, that one business’s misfortune is another’s opportunity (and we shall discuss this opposite side of the coin and what purchasers of a business need to do during these uncertain times in a separate article).

If you wish to speak with a member of our licensing team about your plans for your business, please contact us at [email protected], or call 0161 832 3434.