There are several points to note about disclaimer:
- The power of disclaimer occurs only in liquidation. It’s a power given to liquidators and not to Administrators, Administrative Receivers, Supervisors of CVAs, or Fixed Charge/LPA Receivers.
- The liquidator can disclaim any ‘onerous property’. Typically this is a property lease, but it can be any unprofitable contract or any other physical or intangible ‘asset’ of the company that is either unsaleable or not readily saleable, or could lead to a liability on the company or liquidator to either pay cash or carry out some onerous act.
The liquidator can exercise the power of disclaimer even if he has:
- Taken possession of the asset
- Tried to sell it
- Exercised rights of ownership over it.
That’s to say he can disclaim an asset at any time he wants, his actions do not prevent him from disclaiming it later when it suits him, after he has become aware that it’s onerous.
What’s the effect of disclaimer?
Disclaimer discharges the company that is being liquidated from all further liability in respect of the asset. So for example a liquidator will disclaim a property lease to avoid paying any (further) rent and other property holding costs, either his agents having advised there is no value in the lease or his efforts to secure a sale having failed.
What’s the process for disclaiming an asset?
It’s an incredibly simple process.
The liquidator prepares a simple form, a ‘notice of disclaimer’, signs and dates it – the notice is effective from that date. There needs to be sufficient detail on the form to enable those he serves the document on to identify what asset is being disclaimed.
Within seven business days he must then send a copy of the notice to:
- Anyone with an interest in the asset
- Anyone who is under any liability in respect of the asset eg a guarantor of a lease
- The Registrar of Companies
- The Land Registry if the disclaimer is in respect of registered land.
Rights of third parties
Disclaimers impact on third parties only to the extent necessary to release the company from its obligations. So, the disclaimer will not release the guarantor of a property lease from his obligations under the guarantee for the lease.
A third party suffering a loss as a result of a disclaimer can submit a claim in the liquidation, with such a claim normally being unsecured.
The Insolvency Act 1986 allows anyone interested in an asset to serve a ‘notice to elect’ on the liquidator to require that he decides whether or not he intends to disclaim the asset. Typically the person most likely to serve such a notice is the landlord of a leasehold property, because he wants certainty so he can deal with the freehold.
Electronic service on the liquidator is possible if the liquidator has provided an email address, failing which personal service is best.
Once served with a notice to elect the liquidator then has just 28 days to disclaim the property. If he fails to disclaim, he can no longer do so and is deemed to have adopted the relevant contract, with any money payable in respect of the adopted contract, for example rent under a property lease, from then payable as a liquidation expense.