Protecting your licensed premises from insolvency

The past few weeks have brought more news stories of doom and gloom from the hospitality sector with statistics showing that the number of insolvencies is at an all-time high. Data published by UHY Hacker Young shows the number of pub and bar insolvencies increased from 438 to 725 over the last year. Insolvency specialist Begbies Traynor has recently reported that higher interest rates are pushing an increasing number of companies into insolvency.

Many operators and insolvency practitioners are unaware that an insolvency event causes a premises licence to lapse, and that swift action must be taken to ensure that premises licences are preserved.

Premises licences are a valuable asset which can increase the value of a property. In many city centres, licences which permit late trading hours and those with favourable conditions are becoming increasingly rare due to the presence of Cumulative Impact Zones which means there is a presumption that new licences, or variations seeking extended hours, will not be granted where representations to those applications are received.

Licensed premises and insolvency

The Licensing Act 2003, which deals with the grant and preservation of premises licences, states that an ‘insolvency event’ shall result in the lapse of the premises licence. That lapse is immediate as soon as the insolvency event takes place. For example, if the company holding a premises licence enters administration, the premises licence lapses at the point in time where the appointment of administrators is approved. The business will generally continue to trade whilst in administration but unless the premises licence is transferred or an interim authority notice is applied for, the business will be trading without a valid premises licence and therefore an offence will be committed.

Following the ‘insolvency event’ there is a 28-day window within which to take action to preserve the premises licence. This either requires the transfer to another active company or, as a temporary measure, the application for an interim authority notice.

Licences are not always held by companies, and it is still fairly common for an individual or joint individuals to hold a premises licence. The ‘insolvency event’ in the case of an individual would be being made bankrupt, entering into a trust deed for creditors or entering into an Individual Voluntary Arrangement (IVA). Licences also lapse upon the death of an individual licence holder or where the holder no longer possesses the capacity to hold the licence. The procedure for preserving the premises licence is the same and an interim authority notice must be applied for or transfer of the licence to another individual or an active company must be submitted within 28 days of the insolvency event, loss of capacity, or death.

If a licence is not transferred in time, or if an interim authority is in place but the requisite subsequent transfer does not take place within three months, the licence will be permanently lost, and it will be necessary to make an application for a new premises licence. It may not always be possible to secure the grant of the licence upon the same terms as the previous licence. Often, if the locality has changed and, for example, residential accommodation has been built alongside hospitality premises, it is common for representations to be received from local residents with concerns regarding the potential for public nuisance or crime and disorder.

Insolvency is a time of uncertainty and stress both for individuals and business owners and it can be difficult to find the time to concentrate upon administrative tasks whilst trying to navigate other challenges. However, it is important to be as proactive as possible and take advice from a specialist insolvency practitioner and a licensing specialist if insolvency is on the horizon. This will ensure that steps can be taken to preserve any premises licence and avoid the consequences, and potentially significant costs, of a loss of trade and the requirement for an application for a new premises licence.

If you occupy a licensed premises and have concerns about the financial health of your business, please contact Sarah Taylor.