Features

The forgotten effect of insolvencies on a premises licence

In recent weeks, the UK nightclub scene has made headlines after it was revealed that Pryzm owner is allegedly mulling restructuring options. But what happens to a licence when a late night operator goes insolvent? Sarah Taylor, licensing partner at Keystone Law, explains why it’s important for businesses to be proactive with their licences in case of an insolvency event

Can you explain how an insolvency event can cause a premises licence to lapse, and at what point in the process does this typically occur? 

Before there’s any sign of going into insolvency, I think it’s important for operators to consider not  just their wider business, but specifically their licences because a lot of operators and also a lot of  insolvency practitioners don’t realise that as soon as an insolvency event happens that licence lapses  immediately. And it’s important to be mindful of that trigger point because at that point, when the  licence has lapsed, it’s not in effect anymore and any licensed activities that are taking place are  technically unauthorised.  

So what I generally recommend, for example in the case of an administration, is asking the  insolvency practitioners to notify us once the court has approved the appointment of the  administrators and to get in touch as soon as possible, because at that point we have to transfer the  licences to ensure that there is no pause in the premises trading.  

What are the common misconceptions among operators regarding the status of a premises licence during financial difficulties? 

I’ve had lots of misconceptions, particularly in relation to an administration because I think  there’s a perception that since the company still continues to trade, and it is therefore still  operating, the licence is not affected. But of course, that’s not the case because as soon as the  insolvency event occurs, technically the licence lapses.  

Another big misconception is that if the licence doesn’t authorise the sale of alcohol then it’s not  affected when the operator becomes insolvent. For example, operators that sell late night  refreshments, hot food and drinks that are sold between 11pm and 5am, still require a licence even  if they don’t sell alcohol and if the business becomes insolvent, again, the licence lapses.  

Advertisement

Could you provide examples of scenarios where businesses holding licences might face challenges during an insolvency event? 

There’s a 28-day window, within which you’ve got to either transfer the licence to an active  company or apply for what we call an ‘interim authority notice’, which effectively buys you three  months to then be able to transfer the licence to keep it live.  

As an example, I once had a restaurant that was in central London and it was located in what we  call a ‘cumulative impact zone’. A cumulative impact zone is basically an area where the council  designates that there are enough licensed premises and therefore, there’s a presumption that they  

either won’t grant any more new licences or they won’t grant any variations, for example, for  extended hours. This restaurant was in the middle of Westminster, where 20 years ago, later  licences were granted more easily but now it’s very difficult in comparison. And in that case when I was instructed, 35 days after the insolvency happened, the deadline for the licence to be transferred had passed, and we weren’t able  to resurrect it in any way. 

The only alternative in that case is to make a new application, but if the localitiy has changed, you  may not obtain the same licence you had before.  

Why do you think it has become harder for businesses to obtain licences? 

It’s just that the whole licensing landscape’s changed. I think part of it is because a lot of residential  accommodation has been built in city centres, which causes a conflict with local operators and the  noise that licences premises sometimes generate. Sometimes we get issues with allegations of crime  and disorder linked to licensed premises too which can prompt objections.  

Also, the volume of licensed premises is the reason why lots of councils have introduced  cumulative impact zones where there’s this assumption that no new licences or variations will be  granted. And those cumulative impact policies are based usually on the police crime statistics and  what’s happening in a particular area. And that can change over time, which is why if a restaurant  or nightclub that’s been there for 20 years becomes insolvent and loses its licence, it can be difficult  to get the same licence back if the landscape has changed in that timeframe.  

What legal implications does the lapsing of a licence carry? 

If it lapses and it has not been transferred within the 28 days or if there has not been an application for an interim authority notice, then the licence has effectively gone forever. And if you continue to trade and provide a licence for activities, then you are doing so without the authorisation of a licence, which is a criminal offence. What usually happens is that the council will take  enforcement action against you, but they can also prosecute and fine you for that as well. 

Instead, if the licence is transferred, the premises can continue trading as normal. So the solution to  all of this is to be proactive from the start. If operators are thinking that the books look like they’re  not balancing, and they think that there’s a likelihood that their finances will be in difficulty, and  that an insolvency event is likely, I’d advise them to get legal advice and also advice from an  insolvency practitioner as soon as they possibly can. And the same applies to individuals as well —  if they become bankrupt or they lose the capacity to be able to hold the licence, a transfer becomes  necessary. Once that’s done, there’s no interruption to the way that the business can operate as the licence has been safeguarded.  

Lastly, what specific strategies or best practices do you recommend for businesses to address potential issues with their premises licences in times of financial distress? 

I would recommend talking to their legal practitioners as early as possible. If the operators of the  premises own other companies, I think it’s important to explore where they could potentially  transfer a licence to. If they don’t have an alternative company available, it’s worth giving some  thought to setting up another company that they can transfer a licence to. If they can’t do that,  maybe it’s worth looking at individuals within the business that they could transfer the licence to  temporarily.  

In the past, we’ve had situations where the licence was transferred to the insolvency practitioners  for a period of time to keep it active. However, quite often, the insolvency practitioners don’t want  the responsibility of holding that because obviously, if something happens in breach of either conditions or the timings on the licence, then they can be liable to prosecution as well. So that’s  an absolute last resort.  

My stellar advice would be to be proactive, look at the situation early on, if possible, and see  what the options are — to talk to the insolvency practitioners, talk to a licensing specialist as far  in advance as possible, because that gives time to then be able to plan where the licence can be  transferred to in order to keep it active.

Back to top button