Licence to serve: a new single integrated licensing regime?

With the full provisions of the Licensing Act 2003 finally coming into force, a new single integrated licensing regime is at last a reality. However, these changes will affect a premises' licence to sell alcohol if the individual licence holder becomes insolvent, write Rita Lowe and David Manson.

On 24 November 2005, the full provisions of the Licensing Act 2003 came into force, establishing a new single integrated licensing regime. The Act requires all premises, where licensable activities are provided, to obtain a licence, and contains important provisions regarding termination of the premises licence in the event of insolvency.

The Act introduces the system of dual licensing whereby licensees will need to obtain both a premises and a personal licence.

A premises licence will be required for any person carrying on a business that involves licensable activities (for example the sale of alcohol, and the provision of late-night entertainment). Once granted, the Act provides that the premises licence will last for an unlimited time, although the licence may be revoked on appeal or may lapse on the insolvency of the licence holder.

Where the business involves, at any time, the sale of any alcohol, it is mandatory that the sale of alcohol is authorised by a designated premises supervisor, who himself must be licensed and hold a personal licence. A personal licence under the new Act is valid for a period of 10 years, unless revoked, suspended or forfeited.

Where the licence holder becomes insolvent or is dissolved, the premises licence will lapse automatically. A company will become insolvent for the purposes of the Act on the approval of a voluntary arrangement proposed by its directors, the appointment of an administrative receiver or an administrator, or the company going into liquidation.

A premises licence may be reinstated by making an application for an interim authority. This may be made by a person 'connected' with the premises licence holder immediately before the licence lapsed, for example an administrator or administrative receiver appointed in relation to a company. The Act also enables any person with a legal interest in the premises, for example the freehold owner of the premises or the superior leaseholder, to apply for interim authority protection.

The application must be made to the local licensing authority and the relevant police constabulary, within seven days after the licence lapses. The police can object to the grant of the interim authority notice, although they must do so within 48 hours of receipt of the application. If there is an objection, the licensing authority will hold a hearing to consider the application and the interim authority will not lapse until this hearing has been concluded.

Once the application for an interim authority has been lodged the licence is effectively reinstated, until either the expiry of the interim period (a maximum of two months) or earlier if the local authority determines that it should be cancelled following police objection.

The interim authority is a valuable tool to preserve the premises licence, pending a formal application for transfer of the licence. It is a quick and inexpensive procedure, and has the advantage that the application is deemed granted unless the police object within 48 hours of receipt of the application.

A premises licence can also be reinstated if an application for a full transfer of the licence is made within seven days from the date that the licence lapses.

The Act specifies who is entitled to make an application for transfer, which includes:

• any person who is the holder of the premises licence by virtue of an interim authority notice; and
• any person who proposes to carry on a business involving the use of the premises for the licensable activities.

A transfer of the licence will only change the identity of the licence holder and will not otherwise alter the licence. As with interim authority notices, the applicant must submit the application together with the premises licence and the consent of the existing premises licence holder to the licensing authority and the police.

The police have a right to object to the transfer within 14 days of being notified. An applicant for transfer has the ability to specify that the transfer shall have immediate effect. If this option is chosen, the premises licence will continue to have effect during the application period.

The value of the underlying business may depend upon the continuing ability to carry out licensable activities. If the premises licence lapses in an insolvency because no application is made for an interim authority or transfer, then a key asset of the business may be lost.

While the interim authority notice is a quick and cheap way of reinstating the premises licence, its effect is to reinstate the premises licence as if the person giving the notice is the holder of the licence. The person making the application for an interim authority assumes personal responsibility for the licence during the interim authority period. As a result, an interim authority may not be an attractive option to an insolvency practitioner, who would prefer to act solely as an agent of the company and without personal liability.

Where individuals are concerned about potential personal liability during the period of an interim authority, they may prefer to seek a full transfer of the premises licence from the outset. One way of doing this would be to transfer the premises licence to an employee of the business. However this would vest the licence outside the control of the company, and thought should be given to the control provisions necessary to ensure that the premises licence was held on trust to allow trading to continue without interruption.

Given the potential loss of control over the premises licence if a transfer of the licence is made to an employee, in some circumstances it may be advantageous to seek a transfer of the lapsed licence to a controlled legal entity within the seven-day transfer period. This would preserve the premises licence and allow the company to continue to trade and maximise revenue.

A transfer to a controlled entity would enable the licence to be transferred quickly and efficiently to a purchaser and the entity could be sold (with the benefit of the licence) at the same time as the remainder of the business and assets.

The new Act introduces a new licensing system, new terminology, and new procedures for the application for new licences and the transfer of existing ones. Given the tight deadlines imposed by the Act following licences that have lapsed on insolvency, advance planning will be important to preserve value, and to cope with difficulties that might arise with changes to key personnel who hold personal licences.

Careful planning will minimise the risk of disruption to continued trading and maximise value on a subsequent sale of the business.

Rita Lowe is a partner and David Manson an assistant in the corporate recovery practice and cross-practice hotels and leisure group at CMS Cameron McKenna.

This article was first published in Legal Week, 2 February 2006.