Failure to disclose previous QFCH and UK director appointments
The case of Re NMUL Realizations Limited (under administration)  EWHC 94 (Ch) follows in the footsteps of the case of Re Tokenhouse VB Limited  EWHC 3171 (Ch), where the Court considered whether the failure of an office holder to notify his intention to appoint directors invalidates the appointment (see our previous blog here).
The issue in this case was whether the failure to give notice to a former floating charge holder, whose security had been improperly marked as satisfied at Companies House, was a fundamental flaw, such that it made the appointment void, or if the default could be remedied by an order of the Court.
NMUL Realizations Limited (the “Company”), entered into a loan agreement with Tudor Capital Management Limited (“Tudor”), a pension plan trustee company, for £ 1 million which was guaranteed by ” an allowable floating load (the “Tudor QFC”). Tudor was dissolved in 2016, after the directors were convicted of fraud and jailed. The Company had not heard from Tudor or its directors for some time and erroneously concluded that Tudor QFC was satisfied and gave notice to the Registrar of Companies to this effect. The Tudor QFC was therefore marked as satisfied at Companies House. In fact, the company still owed around £ 1.5million (including interest) to Tudor under the Tudor QFC.
The Company subsequently obtained a loan from a bank (the “Bank”) which was secured by another qualifying floating charge (the “QFC Bank”). The Bank demanded repayment of the Company’s loan and subsequently appointed directors using the out-of-court appointment process in accordance with its powers under QFC Bank. At the time of the appointment of the directors, the only unsatisfied eligible float charge recorded on the register was the QFC bank. However, the Register did not reflect the true position of the Company’s outstanding debt under Tudor QFC, which ranked ahead of Bank QFC. Therefore, the Bank had not given notice of its intention to appoint an administrator on Tudor as the holder of the unpaid charges. The Bank only became aware of the Tudor QFC the day after the directors were appointed when it was discovered that a receiver had been appointed over the directors’ realizable assets, for the purpose of enforcing the orders against them.
The Court considered the facts of the case and noted the following:
The Registrar of Companies must include a statement of satisfaction on the filing history of a company following the filing of a certificate of satisfaction. The Registrar had no discretion in this regard.
The filing of particulars and statements by the Registrar is inconclusive as to the true factual situation. A charge holder therefore cannot rely solely on the register but must ensure, from his own investigations, that previously recorded charges have been properly discharged, even if they are marked as satisfied on the register.
When a declaration of satisfaction is wrongly registered by the assignor, the creditor cannot therefore lose the benefit of his guarantee.
The Court took a pragmatic approach and was satisfied that at the time the Bank appointed the directors, it was not aware that the Tudor QFC was still pending, but was still required to give an opinion of the appointment considered to Tudor.
The Court considered the consequences of failing to give this opinion and applied the same approach and reasoning as adopted in Re Tokenhouse, that Tudor would not have the right to make an application to remedy the default, or for an order that its own appointed directors be appointed in place of the directors appointed by the Bank. Therefore, Tudor would not be able to prevent the appointment of directors; they would simply have had the right to choose their own preferred administrators. The Court also referred to the decision of ICC Judge Jones in Re Tokenhouse where it has considered that the loss of a secured creditor’s right to appoint its appointed administrator or to accept the appointment within the notice period must be viewed in light of the role of the administrator, who is a practitioner of the independent insolvency and a judicial officer required to act in the interests of all creditors.
The Court applied the decision in Re Tokenhouse and concluded that the failure to comply with the obligation to notify Tudor was not a fundamental defect but rather an irregularity giving rise to a defect which can be remedied by an order of the Court. It was therefore not a fundamental violation which would render the appointment void.
Although the case is very factual, she recalls that in determining whether anticipation charges are met, practitioners should not rely solely on the Companies House charge register. It also demonstrates that the Court is prepared to take a pragmatic approach, in circumstances where the Bank sincerely considered that the Tudor QFC had been satisfied.
However, the out-of-court appointment process is designed to be reasonably efficient in terms of time and cost, and no one who uses this process ultimately wants to end up having to spend the time and expense in making an application to the court for validate this appointment. .
This decision therefore emphasizes that lenders should, to the extent possible, exercise due diligence with respect to any prior charges marked as satisfied (for example, by requiring the borrower to prove either that the charge holder has consented to this satisfaction, or proof that the facilities concerned have been fully reimbursed). both when granting a loan and when considering the appointment of an administrator, in order to avoid the problems that arose in this case.
© Copyright 2021 Squire Patton Boggs (US) LLPRevue nationale de droit, volume XI, number 47