Secured creditors: fail to register your security at your peril

David Fendt, Senior associate in the Russell-Cooke Solicitors, restructuring and insolvency team.
David Fendt
6 min Read

It is a well-known rule of company law that if a lender wishes their security to be enforceable against a debtor company it must comply with the relevant registration formalities. In particular, under s.859A Companies Act 2006 (CA 2006) a charge must be registered by the Registrar of Companies within 21 days of its creation. Failure to do so will, under s.859H CA 2006, render the charge void as against the debtor’s liquidator or administrator, and any of its creditors.

Re Rodus Developments Limited (in Administration)

The consequences of failing to properly register security were recently highlighted in the decision of Insolvency & Companies Court Judge Barber in the case of Re Rodus Developments Limited (in Administration) [2022] EWHC 3232 (Ch). Amongst other matters, the Court considered whether a purported equitable charge (the charge) created in favour of Actua Investments LLC (Actua), was valid against the administrators of the debtor, Rodus Developments Limited (the company), despite not having been registered in accordance with the CA 2006.

The company was incorporated in 2017 as a special purpose vehicle to develop a “build to rent” scheme over land in Salford. The company was primarily funded by secured loans from Topland Junior Ltd (Topland) totalling £14.8m. In January 2022 Topland intervened and made a successful administration application which culminated in the administrators’ appointment.

A few weeks after the administrators’ appointment, an application was filed at the Land Registry on behalf of Actua, a Dubai company, to register a unilateral notice in respect of the charge, which purportedly granted security over the Salford land owned by the company (the LR Application). After the LR Application was lodged, Actua’s solicitors wrote to the administrators stating that their client was entitled to register a charge against the land (seemingly without mentioning anything about the LR Application that their client had recently filed). This claim was being made on the basis that Actua was said to have lent the company £2.1m pursuant to a facility agreement entered into in April 2018 (the Actua Facility), the terms of which entitled Actua to register the charge against the land (the charge).

At the time of the Actua Facility the company did not yet own the land and therefore no legal charge could have been created at the time. However it was possible for the company to create an equitable charge over future property and, therefore, given the company purchased the land in July 2018, any such charge would have taken effect from that later date.

No explanation seems to have been given as to why the charge was not registered at the time the Actua Facility was entered into, or when the land was purchased by the company. Indeed, no action appears to have been taken by Actua until after the administrators were appointed almost 4 years later by filing the LR Application.

Correspondence ensued between the administrators and Actua’s solicitors (although seemingly the administrators were not made aware of the LR Application until April 2022, around 3 months after it was made). The administrators’ maintained that it was not possible for Actua to register a charge post-administration and, despite the administrators’ repeated attempts to relay this message to Actua’s solicitors in correspondence, no substantive response was received from Actua.

This made it necessary for the administrators to make an application to the Court (the Court Application) for a declaration that the charge was void for non-registration, and an order for the Land Registry to withdraw or cancel the LR Application forthwith.

Whilst the above dispute was developing, the administrators were in the process of agreeing sales of properties located in the Salford land to third party purchasers. However the presence of the LR Application was prejudicing those sales, as well as the administration generally, including by preventing the administrators from making distributions to Topland.

The decision

The main thrust of the judgment focuses on the administrators’ application for an order for permission to serve the Court Application out of the jurisdiction on the company in Dubai. In so doing however, the judge went through the relevant principles for such applications. One such principle was the prospects of the administrators successfully obtaining the relief sought by the Court Application, and accordingly the judge had to make a summary determination on the enforceability of the charge.

The judge determined that it was clear that the charge – whether created in April or July 2018 – was not registered within the requisite 21-day period, and no application for an extension of time for doing so had been made by or granted to Actua. Therefore whilst Actua may have held an equitable charge against the company (something which the administrators were prepared to assume for the purposes of the Court Application), its failure to register it in time led the judge to conclude that it was “plainly void” as against the administrators and the company’s creditors pursuant to s.859H CA 2006.

Moreover the judge held that “Actua has no valid interest to protect, it has made the [LR] Application without reasonable cause and it is thereby prejudicing the interests of the Joint Administrators and the creditors of the company”. In coming to her decision, the judge also granted the substantive relief sought by the administrators in their Court Application.

Unfortunately it is not known why the charge was not registered at the time of creation, or why no attempt was made by Actua to protect its position until after the administrators’ appointment. Perhaps it was an indication of Actua’s own view of the low prospects of successfully defending its position that it did not substantively engage with the administrators’ correspondence, respond to the Court Application, or enter an appearance at the hearing. However, given the circumstances it is unlikely the judge would have come to any other conclusion had Actua participated.

This is a useful reminder of the harsh consequences of failing to comply with the strict registration rules imposed by the CA 2006, and that it is essential for secured creditors to register their charges within the requisite 21-day period.

The judgment also contains interesting remarks regarding the conditions for serving applications out of the jurisdiction. In particular, the judge did not have any hesitation in deciding that England was the appropriate jurisdiction for the Court Application, despite it being made against a Dubai company:

  • Actua lent monies to an English company;
  • that lending was made pursuant to an agreement governed by English law;
  • the lending was purportedly secured against property based in England; 
  • the company had entered administration (a procedure subject to English law) and Actua had submitted to that process by advancing a claim with the administrators regarding the charge. 

The judge also held that it was appropriate to grant an order for retrospective service on Actua’s solicitors. The judge concluded that Actua were plainly trying to avoid service by, amongst the things, not instructing their solicitors to accept service, and failing to provide accurate address details. Whilst the outcome on this point is unsurprising it is nonetheless helpful and adds to the ever-growing authorities on jurisdiction and service.

How we can help

Our specialist insolvency team are experienced in preparing and advising on security documentation (both at the time of the transaction, during the security term, and after default). If you would like more information please contact David Fendt or a member of the insolvency team. Alternatively please complete our online enquiry form.

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