Rehman v Chamberlain & Anor

The claimant advanced £150,000 to Meritmill (UK) Ltd on 12 February 2009 and a debenture formalising security was executed and registered on 27/28 February 2009. The liquidator contended that the floating charge was invalid under section 245 of the Insolvency Act 1986. The claimant sought rectification of the register under section 404 of the Companies Act 1985 to record that the charge arose on 12 February 2009 (or, alternatively, relief extending the registration time).

The court held that the evidence did not establish a prior agreement creating a present equitable security at the time of the advance; the arrangement fell within the recognised category of payments made in anticipation of and in consideration for a subsequently executed charge. Even if an earlier equitable charge had existed, the court declined to exercise its discretion under section 404 to rectify the register or to extend time after liquidation, having regard to the position of unsecured creditors and the authorities on extending registration after winding up.

Background and parties:

• The company went into administration on 15 October 2009 and into creditors' voluntary liquidation on 18 February 2010. The claimant, Mr Atique Rehman, had advanced £150,000 to the company on 12 February 2009. Formal loan documentation and a debenture were executed on 27 February 2009 and registered on 28 February 2009. The liquidator challenged the validity of the floating charge under section 245 of the Insolvency Act 1986.

Nature of the claim and procedural posture:

• The claimant issued Part 8 proceedings seeking (i) rectification of the register under section 404 Companies Act 1985 to show the debenture's date as 12 February 2009, (ii) alternatively declarations of an earlier equitable security and extension of time for registration, and (iii) alternatively trust declarations (which were abandoned).
• The liquidator’s application for directions was adjourned pending determination of the claimant’s Part 8 claim; the matter proceeded before His Honour Judge Keyser Q.C.

Issues framed by the court:

• Whether an enforceable equitable floating charge was created by agreement on or about 12 February 2009 such that registration should reflect that earlier date.
• Whether the court should exercise its discretion under section 404 to rectify the register or, alternatively, extend the time for registration after the commencement of winding up.

Court’s reasoning and conclusions:

• On the facts the court found no objective agreement creating a present equitable security when the cheque was handed over. The transaction fell within the class of cases where money is paid in anticipation of and in consideration for a charge to be subsequently executed, not within the class of agreements that create an immediate equitable right (the Re Jackson & Bassford distinction).
• The court assessed oral evidence and contemporaneous documents and found the claimant had not participated in negotiations and that the company and its advisers treated the debenture as the intended security. The claimant’s and directors’ witness statements were insufficient to establish a prior registrable security.
• Even assuming a prior registrable floating charge existed, the court would not exercise its wide discretion under section 404 to rectify the register or to extend time after liquidation. Relying on authorities on post-liquidation extension (including Victoria Housing Estates), the court concluded that extending time would unjustifiably divest unsecured creditors of their pari passu interests absent fraud or comparable exceptional circumstances.

Outcome:

• The claimant’s claim for rectification/extension failed and was dismissed. The court indicated it would deal with consequential submissions regarding the liquidator’s application for directions.

The claim is dismissed. The court found that no present equitable floating charge was created on 12 February 2009 when the funds were advanced; the payment was made in anticipation of and in consideration for a subsequently executed debenture. Further, even if an earlier equitable charge had existed, it would not have been appropriate to exercise the discretion under section 404 Companies Act 1985 to rectify the register or to extend the time for registration after liquidation, because doing so would prejudice unsecured creditors and no exceptional circumstances (such as fraud) were shown.