Saw (SW) 2010 Ltd & Anor v Wilson & Ors (Joint Administrators of Property Edge Lettings Ltd)

A floating charge is characterised by its terms as created. The later crystallisation of an earlier floating charge does not retrospectively prevent a subsequently created debenture from being a floating charge, particularly where property is acquired through an indivisible purchase-and-mortgage transaction. A charge remains enforceable even if it takes effect subject to the rights of a prior fixed-charge holder. Contractual warranties may also prevent a party from relying on common mistake concerning the effectiveness of security documents. Where a claim challenging an administrator’s appointment discloses no reasonable grounds, it may be struck out under CPR 3.4(2)(a).

SAW (SW) 2010 Limited and Neil Wilson Accountancy Limited challenged the out-of-court appointment of joint administrators to Property Edge Lettings Limited by Nationwide Building Society. They sought declarations that Nationwide lacked an enforceable or qualifying floating charge under paragraph 14 of Schedule B1 to the Insolvency Act 1986, together with consequential relief for trespass and damages.

The applicants argued that an earlier CHL floating charge had automatically crystallised when PEL granted fixed and floating security to Derbyshire Building Society in connection with the acquisition of the Bude development. They also relied on common mistake and later alleged crystallisation events. The respondents applied to strike out the claim under CPR 3.4(2)(a).

1. Application struck out. The court struck out the substantive application under CPR 3.4(2)(a) because it disclosed no reasonable grounds for bringing the claim. The proposed declarations and consequential relief therefore could not succeed.
2. The CHL deeds created a floating charge over PEL’s undertaking and all other present and future property not effectively charged by the fixed charges. The wording was sufficiently wide to include future-acquired freehold and leasehold property. The charges had also been duly registered under section 395 of the Companies Act 1985.
3. The court rejected the argument that the Derbyshire fixed charge automatically crystallised the CHL floating charge before the Derbyshire debenture was created. Applying the reasoning in Abbey National Building Society v Cann [1991] 1 AC 56, acquisition of the Bude property and the grant of the Derbyshire security formed one indivisible transaction. PEL acquired the property subject to the fixed charge and debenture, rather than first acquiring it free of those securities.
4. The Derbyshire debenture was consequently a floating charge “as created” within section 251 of the Insolvency Act 1986. Later alleged crystallisation events could not retrospectively deprive it of that status. The appointment of a Law of Property Act receiver over specifically charged property did not engage the debenture’s clause concerning appointment of a receiver in relation to PEL.
5. The charge was enforceable for the purposes of paragraph 16 of Schedule B1. Even a prior crystallised fixed charge would have made the Derbyshire charge subject to CHL’s rights, rather than rendering it unenforceable. In any event, CHL had expressly consented to the administrators’ appointment under paragraph 15.
6. There was no common mistake. The offer letter and, in any event, clause 19.1 of the debenture contained warranties that PEL could grant the security without another person’s consent. Those warranties also prevented PEL, and consequently its shareholders and creditors, from challenging the debenture’s effectiveness on that basis.

First-instance decision. The court struck out the substantive application under CPR 3.4(2)(a).