Lee Manning & Anor v Neste AB & Anor

A floating charge granted to a connected person during the relevant period is prima facie invalid under Insolvency Act 1986, but remains valid to the extent of qualifying value actually supplied to the company at or after its creation. “Consideration” in this context means actual value transferred, not merely contractual consideration. Qualifying value may include shares or other property received in ordinary trading or financing activity where the property has a clear value and enlarges the company’s assets. A creditor’s renegotiation of existing debt, or an exchange which automatically replaces an existing debt with substantially equivalent debt owed to the same creditor, does not provide new value. The court may give effect to a registered contractual charge where the related deed fails, if the registration accurately describes the charge created.

The joint administrators of Bitumina Industries Limited applied for directions concerning a floating charge granted to the second respondent, Rami Farah, who was connected with the company. The charge was intended to secure convertible loan notes issued as consideration for the acquisition of a Dubai company whose principal asset was cash.

The first formal debenture was not registered in time. A later debenture was invalidly executed, but the parties accepted that an equitable charge had arisen. The issues included when that charge was created, whether the acquisition of shares constituted qualifying consideration under section 245, whether later renegotiation and a note exchange supplied further consideration, and whether the release of funds held by the subsidiary constituted money paid to the company.

1. Validity and creation. The charge was a validly created and registered contractual charge effective against the joint administrators. The failed first debenture did not discharge the continuing contractual obligation to create security. The parties subsequently agreed that a new charge should take effect on 22 January 2020. The later defective deed evidenced and was intended to embody that charge, but did not itself determine the charge’s date of creation.
2. Registration. Registration of the defective deed could not validate that deed as such. However, because the charge and the intended deed formed part of one design and the registration statement accurately described the charge apart from its legal form, the registrar’s certificate covered the contractual charge.
3. Meaning of consideration. For section 245 purposes, consideration means value actually supplied, rather than consideration in the technical contractual sense. The relevant question is what property, money, goods or services were actually transferred and their value when supplied.
4. Shares as qualifying value. The expression “goods” in section 245(2)(a) is not confined to goods in the Sale of Goods Act sense. It includes things in action and intangibles of a kind received in ordinary trading activity, having a clear value, and necessarily swelling the company’s assets. The shares in DMCC satisfied that criterion. Their transfer was sufficiently connected with the grant of the charge because the parties’ reciprocal obligations were performed together under the later agreement fixing 22 January 2020 as the completion date.
5. Value. The value of the shares is not necessarily their nominal or purchase price. It must be determined on an arm’s-length basis under section 245(6). If the parties could not agree the value, that issue required a further hearing.
6. Later dealings. The renegotiation of the note arrangements was valuable commercially but did not swell the company’s assets by a measurable amount and therefore did not constitute consideration. The note exchange was, on the documents, an amendment of the existing notes rather than a new transaction. Even if it had been a new transaction, the automatic substitution of a substantially equivalent debt owed to the same creditor would not satisfy section 245(2)(b), because no new resources became available to the company.
7. Release of funds. The partial removal of Mr Farah’s practical veto over funds held by DMCC did not increase the company’s assets. Those assets were already available to the company’s creditors in a winding-up. The release therefore did not constitute qualifying consideration.
8. Directions. The charge was not invalidated by section 245(2)(a) at creation and was valid to the extent of the value derived from the acquisition of the DMCC shares. No discharge or reduction of existing company debts within section 245(2)(b) resulted from the later dealings.

First-instance application for directions. No appellate history is stated in the judgment.