Lending Group Limited & Anor v LVR Capital Ltd & Anor

False statements of satisfaction concerning company charges may be rectified where the underlying secured debt remains unpaid. Legally incorrect filings constitute some other sufficient cause and may also make rectification just and equitable under Companies Act 2006, section 859M.

A qualifying floating charge remains effective despite an erroneous filing stating that it has been satisfied. Where the charge instrument states that paragraph 14 of Schedule B1 applies, the charge qualifies if the statutory requirement is met. The court retains a discretion whether to make an administration order, which may be exercised having regard to insolvency, the applicants’ standing, the conduct of the company and the reasonable prospect of achieving an administration purpose.

Two secured creditors applied for an administration order against LVR Capital Ltd and for rectification of the company’s register. The register had recorded the applicants’ charges as satisfied after the company filed statements asserting that promissory notes payable in five years discharged the secured indebtedness.

The respondents did not attend or obtain representation. The court proceeded after concluding that the company had been given adequate notice and had not made a proper application for an adjournment. The issues were whether the register should be rectified, whether the applicants held qualifying floating charges notwithstanding the filings, and whether an administration order should be made under Schedule B1 to the Insolvency Act 1986.

1. The application succeeded. The court ordered rectification of the register and appointed Mr Avery-Gee and Mr Richardson as joint administrators. The company’s assets were made liable for the costs.

2. The statements of satisfaction were false because the secured charges had not been discharged. The unilateral issue of promissory notes, without acceptance by the secured creditors, could not discharge the secured indebtedness. The legally incorrect statements amounted to “some other sufficient cause” under section 859M(2)(a)(i) of the Companies Act 2006. Alternatively, the circumstances made it just and equitable to rectify the register under section 859M(2)(b).

3. An erroneous filing stating that a charge was satisfied did not affect the underlying charge, the secured debt or the company’s liability. The court applied the reasoning in Re NMUL Realisations Limited [2021] EWHC 94 (Ch) to an application under paragraph 35 of Schedule B1.

4. The debentures expressly stated that paragraph 14 of Schedule B1 applied to the floating charges. Under paragraph 14(2), the statutory alternatives are disjunctive: satisfaction of the relevant requirement in paragraph 14(2)(a) was sufficient. The applicants therefore had power to appoint administrators under paragraph 35, although the use of “may” preserved the court’s discretion whether to make an order. Re Stephen, Petitioner [2011] CSOH 119, reported at [2012] BCC 537, supported that construction.

5. The discretion was exercised in favour of administration. The company was cash-flow insolvent, the applicants were qualifying floating charge holders, the misleading filings had prevented an out-of-court appointment, independent office-holders were appropriate in light of the company’s conduct, and there was a real prospect of realising property to distribute to the secured creditors.

6. Alternatively, the order would have been made under paragraph 12(1)(c) of Schedule B1. The applicants were creditors, the company was unable to pay its debts as they fell due, and administration was reasonably likely to achieve its purpose.