Lending Group Limited & Anor v LVR Capital Ltd & Anor

The court granted an out-of-court administration application and ordered rectification of the Companies House register under section 859M of the Companies Act 2006. The applicants, as holders of debentures that expressly stated paragraph 14 of Schedule B1 to the Insolvency Act 1986 applied, were qualifying floating charge holders able to seek appointment of administrators under paragraph 35 of Schedule B1. The court found that the company was cash-flow insolvent, that the director had filed false statements of satisfaction at Companies House and that those filings amounted to "some other sufficient cause" or otherwise made it just and equitable to rectify the register under section 859M. The court exercised its discretion to make an administration order and appointed the proposed joint administrators. The court relied on authority that an incorrectly filed certificate of satisfaction does not defeat the underlying charge (Re NMUL Realisations Ltd) and on the interpretation of paragraph 14(2) that only one subparagraph need be satisfied (Re Stephen).

This was a first-instance administration application made by MS Lending Group Limited and MS Lending SPV 1 Limited as secured creditors of LVR Capital Ltd, together with a parallel application to rectify the company register under section 859M of the Companies Act 2006. The applicants alleged unpaid secured indebtedness in excess of £800,000 relating to two loans secured by debentures and legal charges over two properties. The companydirector filed statements of satisfaction at Companies House falsely recording the charges as satisfied, and also issued promissory notes purporting to discharge the indebtedness. The applicants sought (i) an administration order and appointment of named joint administrators under Schedule B1 to the Insolvency Act 1986 and (ii) rectification of the register to remove the erroneous statements and show the charges as outstanding.

The court addressed two principal issues: (i) whether rectification under section 859M was justified; and (ii) whether the applicants had standing and entitlement to an administration order as qualifying floating charge holders under paragraph 14 and paragraph 35 of Schedule B1 (and alternatively as creditors under paragraph 12).

On rectification the court held that the statements of satisfaction were false and that the filing error was "some other sufficient cause" under section 859M(2)(a) or, alternatively, just and equitable grounds under section 859M(2)(b), and ordered the Registrar to remove the erroneous documents and record the charges as outstanding. On the administration application the court held that the debentures expressly stated paragraph 14 applied and therefore created qualifying floating charges enabling appointment under paragraph 35. The company was found to be cash-flow insolvent. The court exercised its discretion to make an administration order, appointing the nominated joint administrators. The court also noted authority that mistaken registration of satisfaction does not defeat the underlying charge (Re NMUL Realisations Ltd) and accepted the disjunctive interpretation of paragraph 14(2) (Re Stephen).

The judgment records the company director's uncooperative behaviour and nonsensical filings as relevant to the exercise of discretion and orders that the administrators' costs be paid out of the company's assets.

The court ordered rectification of the register under section 859M of the Companies Act 2006 to remove false statements of satisfaction and to show the relevant charges as outstanding, and made an administration order under Schedule B1 to the Insolvency Act 1986, appointing Mr Edward Avery-Gee and Mr Daniel Mark Richardson as joint administrators. Rationale: the applicants held qualifying floating charges (debentures expressly stating paragraph 14 applied), the company was cash-flow insolvent, incorrect statements at Companies House amounted to sufficient cause or made it just and equitable to rectify the register, and the court exercised its discretion in favour of administration given the applicants' rights, the companydirector's conduct and the prospects of realising property to make distributions to secured creditors.