Sophie Perhar v Louise Freestone & Ors

A qualifying floating charge is enforceable for the purposes of paragraph 16 of Schedule B1 to the Insolvency Act 1986 when the charge-holder has the right to enforce it, including where a contractual condition precedent such as an event of default has occurred. Paragraph 16 is concerned with enforceability, not with the steps taken to enforce the charge.

A demand for money payable on demand need only allow the debtor reasonable time to obtain the money. Under paragraph 81 of Schedule B1, an allegation of improper motive must be honestly and reasonably made to open the gateway to substantive relief. The court must then consider the allegation and all other relevant circumstances. Relief may be refused where the appointment was made to protect the appointor’s financial position and no substantial injustice resulted from any procedural defect.

The applicant was the sole director and shareholder of The Sustainable Bathroom Company Ltd. Synergy in Trade Ltd provided trade finance secured by a debenture containing fixed and floating charges and appointed administrators on 5 June 2023.

The applicant challenged the appointment on the grounds that the floating charge was unenforceable under paragraph 16 of Schedule B1 to the Insolvency Act 1986, that contractual enforcement requirements had not been complied with, and that the appointment was made for an improper motive contrary to paragraph 81. The central issues were whether the charge was enforceable, whether the demand and service process was defective, whether any defect caused substantial injustice, and whether the improper-motive challenge was made out.

1. Application dismissed. The debenture was enforceable when the administrators were appointed. The Company had committed serious and continuing breaches of the trust and payment obligations in the Facility Letter and debenture. Enforceability arose upon breach of the debenture covenants, including covenants incorporating obligations arising under the Facility Letter.
2. Paragraph 16 of Schedule B1 concerns whether the floating charge-holder has the right to enforce the charge. It does not require the charge-holder to have taken particular enforcement steps. The court applied the approach in SAW (SW) 2010 Ltd v Wilson [2017] EWCA Civ 1001.
3. The debenture’s postal notice provisions did not permit the posted demand to support an appointment made on the same day. However, the email demand was operative under the Facility Letter, whose notice provisions permitted communication on receipt. Read objectively, the demand referred to both instruments and required payment of a specified sum. The court applied Mannai Investment Company Limited v Eagle Star Life Assurance Co Ltd [1997] AC 749.
4. Money payable on demand does not require an extended period for fundraising. The debtor must be given time to obtain the money from a convenient source. The court applied R.A. Cripps & Son v Wickenden [1973] 1 WLR 954. In any event, the Company could not have paid the sums demanded, and any defect could have been cured by a later appointment. No substantial injustice was caused.
5. For paragraph 81, an honest and reasonably grounded allegation of improper motive is sufficient to open the jurisdictional gateway to relief. At the substantive stage, the court should ordinarily make a positive finding on improper motive, and the strength of the evidence is an important factor in exercising the discretion. The court followed Re Aartee Bright Bar Ltd [2023] EWHC 606 (Ch) and explained the relationship with Koon v Bowes [2019] EWCH 3455 (Ch).
6. The appointment was made to protect Synergy’s financial position following repeated breaches and unauthorised diversion of its money. Improper motive was not established. Even if it had been, the administration should remain in place because the Company had substantial liabilities, inadequate records and no realistic ability to pay or resume trading.

This was a first-instance application. The judgment records earlier preliminary-issue decisions and an appeal, but no appeal from the present decision.