Atique Rehman v Michael Chamberlain (as Liquidator of Meritmill (UK) Ltd) and Another
| Jurisdiction | England & Wales |
| Judge | H.H. Judge Keyser Q.C. |
| Judgment Date | 06 September 2011 |
| Neutral Citation | [2011] EWHC 2318 (Ch) |
| Court | Chancery Division |
| Date | 06 September 2011 |
| Docket Number | Claim No. 1LS30408 |
[2011] EWHC 2318 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
LEEDS DISTRICT REGISTRY
Leeds Combined Court Centre
Oxford Row
Leeds LS1 3BG
His Honour Judge Keyser Q.C.
sitting as a Judge of the High Court
Claim No. 1LS30408
LOUIS DOYLE (instructed by Blacks Solicitors LLP of Wade House, The Merrion Centre, Leeds, LS2 8NG) for the Claimant
HUGO GROVES (instructed by Walker Morris of Kings Court, 12 King Street, Leeds, LS1 2HL) for the First Defendant
Hearing dates: 5 th and 6 th September 2011
Introduction
Meritmill (UK) Limited ("the Company") went into administration on 15 th October 2009 and into creditors' voluntary liquidation on 18 th February 2010. On the latter date Mr Michael Chamberlain was appointed as liquidator. The claimant, Mr Atique Rehman, was and remains one of the creditors of the Company, having in February 2009 advanced to the Company £150,000 to supplement its working capital. The Company gave security for that advance by way of various charges, including a floating charge, contained in a Debenture dated 27 th February 2009. The Debenture was duly registered at Companies House on 28 th February 2009 pursuant to section 395 of the Companies Act 1985.
Section 245 of the Insolvency Act 1986 provides, so far as material, as follows:
"(2) Subject as follows, a floating charge on the company's undertaking or property created at a relevant time is invalid except to the extent of the aggregate of—
(a) the value of so much of the consideration for the creation of the charge as consists of money paid, or goods or services supplied, to the company at the same time as, or after, the creation of the charge…
"(3) Subject to the next subsection, the time at which a floating charge is created by a company is a relevant time for the purposes of this section if the charge is created—
…
(b) in the case of a charge which is created in favour of any other person, at a time in the period of 12 months ending with the onset of insolvency…
"(4) Where a company creates a floating charge at a time mentioned in subsection (3)(b) and the person in favour of whom the charge is created is not connected with the company, that time is not a relevant time for the purposes of this section unless the company—
(a) is at that time unable to pay its debts within the meaning of section 123 in Chapter VI of Part IV, or
(b) becomes unable to pay its debts within the meaning of that section in consequence of the transaction under which the charge is created.
"(5) For the purposes of subsection (3), the onset of insolvency is—
…
(d) in a case where this section applies by reason of a company going into liquidation, the date of the commencement of the winding up."
It is common ground that in February 2009 the Company was unable to pay its debts. On the basis of advice obtained from counsel, Mr Chamberlain ("the liquidator") contended that the claimant's floating charge was invalid by reason of section 245. The claimant, however, challenged that contention and produced an opinion from leading counsel in support of his position.
Accordingly, by an application notice dated 17 th March 2011 the liquidator applied to the Court for determination of the validity of the claimant's floating charge and for directions. On 8 th June 2011 the application came for hearing before Mr Anthony Elleray Q.C. sitting as a deputy High Court judge. Upon receiving undertakings from the claimant by his counsel to commence proceedings, he adjourned the application until today for hearing with the claimant's proceedings. Pursuant to his undertakings to the Court, on 15 th June 2011 the claimant commenced Part 8 proceedings for various heads of relief, which I may summarise as follows. First, he claims rectification of the register maintained by the Registrar of Companies so as to record the date of the Debenture as 12 th February 2009 (the date when the money was advanced) and not 27 th February 2009. Second, and in the alternative, he claims a declaration that he and the Company had reached an agreement for the creation of security prior to the execution of the Debenture and that this prior agreement had created an equitable security ("the Earlier Security"), and an order extending the time for registration of the Earlier Security. Third, and in the alternative, he claims declarations that when the money was advanced on 12 th February 2009 it was held by the Company on a resulting or constructive trust for him until, upon the execution of the Debenture on 27 th February 2009, it became held for the benefit of the Company, being advanced to the Company beneficially on that date.
It is common ground that the liquidator's application will effectively be determined by the outcome of Mr Rehman's Part 8 claim. This is my judgment upon the Part 8 claim.
At the hearing of the Part 8 claim, Mr Doyle, counsel for the claimant, properly abandoned the third head of claim and accepted that no trust could be established. He also indicated that he did not pursue the second head of claim because, although the Court has jurisdiction to extend the time for registration of a charge, its settled practice is not to do so when the company that granted the charge has already entered into liquidation: Victoria Housing Estates Ltd v Ashpurton Estates Ltd [1982] 3 All ER 665. I shall say more about this second head of claim later in this judgment.
There remains what I have called the first head of claim, which is found in paragraphs 1 and 2 of the Details of Claim on the Part 8 claim form, as follows:
1. A declaration that the Claimant and the First Defendant ("the Company") reached agreement as between themselves for the creation of security by the Company in favour of the Claimant in the terms of the debenture annexed to this Claim Form (dated 27 th February 2009) ("the Debenture") on 12 th February 2009 upon the Claimant delivering to the Company a cheque in the sum of £150,000 which the Company banked on 12 th February 2009 to the Company's credit ("the £150,000").
2. Consequent upon the relief sought in 1 above, an Order pursuant to [section 404 of the Companies Act 1985] rectifying the register maintained by the Second Defendant ("the Registrar") so as to record the date of the Debenture as 12 th February 2009 and not 27 th February 2009.
The reference to section 404 of the Companies Act 1985 is by way of correction: the claim form refers to sections 1096 and 1097 of the Companies Act 2006, but it is common ground that by virtue of the date of the creation of the charge it is the 1985 Act that applies in this case. See Companies Act 2006 (Commencement No. 8 Transitional Provisions and Savings) Order 2008, Schedule 2, paragraphs 82 and 107.
The Claim for Rectification of the Register
Section 395 (1) of the Companies Act 1985 provided as follows:
"Subject to the provisions of this Chapter, a charge created by a company registered in England and Wales and being a charge to which this section applies is, so far as any security on the company's property or undertaking is conferred by the charge, void against the liquidator or administrator and any creditor of the company, unless the prescribed particulars of the charge together with the instrument (if any) by which the charge is created or evidenced, are delivered to or received by the registrar of companies for registration in the manner required by this Chapter within 21 days after the date of the charge's creation."
The list of charges to which section 395 (1) applied was set out in section 396 (1) and included:
"(f) a floating charge on the company's undertaking or property".
Section 401 required the registrar of companies to give a certificate of the registration of any registered charge and provided that the certificate was conclusive that the requirements of the Act relating to registration had been complied with.
Section 404 provided as follows:
"(1) The following applies if the court is satisfied that the omission to register a charge within the time required by this Chapter or that the omission or mis-statement of any particular with respect to any such charge or in a memorandum of satisfaction was accidental, or due to inadvertence or to some other sufficient cause, or is not of a nature to prejudice the position of creditors or shareholders of the company, or that on other grounds it is just and equitable to grant relief.
"(2) The court may, on the application of the company or a person interested, and on such terms and conditions as seem to the court just and expedient, order that the time for registration shall be extended or, as the case may be, that the omission or mis-statement shall be rectified."
In Re M.I.G. Trust Ltd [1933] Ch 542, Lord Hanworth M.R. said of the corresponding provision in the Act then in force that it gave "the widest possible discretion to the Court in circumstances which need not show that the omission was accidental or due to inadvertence but which would be sufficient on other grounds to make it just and equitable to grant relief." In Re Braemar Investments Ltd (1988) 4 B.C.C. 366, Hoffmann J referred to that dictum and said:
"These last words suggest that the underlying guide to the exercise of the discretion is whether for any reason, whether specified in the section or not, it would be just and equitable to grant relief."
It is the claimant's case that the power of rectification conferred by section 404 of the 1985 Act can be exercised in this case so as to...
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