McLean (as Administrators of Dent Company (A Partnership) ((in Administration))) v Berry
| Jurisdiction | England & Wales |
| Judge | Mr Justice Norris |
| Judgment Date | 26 October 2016 |
| Neutral Citation | [2016] EWHC 2650 (Ch) |
| Docket Number | Case No: 149 of 2014 |
| Court | Chancery Division |
| Date | 26 October 2016 |
[2016] EWHC 2650 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
LEEDS DISTRICT REGISTRY
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Norris
Case No: 149 of 2014
Hugh Jory QC (instructed by Gordons LLP) for the Joint Administrators of the Partnership
Graham Sellers (instructed by Walker Morris) for the First to Third Respondents (the Trustees in bankruptcy of the individual Partners)
Louis Doyle (instructed under the Direct Access Scheme) for the Fourth Respondent (Lady Morrison)
Hearing dates: 20 and 21 June 2016
This application by the joint administrators of Dent Company (a partnership) ("the Partnership") affords the opportunity to consider the application of the equitable doctrines of marshalling and subrogation in relation to a fixed charge over a dog.
The members of the Partnership were Thomas Hugh Dent, Thomas Gordon Dent, and Christina Heather Dent. There was no partnership agreement. There were two limbs to the Partnership business: the Partnership operated a haulage business (which produced about 90% of its revenue) and also a conventional farming business. Some of the members of the Partnership were also shareholders in and directors of Dent Limited ("the Company") which was one of the largest outdoor pig producers in the UK. Just under 20% of the income of the Partnership was derived from providing haulage services to the Company.
The working capital of the Company was provided by Barclays Bank PLC ("the Bank") upon the security of an "all-monies" debenture containing fixed and floating charges over all assets of the Company. The Bank also took third party charges over two farms at Penrith ("the Penrith Farms") which belonged to the members of the Partnership individually and which were used for the purpose of conducting the Partnership business but did not form part of the assets of the Partnership.
In early 2007 the Partnership and the Company suffered cash flow pressure. In particular the Partnership was in danger of being unable to obtain fuel supplies with which to conduct the haulage business of the Partnership (thereby also prejudicing the business of the Company). On 11 May 2007 Lady Morrison (who was the daughter of Thomas Gordon Dent and Christina Heather Dent and the brother of Thomas Hugh Dent) entered into a loan agreement with the members of the Partnership recording that she had lent £300,000 in April 2007 and was now advancing a further £150,000 (so making a total of £450,000) ("the May 2007 Loan Agreement"). Lady Morrison did not at this point take any security for her advances: but the May 2007 Loan Agreement contemplated that documents might be entered into with the consent of the Bank which granted such security as a result of a contemplated deed of priority in a form to be agreed between Lady Morrison, the Bank and the members of the Partnership in form and substance satisfactory to her.
This injection of loan capital was insufficient to sustain the businesses and a further round of funding occurred on 11 June 2007.
First, Lady Morrison loaned £350,000 to the Company upon the terms of an agreement I will call "the Company Loan Agreement". The commercial object of this was to inject capital into the Company in order to encourage the Bank to advance further funds to the Partnership. The Company Loan Agreement was secured by third party security in the form of personal guarantees from the members of the Partnership and by legal mortgages over their Penrith Farms. Because Barclays also had a security interest in the Penrith Farms there was to be a deed of priority.
Second, the Partnership entered into an "all-monies" agricultural fixed and floating charge in favour of the Bank ("the Agricultural Charge") under the provisions of the Agricultural Credits Act 1928 ("the 1928 Act").
By clause 2 of the Agricultural Charge the members of the Partnership created a fixed charge over the "Farming Stock" and the "Agricultural Assets" belonging to the Partnership that were at that date at the Penrith Farms (and elsewhere). The Agricultural Charge also created a floating charge on all other "Farming Stock" and "Agricultural Assets". The "Farming Stock" was described in schedule 2 to the Agricultural Charge and listed livestock (551 head of cattle and one dog), vehicles, tractors and implements. The other "Agricultural Assets" were not defined (but the expression is given context by the terms of the 1928 Act). The terms of the Agricultural Charge permitted the Bank to take immediate possession of any of the secured assets (and converted the floating charge into a fixed charge) if a bankruptcy order was made against any of the Partners.
Third, the Bank and Lady Morrison entered into an agreement relating to the Partnership dealing with the question of priority ("the Priorities Agreement"). This related both to the advances made by Lady Morrison governed by the May 2007 Loan Agreement (which in the Priorities Agreement was called "the Partnership Loan Agreement") and the advance to the Company governed by the Company Loan Agreement.
Clause 2 of the Priorities Agreement was in these terms:
"(2.1) The Bank in consideration of the Lender making the Partnership Loan available to the Partnership and agreeing to make the Company Loan available to the Company…agrees that:
(2.1.1) If the Bank takes any action to enforce…any mortgage guarantee or other security which it holds from the Partners or in relation to the business or assets of the Partnership…the Bank will take all steps reasonably requested by the Lender in connection with the Charge and enforcement of the Charge, subject to clause 2.3 below:
(2.1.2) All amounts paid to the Bank pursuant to clause 2.1.1 shall be held by the Bank on trust:
(a) FIRST in payment or satisfaction of the reasonably and properly incurred expenses of the Bank in taking Enforcement Action directly in relation to the Charge:
(b) SECONDLY in payment or satisfaction of the liabilities of the Partnership to the Lender under the Partnership Loan Agreement PROVIDED THAT the amount to be paid to the Lender pursuant to this clause…shall be limited to the Partnership Loan;
(c) THIRDLY in payment or satisfaction of the liabilities of the Partnership to the Bank: and
(d) FOURTHLY as for the balance (if any) in or towards payment of the sums due but not paid under the Partnership Loan Agreement…"
Even this was not sufficient. In February 2008 in support of further funding the Company entered into a cross-guarantee and debenture: and the members of the Partnership granted further third party legal charges over the Penrith Farms. In March 2009 the members of the Partnership granted further personal guarantees to the Bank in respect of the debts of the Company to the value of some £8 million. In 2013 there were further loans by Lady Morrison to the Partners personally. But all this was to no avail.
In December 2013 the Company entered administration. On 21 January 2014 a bankruptcy petition was presented against Thomas Hugh Dent (but not by Barclays). On 18 February 2014 the members of the Partnership appointed the present applicants as joint administrators of the Partnership. In April 2014 bankruptcy orders were made against each member of the Partnership. Finally, also in April (on 11 and 28 April 2014) the Bank appointed Law of Property Act Receivers in respect of the Penrith Farms.
The Bank began a realisation of the securities. On 30 October 2014 its LPA Receivers completed the sale of the Penrith Farms (which belonged to the Partners individually and were not partnership assets). The Penrith Farms stood as security (a) for money owed by the Partnership and by the Company to the Bank; (b) for money owed by the Partnership and by the Company to Lady Morrison; (c) for money owed by the Partners to Lady Morrison. The proceeds of sale were sufficient to discharge all of the Bank's lending (£4.166 million) and the majority of Lady Morrison's lending. Lady Morrison was entitled to appropriate those payments to her best advantage as between sums due from the Partners personally, from the Company and from the Partnership, and as a result she is still owed £192,000 by the Partnership. Because the Bank was repaid out of the Penrith Farms it did not have to rely on the Agricultural Charge over the Farming Stock and the Agricultural Assets of the Partnership. So these were sold by the Joint Administrators and raised £187,634.
The Joint Administrators have also realised Partnership assets falling outside the scope of the Agricultural Charge (both from the farming business and the haulage business): and this has yielded £905,601. The expenses of the administration total some £276,502. So there are funds available to unsecured creditors (who total £1.277 million excluding Lady Morrison). The Joint Administrators wish to make a distribution. However, it is unclear whether the proceeds of the assets within the scope of the Agricultural Charge should be made available to Lady Morrison (as a result of marshalling) or to the trustees in bankruptcy of the Partners (as a result of subrogation) or to the unsecured creditors generally (including Lady Morrison in respect of any shortfall on her loans). The Joint Administrators now seek directions (under paragraph 63 of Schedule B1 to the Insolvency Act 1986). Whilst...
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