Iver Salvesen+mrs. Wendy Salvesen For Extension Of The Time Within Which Charges May Be Registered In The Register Of Charges Under Section 420 Of The Companies Act
| Jurisdiction | Scotland |
| Judge | Lord Hodge |
| Neutral Citation | [2009] CSOH 161 |
| Year | 2009 |
| Published date | 08 December 2009 |
| Date | 08 December 2009 |
| Court | Court of Session |
| Docket Number | P105/09 |
| OUTER HOUSE, COURT OF SESSION [2009] CSOH 161 | |
| P105/09 | OPINION OF LORD HODGE in the Petition of IVER SALVESEN and MRS WENDY SALVESEN Petitioners; for Extension of the time within which charges may be registered in the register of charges under Section 420 of the Companies Act 1985 ________________ |
Petitioners: Webster; Davidson Chalmers
Defender: Dalgleish; Brodies LLP
8 December 2009
[1] The Natural House Company Limited ("NH") was incorporated under a different name in 1993. Its principal commercial activity was land development. The first petitioner ("Mr Salvesen") was the principal shareholder and managing director of NH. He and his wife ("Mrs Salvesen") are the second petitioners.
[2] NH purchased Woodworthy Farm, Waterrow, Taunton ("the farm") for development in 2005. Mr and Mrs Salvesen funded the purchase as follows: Mr Salvesen advanced £303,140 and Mr and Mrs Salvesen together advanced a further £200,000. On 1 December 2005 NH granted legal charges over the farm as security for those advances. The charges were registered in the Land Register on 20 December 2005.
[3] As a result of an oversight, which I describe below, no one registered the charges in the companies register within 21 days of their creation as Section 410 of the Companies Act 1985 ("the 1985 Act") requires. As a consequence, the charges are void against a liquidator, administrator or any creditor of NH. This is an application under Section 420 of the 1985 Act to extend the time within which the charges may be registered in the companies register.
Background
[4] In 2003 NH had granted a bond and floating charge over its assets in favour of The Royal Bank of Scotland plc ("RBS"). On about 31 March 2006 Merrill Lynch International Bank Limited ("Merrill Lynch") advanced £300,000 to NH which granted a legal charge over the farm. To regulate the ranking of the various securities, NH, Mr and Mrs Salvesen, RBS and Merrill Lynch entered into a ranking agreement on 31 March 2006. In that agreement Merrill Lynch ranked first, Mr and Mrs Salvesen second and RBS third. When negotiating the agreement no one noticed that the charges in favour of Mr and Mrs Salvesen had not been registered with the registrar of companies.
[5] As a result of the financial crisis and credit crunch in 2008 NH suffered from cash flow difficulties and the directors of NH, including Mr Salvesen, decided on 25 September 2008 to place the company in administration. On 13 October 2008 David Menzies and Keith Anderson of Baker Tilley Restructuring and Recovery LLP were appointed administrators of NH. The administrators' estimated statement of affairs as at 13 October 2008 showed a deficiency to creditors of £1,520,907 and a total deficiency of £2,815,944.
The failure to register
[6] Section 420 of the 1985 Act provides:
"The court, on being satisfied that the omission to register a charge within the time required by this Act or that the omission or mis-statement of any particular in respect of 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 it is on other grounds just and equitable to grant relief, may, on the application of the company or any 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."
[7] Mr Webster on behalf of the petitioners submitted that the failure to register was accidental or due to inadvertence. Mr Dalgleish on behalf of the administrators did not dispute that assertion. The petitioners' agents lodged affidavits by Mr and Mrs Salvesen, Mr Eric Cowsill, who was a solicitor who acted for NH, and Mr Anthony Goddard, who was a qualified solicitor and acted as a director of NH. The affidavits reveal that Mrs Salvesen had no involvement in NH and had agreed, at Mr Salvesen's request, to provide jointly with him the loan of £200,000 to NH. She was not involved in the negotiation of the loans or of the ranking agreement but signed the documents which he asked her to sign. Mr Salvesen made the decision to purchase the farm and asked his co-director, Anthony Goddard, to manage the legal requirements.
[8] Mr Salvesen stated in his affidavit that he had left it to Mr Goddard and the company's solicitor, Mr Cowsill, to register the charges in his favour and in favour of himself and his wife. Mr Goddard explained that he arranged for Mr Cowsill to carry out the conveyancing of the farm to the company but had not instructed him to act for Mr and Mrs Salvesen. The professionals had to complete the transaction urgently. Mr Cowsill prepared charges in favour of Mr and Mrs Salvesen and his assistant registered the transfer and the charges in the Land Register. On 28 November 2005 Mr Cowsill e-mailed his assistant, pointing out that the charges would require to be registered in Companies House. He copied that e-mail to Mr Salvesen, Mr Goddard, and Mr Oliphant, NH's company secretary, on 29 November 2005. He assumed that either the company officials would register the charge or they would specifically instruct him to do so. On 8 December 2005 Mr Goddard e-mailed Mr Salvesen in response to a memorandum which he had sent. In that e-mail he discussed various sites which NH were developing. In relation to the Woodworthy farm transaction Mr Goddard explained that the mortgages to protect Mr and Mrs Salvesen's interests had been signed and lodged for registration. In so stating, he must have meant to refer to their registration in the Land Register.
Discussion
[9] Mr Webster submitted that it was just and equitable that the charges in favour of the petitioners should be registered late. The petitioners were not to blame for the failure to register and late registration would merely give effect to the contract with RBS in the ranking agreement that the petitioners' charges should rank before their bond and floating charge. If the court did not allow late registration, RBS would obtain a windfall at the petitioners' expense. The court had in the past used its power to allow late registration to give effect to agreements between creditors: In re I. C. Johnson & Co Ltd [1902] 2 Ch. 101. He recognised that there was a possibility that the ordinary creditors of NH would lose out if the charges were registered late as the prescribed part for unsecured creditors under section 176A of the Insolvency Act 1986 might be reduced. The petitioners therefore undertook to pay the administrators such sum as equalled the amount by which the prescribed part would be reduced by the late registration of their...
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