Debenture - Floating charge

Rehman v Chamberlain and another: Chancery Division, Leeds District Registry (His Honour Judge Keyser sitting as a judge of the High Court): 6 September 2011

On 12 February 2009, the claimant advanced £150,000 to a company, M Ltd, to supplement its working capital. The date of the advance was stated on the debenture and loan agreement as 27 February 2009. M Ltd gave security for that advance by way of various charges, including a floating charge, contained in a debenture dated 27 February 2009. M Ltd became unable to pay its debts, and in October 2009 went into liquidation.

The defendant liquidator contended that the claimant's floating charge was invalid by reason of section 245 of the Insolvency Act 1986. In March 2011, the defendant applied to the court for, inter alia, determination of the validity of the floating charge. The claimant commenced Part 8 proceedings.

The claimant sought, inter alia, rectification of the register maintained by the registrar of companies, so as to record the date of the debenture as 12 February 2009 (the date when the money was advanced) and not 27 February 2009. He contended that the floating charge created by the debenture was invalidated by section 245 of the Insolvency Act 1986, and that at the time of delivering the £150,00 by way of cheque, he had understood that he would be treated as secured in the same way as he would have been under the executed debenture on the payment being made.

The claimant's application would be dismissed.

On the evidence, the claimant had possessed a security interest at the time when the money had been advanced in February 2009. The agreement had been that security would be created, but it had not been an agreement so expressed as to create a present equitable right to a security.

On the evidence, there had not been any agreement for an immediate security upon the giving of the cheque, nor did it give grounds to conclude that the directors of and solicitor for M Ltd had believed there to be such security. The money had been given in anticipation of and in consideration for the security that was to be given by the debenture. In any event, had the court found otherwise, it would not have been willing to exercise its discretion under section 404 of the Companies Act 1985 in favour of the claimant (see [25]-[27], [30] of the judgment). The claimant had not possessed a security interest at the time when he had advanced the money in February 2009 (see [25] of the judgment).

Jackson and Bassford Ltd, Re [1906] 22 TLR 708 applied; MIG Trust Ltd, Re [1934] All ER Rep 82 considered; Braemar Investments Ltd, Re [1988] BCLC 556 considered; Shoe Lace Ltd, Re, Power v Sharp Investments Ltd [1994] 1 BCLC 111 considered.

Louis Doyle (instructed by Blacks Solicitors) for the claimant. Hugo Groves (instructed by Walker Morris) for the defendant.