There have been a couple of cases in the last few months where the impact of changes to the details of the various registers at Companies House has been considered by a Court. This article considers the points of interest for lenders that arise out of those decisions
What use is an LP registration certificate?
Not much in the case of a certificate that relates to a limited partnership (one to which the Limited Partnership Act 1907 applies not the limited liability partnership variety).
In Bank of Beirut SAL v Prince Adel El-Hashemite the Court had to decide whether the Registrar of Companies could refuse to delete an entry that a limited partnership had been created under the 1907 Act.
Two banks claimed that the Prince had fraudulently created a limited partnership pursuant to a non-existent power of attorney with the relevant Bank as the general partner and the Prince as the limited partner. The Prince had allegedly engaged in nefarious conduct by alleging he was owed money by the banks pursuant to these arrangements. The banks wanted to put a stop to this behaviour as it was causing embarrassment and loss. They made the seemingly not unreasonable request that the entry in relation to the limited partnership be deleted by the Registrar to help them. The Registrar – ever vigilant against the flood gates opening and producing more such requests in relation to the variety of certificates it is obliged to issue for matters ranging far and wide over the corporate landscape – said he could not help the two banks.
As the Registrar Counsel put it:
“s. 8C of the 1907 Act provides that a certificate of registration is “conclusive evidence” that a limited partnership came into existence on the date of registration; and the Registrar is concerned that if the Court were able to go behind the certificate of registration, there would be wider implications as a certificate of registration under the 1907 Act is but one example of various certificates issued by the Registrar which are made by statute conclusive evidence, and any decision that the Court might nevertheless hold that registration could in effect be set aside as a nullity would undermine the conclusive nature of such certificates.”
The Court refused to oblige the Registrar to remove the entry. So, according to the register a limited partnership came into existence on the date specified in the certificate despite the fact that almost everyone involved never agreed to any such thing.
The moral of this story is that anyone lending to a limited partnership may have to dig much deeper in its due diligence that simply obtaining a copy of the Registrar’s certificate.
Bringing a company back to life – security
One effect of the increasing use of special purpose vehicles in finance transactions is that an increasing number of lenders find that when things begin to go wrong (or worse a fraud is discovered) the company’s filing of returns at Companies House has usually suffered. This can result in a borrower/security provider being struck off the register and to paraphrase Monty Python joining the corporate choir invisible. Sometimes – as in Re Fivestar Properties Ltd – the wound is self-inflicted as where an administrator files his final notice triggering dissolution when LPA Receivers are still negotiating a disposal of a charged property.
There is a well-worn path to restoring a company to the register. What is less well-worn are the effects of dissolution on a secured creditor and what happens to it when the company is restored.
In Fivestar the High Court gave some much needed guidance on what a secured lender can expect when it applies to restore a dissolved security provider to the register. In the case administrators had been appointed to the company whilst LPA receivers were in place. ThoseLPA Receivers continued to act in relation to a specific property owned by the company that was charged to the lender. When the administrators filed their final notice it triggered the dissolution of the company. Nobody told the LPA Receivers who were left wondering what powers they had to continue to deal with the property – they act as agents of the company and when the company was dissolved that agency disappeared as the principal was non-existent.
On dissolution the property became bona vacantia and vested in the Crown. In this case the Crown disclaimed the freehold which destroyed the freehold title and triggered an escheat of the land – escheat is an ancient legal concept which we need not trouble our readers with too much as it hardly had any effect at all save to send a frisson of excitement down the spines of a few Chancery lawyers.
The real issue was when the company was restored what were the secured creditors rights and did the disclaimer by the Crown affect those rights.
First, the Court held that the disclaimer did not extinguish the Crown’s right to the property. That was important as if there had been a disposition by the Crown to a third party there might not have been any chance of the Court deciding it had the power to make an order in relation to the property and in particular the company regaining title to it. Second, on restoring the company to the register the Court declared that the freehold interest was recreated and revested in the company. It revested in the company as though the company had never been dissolved which meant the security interest of the lender re-attached or at least was treated as though it had never been lost. To ensure the affairs of the company were properly managed after restoration a winding up order was made so a liquidator could ensure creditor claims were dealt with, assets realised and so on. The Court also stated that a mortgagee’s remedies continued to be exercisable notwithstanding the dissolution of the chargor company and the disclaimer – so the lender could have exercised its statutory power of sale. The possibility of the bank making an application under section 1017(2) Companies Act 2006 to have the freehold vested in it was also discussed.
All in all good news for lenders to dissolved companies.