Facts

In Andrew Fender (Administrator of FG Collier & Sons Limited) - v - National Westminster Bank Plc, a company went into administration. The administrator applied to the court to establish whether he had to treat NatWest bank as a secured or unsecured creditor of the company.

The bank had provided finance to the company and had taken an all monies charge over the company's property. The company had also provided a guarantee to the bank in respect of a connected company. In due course, the indebtedness of the connected company was discharged and so the connected company applied for the guarantee to be discharged. The bank agreed to the discharge of the guarantee and at the same time mistakenly provided a deed of release in respect of the charge. The bank provided the deed of release in the mistaken belief that the company's liabilities to the bank had all been discharged. The bank's employees were mistaken in that they didn't realise the company was indebted to the bank on its own account and that therefore there was still money outstanding to be secured by the charge.

Decision

The court directed that the administrator should recognise the bank as a secured creditor of the company and treat the deed of release as if it had never been executed by the bank. This was on the basis that the bank would not have acted as it did had it been aware of the true facts. Had the bank known of the company's continuing indebtedness, the deed of release would not have been executed. It was not intended that the deed of release should turn the bank from a secured creditor into an unsecured creditor.

Commentary

A bank can request that a security be reinstated if it has discharged the security due to a genuine mistake. If the company had registered the discharge of the mortgage at the Land Registry and then sold the property to a third party, the bank would not have been able to re-register its charge against the property. This is because the third party would have been able to rely on the fact that the title register did not show the existence of the charge in favour of the bank when it purchased. Also, even if the land hadn't been sold, the bank would take subject to any charges which had been granted in the mean time.

If the company did not own any alternative property which could be given as security then the bank would have had to seek an alternative form of security from the company. It is questionable whether this would have been of any value since the company was in administration.

The case highlights the need for banks to check, in the case of an all monies charge, whether any other monies are still outstanding – whether by the company itself or under any other guarantees it may have given.