Many will be familiar with the words “further advances” and associate this term with typical boiler plate provisions in finance documents.
In a recent case (In the matter of Black Ant Co Ltd (in administration)  EWHC 1161 (Ch)(15 April 2014) the High Court provided useful commentary on the meaning of “further advances” in the context of the priority of security.
The priority of security is important where a borrower is insolvent and enforcement proceeds are insufficient to discharge its total debt. Many lenders will require a formal deed of priority or an intercreditor deed be entered into by a borrower with all of their secured lenders, in order to specify the level of priority of each lender in relation to repayment and enforcement proceeds. In the absence of any such document, the rules of the Land Registration Act 2002 will apply and debts owed to secured lenders are repaid in the order of priority of their security over real estate.
A first lender will be concerned that its security retains its priority for subsequent advances made after its borrower grants security to other creditors. “Tacking” is the ability of a lender to secure (“tack”) further advances under its security which rank ahead of any amounts subsequently lent by, and secured in favour of, another creditor.
The Land Registration Act 2002 contains anti-tacking provisions which limit the priority of a first registered charge to advances made at the time of that charge and any further advances that the lender was obliged (under the terms of the charge) to make. An obligation to make such further advances must be recorded on the register at the Land Registry.
The facts of this recent case involved the common scenario where a lender and borrower have entered into a replacement facility agreement. In the circumstances, the lender and borrower could have alternatively entered into an amendment (or an amendment and restatement) of its existing facility agreement and no additional quantum of debt was made available. One of the points to be decided was whether this replacement facility constituted a “further advance”. The High Court decided that a “further advance” is an advance of “further or additional funds”, and that in these circumstances, as the new facility could not be considered to involve the deemed repayment of the previous facility by way of new additional funds, the replacement facility did not constitute a further advance.