Key points

Lenders and proposed administrators should ensure that permission is in place where permission of prior charge holders is required for the grant of new security.

The facts

Administrators were appointed to a company by Nationwide as assignee. Some years into the administration, two creditors challenged the appointment of the administrators on the basis that Nationwide’s debenture was not an enforceable qualifying floating charge. The security pursuant to which Nationwide appointed administrators (the “Nationwide Security”) was granted in relation to a property purchase loan. Another lender (CHL) had the benefit of prior floating charge security over present and future assets of PEL. CHL’s security provided for automatic crystallisation of the CHLfloating charge if PEL encumbered its assets without the consent of CHL. The Nationwide Security was created in breach of that clause, and the applicants argued that CHL’s security crystallised immediately before the Nationwide Security was granted, and so there were no assets over which the Nationwide Security could have floated at the time of creation of the Nationwide Security. They argued that, therefore, Nationwide was not the holder of an enforceable qualifying floating charge and the appointment of the administrators was invalid.

The Decision

Basing its ruling on an earlier decision in Abbey National Building Society v Cann, the court held that the Nationwide Security, and therefore the appointment of the administrators, was valid. Where monies are loaned to for property purchase, and related security is taken, the purchase of the property and the granting of the security are one indivisible transaction. As a result, the assets to which the Nationwide Security related were never subject to the CHL security (and were purchased subject to the Nationwide Security) and therefore the CHL did not crystallise over them.


Open questions remain as to (i) the situation if the Nationwide Security had been granted in relation to general lending, in which case Abbey v Cann would not apply, and (ii) whether the Nationwide Security constituted a qualifying floating charge in the sense that it only, in fact, related to specific property and not to the “whole or substantially whole” of the company’s property as required under paragraph 14(3) of Schedule B1 of the insolvency Act 1986.

Lenders should ensure that where prior security exists, any necessary permission for the grant of new security is obtained. Likewise, administrators should check that, where permission is required for the grant of the security under which they are to be appointed, that permission is in place.

Re Property Edge Lettings Limited [2015] EWHC 4069

Read more articles in the May 2016 edition of RCR Update