Re Rodus Developments Ltd (in administration); Bushby and another (as joint administrators of Rodus Developments Ltd) v Actua Investment LLC [2022] EWHC 3232 (Ch)

 

Chancery Division, ICC Judge Barber, 20 December 2022

 

The importance for an equitable charge to be registered

 

The decision by ICC Judge Barber in this case illustrates why it is crucial for an equitable charge to be registered for it be enforceable.

 

Rodus Developments Limited ('the Company') a special purpose vehicle to develop a 'build to rent' scheme at Middlewood Plaza in Salford. In July 2018, it purchased two parcels of freehold land and subsequently developed 127 residential units, which were marketed for sale off plan, with purchasers entering into agreements for leases. The company was funded by secured loans from Topland Jupiter Ltd (‘Topland’) totalling £14.8 million.

 

Following a creditors' administration application, Topland intervened and appointed Joint Administrators on 13 January 2022.

 

In February 2022, Actua Investment LLC, a Dubai company, filed an application at HM Land Registry to enter a unilateral notice in respect of a purported equitable charge over the development created by a facility agreement of April 2018.

 

The facility agreement confirmed that the Company was loaned £2.1m and provided that: “As security for the Loan the Borrower agrees to provide the Lender with a Legal Charge over the Land”. No legal charge was ever executed over the land. For the purposes of the application the Joint Administrators were prepared to proceed on the basis that the facility agreement created an equitable charge over the land. However, no charge was registered at Companies House or at the Land Registry. The facility agreement was governed by English law.

 

The Administrators of the Company made an application to the Court that sought the removal of the unilateral notice as it was impeding the conduct of the Administration, which was detrimental to creditors, in particular Topland.

 

Decision

 

ICC Judge Barber decided that the equitable charge claimed by Actua Investment LLC was void for non-registration under section 859H of the Companies Act 2006 and had no reasonable cause to apply for a unilateral notice.  The court ordered the application to be cancelled and vacated immediately.

 

“40. On the evidence before me, I am satisfied that the equitable charge that Actua has claimed is void for non-registration by virtue of section 859H of the Companies Act 2006. I am further satisfied that Actua has no reasonable cause to apply to HMLR for a unilateral notice in respect of the equitable charge against the Properties. I shall grant the declarations sought accordingly.

 

41. I shall also order that Actua's pending application to HMLR be cancelled and vacated forthwith by the Chief Land Registrar and that it be treated by him as having been withdrawn by or on behalf of Actua. In this regard I accept Mr Morgan's submission that the court has wide powers to order a person to withdraw an application to enter a unilateral notice and to order cancellation of a notice that has been entered in the register.”

 

 

Helpful comments

 

“27.  Ultimately, however, even assuming that an equitable charge arose in Actua's favour on 16 July 2018, this does not assist Actua, because any such equitable charge is now void by virtue of Part 25 of the Companies Act 2006. As rightly noted by Mr Morgan KC,

 

(1) any such charge was 'created' by the Company pursuant to the Actua Facility Agreement and was therefore required to be registered within 'the period allowed for delivery': s859A(1) and (2) CA 2006;

 

(2) that period was 21 days beginning with the day 'after the creation of the charge' unless an order allowing an extended period was made (and no such order has been made in this case): s859A(4);

 

(3) the charge instrument was not a deed and it either had effect on execution (alleged to be 3 April 2018) or on the date that the Properties were acquired by the Company (16 July 2018): s859E(1);

 

(4) the charge was not registered within 21 days of either of these dates or at all and it was therefore void as any form of security against the Joint Administrators and the creditors of the Company: s859H;

 

(5) in these circumstances, Actua has no valid interest to protect, it has made the UN1 Application without reasonable cause and it is thereby prejudicing the interests of the Joint Administrators and the creditors of the Company.”

 

The judgment can be found here.