Security registrations and amendment agreements: lenders beware!

The recent case of Re VE Global UK Ltd (In Administration) [2024] EWHC 749 (Ch) is a useful reminder to practitioners and lenders alike of the importance of correctly identifying documents which create security interests, analysing them to determine whether such security interest is required to be presented for registration at Companies House and ensuring that all registration steps in respect of such interests are completed within the required 21 day time period.

Failure to complete these steps will leave a lender’s position significantly weakened in the event of the security provider’s entry into insolvency proceedings.

Background

In 2021, VE Global UK Ltd (the company) began fundraising by way of loan notes which were issued in December that year. On 20 December 2021, the company entered into a guarantee and indemnity agreement with various noteholders and provided security by way of a debenture for the investments to two noteholders. The debenture was not registered at Companies House due to an administrative oversight.

The debenture was amended by an amendment agreement on 18 January 2022 to add a third investor as a party. The debenture was not annexed to the amendment agreement.

On 1 February 2022, a copy of the amendment agreement (but not a copy of the debenture) was delivered to Companies House for registration. A certificate of registration was issued confirming registration of a charge dated 18 January 2022 created by the company in favour of the three investors.

The company went into administration on 11 May 2022. The administrators made an application to court under paragraph 63 of Schedule B1 to the Insolvency Act 1986 for clarification as to the status of the debenture having received advice that the debenture was invalid by reason of non-registration.

Issues considered

A certificate of registration issued by Companies House would normally be conclusive evidence as to the delivery in time of the documents mentioned in it. Here, the High Court considered the status of the certificate and what it certified.

Decision

The court found that the certificate of registration referred to a charge dated 18 January 2022, being the date of the amendment agreement and not the date of the debenture. However, the amendment agreement did not create a charge, it only extended the terms of the document which did (i.e. the debenture). As a result, the issued certificate of registration purported to register a charge that did not exist.

The court distinguished this case from Re Bitumina Industries Ltd (In administration) [2022] WHC 2578 (Ch) in which the certificate of registration was held to cover a charge as it was not “entirely different” from the document to which the registration particulars referred. This reasoning did not apply in the VE Global UK Ltd case as it could not be said that the amendment agreement was “not entirely different” from the debenture.

There had therefore been no effective registration of the security interest constituted by the debenture. Accordingly, the court held that the debenture was void against the administrators under section 859H of the Companies Act 2006 as it was not registered within the prescribed time period, leaving the three investors with no security for their investment in one of the situations where they would need it the most – insolvency proceedings of the company.