Beyond the surface: looking behind a certificate of conclusive evidence

Briefing

It is perhaps every finance lawyer's worst nightmare: forgetting or otherwise failing to register a charge. A recent judgment in the case of Re VE Global UK Ltd (In Administration) (also known as Binyon & Anor v Suzerain Investment Holdings Ltd & Ors) [2024] EWHC 749 (Ch) highlights the consequences of such an omission and provides guidance as to the limits of relying on a certificate of registration issued by Companies House as 'conclusive evidence' of the existence and validity of a purported charge.

Statutory Framework

Under the Companies Act 2006 (the Act), and subject to very limited exceptions, any security created by a company or LLP must be delivered for registration by the Registrar of Companies within a period of 21 days starting from the day after its creation. The submission consists of a certified copy of the relevant document together with a statement of particulars (provided by way of a completed Form MR01) containing details such as the date of the relevant security document, details of the assets secured and whether or not the document contains a floating charge.

Where these requirements have been fulfilled, the registrar will record that charge (and the submitted particulars) on the register, which is then publicly available, and will issue a certificate of registration which is, in accordance with s859I of the Act, 'conclusive evidence' that the documents required by the Act in relation to that charge were delivered to the registrar within the required timeframe (the Conclusive Evidence Provision). This feature of UK company law is incredibly helpful in that it allows anyone to determine as a matter of public record whether a company or LLP registered in England and Wales has given security over all or any of its assets, and the importance of having robust and reliable public records in respect of UK corporate vehicles has been well rehearsed.

Where a company or LLP fails to comply with the registration regime, the underlying security will be void against a liquidator, administrator or creditor of that company/LLP and the monies secured by it will become immediately due for payment.

Facts of the Case

In December 2021, ecommerce software business, VE Global UK Limited (VE Global) executed a loan note instrument and issued loan notes as a means of raising capital. In connection with the loan notes, VE Global granted a debenture in favour of the original noteholders, Suzerain Investment Holdings Ltd and James Lupton (the Original Noteholders), pursuant to which security was granted over certain of VE Global's assets for its obligations under the loan notes (the Original Debenture).

In January 2022, New Corange Limited (NCL and together with the Original Noteholders, the Noteholders) subscribed for further loan notes under the same instrument. The Original Debenture was amended by way of an amendment agreement (Amendment Agreement) which provided for NCL to be added to the Original Debenture as a contracting party, presumably such that the security granted pursuant to the terms of the Original Debenture was expressed to be for NCL's benefit as well as that of the Original Noteholders.

The Amendment Agreement was submitted for registration and the Registrar of Companies issued a certificate of registration of charge on 3 February 2022 (the Certificate). The Original Debenture itself was never registered, apparently due to 'administrative oversight'.

In May 2022, VE Global went into administration. The administrators instructed lawyers who determined that the Original Debenture was invalid due to its non-registration. Certain of the Noteholders objected to that view and accordingly the Administrators applied to the court for a direction under para 63 Schedule B1 of the Insolvency Act 1986 that the Original Debenture was void under s 859H of the Act.

The court gave the direction requested in March 2024, and a recently published judgment sets out Deputy ICC Judge Baister's reasoning for that direction. As the application itself was not opposed there are limited details available, but it appears the central question for the court to determine was whether the fact the Certificate was issued in respect of the Amendment Agreement could extend the application of the Conclusive Evidence Provision to the Original Debenture such that it was deemed valid despite not having itself been registered.

Judgment

Baister J looked at previous case law focussing on the Conclusive Evidence Provision, including examples where the procedural requirements set out in the Act (or the equivalent provisions of antecedent legislation) had not been complied with but, nonetheless, a certificate had been issued by the registrar.

In several such cases the court affirmed the Conclusive Evidence Provision would apply, including:

where an erroneous statement was included in the particulars submitted as part of the application for registration, including in relation to the extent of the property secured and the total sum secured, and including where that error was carried through into the issued certificate: here the underlying charge will nonetheless be deemed properly registered and its terms and effect will be judged by reference to the underlying documentation, regardless of whether these have been correctly reflected in the relevant particulars and/or certificate
where the registrar erroneously accepted a charge for registration which did not in fact comply with the statutory requirements, including where a charge was submitted for registration outside of the 21 day period: while seemingly perverse, the court highlighted that limited hardship or injustice would arise in this instance given the effect of registration in and of itself was limited, and registration would not confer validity on a charge that was otherwise invalid for reasons other than non-registration
where a security document purportedly executed as a deed was invalid as a deed due to failure to satisfy the required formalities but was accepted for registration by the registrar: it was determined an equitable charge had nonetheless been created as a matter of law, and the registration of (and certificate issued for) the ineffective document could be deemed to extend to the effective charge on the basis the two were 'not entirely different'. The description of the charge filed with the registrar was determined to be an exact description of the charge which the chargor had granted, other than with respect its legal form.

Baister J was able to distinguish this case on the facts however, because the document which was accepted for registration and in respect of which the Certificate was issued was the Amendment Agreement. The Amendment Agreement refers to the Original Debenture and provides for its terms to be amended to include NCL as a contracting party, but does not itself create a charge and, contrary to the third case mentioned above, and with apologies for the double negative, was not 'not entirely different' from the Original Debenture. Therefore the Certificate had been issued in respect of "a charge that does not exist", and not the charge created by the Original Debenture. The Original Debenture was therefore void for non-registration.

It is not clear from publicly available records the consequences of this determination, but one can assume that the administrator will proceed on the basis that the Noteholders do not have a valid security interest in the assets of VE Global. Presumably the Noteholders will now find themselves in a less advantageous position than they were expecting in the administration process, given that distributions to unsecured creditors come far later in the order of priority, behind valid secured creditors and the claims of any preferential creditors, which in this case include various claims from employees and HMRC.

Comment

Readers should be aware that most security granted by a company or LLP registered in England and Wales is required by law to be registered with Companies House, regardless of the governing law of that security: this is not an optional perfection step that can be waived, and there are tight timeframes and other procedural requirements which must be adhered to. Failure to register will mean the relevant security is void against certain interested parties, including an administrator, as in this case, but will also have the result that the liabilities secured by the relevant charge become immediately payable which is unlikely to be in anyone's interests, and could present significant issues for the charging company in terms of cross-defaults under other financing arrangements.

While the statutory obligation to register security is an obligation of the company or LLP granting that security, in practice it is more common, though not universal, for the beneficiary of that security (or their advisors) to make the necessary registration. Those whose business centres on secured lending, and their legal advisors, are likely to be well versed in these requirements although a regular review and audit of procedures would be advisable to ensure nothing gets missed. Those who make secured loans on a less routine basis, such as where an existing investor provides emergency short term secured debt to ailing businesses, may be vulnerable to a similar oversight as occurred in this case if specific legal advice is not sought, with potentially dire consequences.

Filings can be made quickly and easily online at a nominal cost and, provided the relevant procedural requirements are complied with, at present these are typically accepted for registration (and a certificate issued) within a few business days of submission.