The lender's dilemma

Lenders who take security over shares in an English company have to decide whether to take either:

• a legal mortgage by becoming registered owner of the shares
• an equitable mortgage or charge with the chargor remaining the registered owner.

A legal mortgage gives the lender the right to vote subject to the terms of the mortgage document and prevents the chargor from disposing of legal title to the shares to a third party, as the lender is the registered owner of the shares.

In Re SCL Group Ltd (& others) [2019] EWHC 954 (Ch), the High Court considered a range of allegations concerning the administrators to the Cambridge Analytica group and whether they should be appointed as liquidators following a failed sale process.

Central to the case were allegations of misconduct and potential bias against a particular creditor. The claims were rejected. But, the case contains useful observations about the role of administrators and their duties:

The High Court has confirmed that a sale by a receiver to a buyer connected with the mortgagee does not engage the self-dealing rule and further considered the extent of the duties on an enforcement sale.

The Court of Appeal has clarified a technical question on the proper operation of Section 245 IA 1986 and the extent to which it might invalidate floating charges taken to secure the supply of goods or services.

Section 245 IA 1986 invalidates floating charges created during the 12 months before insolvency, except (among other matters) to the extent of:

In Re HMV Ecommerce Ltd [2019] EWHC 9(Ch), the directors purported to appoint administrators out-of-court by e-filing the appointment documents at court at 5.54pm on December 28th. The Court’s decision on the validity of the appointment is welcome – but it did not address the underlying problem.

Whilst receiving a judgment in your favour may feel like the culmination of a potentially lengthy legal process, it may be just the first step (though an important one) on the path to financial recovery. In our latest insight, we look at how and when you can enforce a judgment to realise payment of any damages or costs which have been awarded.

What is enforcement?

In this week's update: a distribution was valid despite discrepancies in the accounts justifying the dividend and an examination of vexatious resolutions.

Court considers whether demerger by dividend was valid (part 2)

The High Court decision in Burnden Holdings clarifies the law on retrospective attacks on the declaration of dividends.

SUMMARY

In certain circumstances, if a claim is proven, the defendant will be able to offset monies that are due to it from the claimant - this is known as set off.

Here, we cover the basics of set off, including the different types of set off and key points you need to know.

What is set off?

Where the right of set off arises, it can act as a defence to part or the whole of a claim.

Background

The case concerned royalty payments, which a creditor had a contractual right to receive, arising from iron ore produced at a mine in Sierra Leone.

The parent company of the Sierra Leonean mining company went into administration and administrators from PwC were appointed. The creditor's director called the administrators to stress the importance of bringing the royalty payments to the attention of a third party purchaser.

The administrators subsequently sold the mine, but did not make the purchaser aware of the royalty issue.