Manning & Anor v Neste AB & Anor (Re Bitumina Industries Ltd)

Factual and Procedural Background

This opinion concerns an application by the joint administrators of Company A for directions regarding the validity and enforceability of a floating charge granted by Company A to the Second Respondent in January 2020 ("the Charge"). The Charge was granted to a connected person and is prima facie invalid under section 245 of the Insolvency Act 1986 unless valid consideration was given contemporaneously or subsequently.

Company A had entered into a sale and purchase agreement ("SPA") with the Second Respondent for the acquisition of a Dubai-based company ("DMCC"), whose sole asset was a cash balance of approximately $2.35 million. The consideration was the issue of convertible secured loan notes ("the Notes") by Company A, secured by a floating charge. The SPA completion was delayed due to formalities, resulting in a series of attempts to create valid security over Company A's assets, culminating in the creation of the Charge on 22 January 2020.

The joint administrators were appointed on 30 June 2021, and seek directions on the validity of the Charge under section 245, specifically whether the Charge was invalidated by the timing and nature of consideration given by the Second Respondent.

Legal Issues Presented

1. Was the Charge invalid under section 245 of the Insolvency Act 1986 by reason of having been granted after the relevant consideration had been received by Company A?
2. Did the subsequent renegotiation of the loan notes ("the Renegotiation") constitute the giving of new consideration in accordance with section 245(2)(a)?
3. Did the Note Exchange result in a discharge of a debt of Company A within the meaning of section 245(2)(b)?
4. Did the release of funds from DMCC pursuant to the Renegotiation constitute money paid to Company A within the meaning of section 245(2)(a)?

Arguments of the Parties

Second Respondent's Arguments

• The Charge was validly created on the agreed date of 22 January 2020.
• The term "consideration" in section 245 includes contractual consideration such as the shares in DMCC and subsequent conduct.
• The Note Exchange constituted a discharge of an existing debt and issuance of new secured notes, amounting to new consideration validating the Charge.
• The Second Respondent's consent to the Renegotiation and release of funds from DMCC provided further consideration.

First Respondent's Arguments

• The Charge was invalid at its creation under section 245 and not validated by any subsequent actions.
• The shares in DMCC did not constitute eligible consideration under section 245.
• The Charge was created after the shares were transferred, not contemporaneously.
• The Note Exchange did not constitute new consideration or a discharge of debt for the purposes of section 245.

Table of Precedents Cited

Court's Reasoning and Analysis

The court analysed the creation and validity of the Charge, focusing on the timing and nature of consideration under section 245 of the Insolvency Act 1986. It found that although the formal deed was invalidly executed, the Charge arose from a contractual obligation between the parties to create a floating charge on 22 January 2020. This contractual charge was effectively created on that date and was registered, albeit via the invalid deed's registration, which the court held sufficiently described the Charge.

The court considered the meaning of "consideration" in section 245 and concluded it is broader than contractual consideration, encompassing actual value transferred to the company, such as money, goods, or services supplied contemporaneously or subsequently to the charge's creation. It accepted that the shares in DMCC, as part of ordinary trading activity and having ascertainable value, could constitute consideration under this section.

Regarding the Renegotiation of the loan notes and the Note Exchange, the court found that mere consent to renegotiation did not amount to supplying goods or services that increased the company's assets, and thus did not constitute valid consideration. Similarly, the Note Exchange was held not to be a new transaction but an amendment of existing notes, failing to satisfy the discharge of debt requirement under section 245(2)(b).

The release of funds from DMCC pursuant to the Renegotiation was also held not to constitute consideration because the funds were always owned by Company A’s subsidiary and would have been available to creditors on insolvency, so the removal of control veto did not increase the assets available to creditors.

The court applied a purposive construction of section 245, emphasizing that its purpose is to prevent floating charges that secure past debts or moneys that do not increase the company's assets, without requiring any dishonest intent by the parties.

Holding and Implications

The court held that the Charge was validly created as a contractual floating charge effective from 22 January 2020, and was valid to the extent of the value derived by Company A from acquiring the shares in DMCC.

The court further held that the Charge was not invalidated under section 245(2)(a) at the date of its creation, and that subsequent renegotiations, the Note Exchange, and release of funds did not constitute new consideration or discharge of debt sufficient to validate the Charge if it had otherwise been invalid.

The direct effect is that the Charge is effective against the joint administrators. No new precedent was established beyond the application of existing principles concerning section 245 and the nature of consideration for floating charges.