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England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Sky Building Ltd & Ors v HM Revenue and Customs & Ors  EWHC 3139 (Ch) (20 November 2020)
Cite as:  EWHC 3139 (Ch)
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BUSINESS AND PROPERTY COURTS
INSOLVENCY AND COMPANIES LIST (ChD)
IN THE MATTER OF SKY BUILDING LIMITED
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
B e f o r e :
|SKY BUILDING LIMITED|
|CRAIG JOHNS AND JASON ELLIOTT (as proposed Joint Administrators)||Applicants|
|- and -|
|HM REVENUE AND CUSTOMS|
|SANDRA TO AND OTHERS||Respondents|
Steven Fennell (instructed by Bermans (2012) Limited) for the Second Respondents
Hearing dates: 13 and 18 November 2020
Crown Copyright ©
I.C.C. Judge Jones:
A) The Application
B) 13 November 2020 Hearing
C) This Hearing
C1) Key Features and Contracts
a) Between January 2016 and May 018 the Company was developing the property it then owned, Jubilee Baths, Brunswick Street, Newcastle-under-Lyme. It had granted leases for 145 flats and exchanged contracts for the grant of leases for 143 flats being built to provide an investment opportunity from student sub-lettings.
b) By May 2018 the Company had serious financial difficulties. Re-financing by the Riley Creditors included terms that resulted in: (i) the freehold being transferred to Sky Apartments (2018) Limited; (ii) Mr Riley having a debenture over that company and the Riley Creditors being granted a charge over the property; and (iii) the Company having an option to buy back the property for the same price as that stated for the transfer.
a) The first, replacing a contract dated 5 November 2020, is a contract made on 10 November 2020 between Sky Apartments (2018) Limited and the Company under which the Company is to purchase the freehold title of the property in issue for £2,747,000. By clause 8 title to the property will be transferred subject to the purchasers' liens.
b) Completion of this purchase on 20 November 2020 is conditional upon four requirements: (i) administrators are appointed over the Company; (ii) an order is made under paragraph 71 of Schedule B1 for the Company's sub-sale of the property to Daisy Property Investments Limited as though it is not subject to the equitable liens; iii) the Company has funds from its proposed sub-sale with which to pay the purchase price; and (iv) the Company has received £68,000 from Daisy Property Investments Limited. A deposit of £1 million was paid.
c) There is an issue in that the Company is described as acting by its administrators. The "administrators", Mr Elliott and Mr Johns, were joined as parties in their own right. As at 10 November 2020 the Company had no administrators. However, I do not consider that a significant issue. Completion cannot be effected until administration and the administrators will adopt the contract on behalf of the Company when appointed if it is to proceed. Permission under paragraph 71, should it be granted, can be ordered to take effect upon completion of the first contract, should that occur.
d) The second contract, also dated 10 November 2020, is a back to back, sub-sale of the property to Daisy Property Investments Limited. It supersedes a contract dated 5 November 2020. The consideration is £3,347,000. A £1 million deposit has been paid. The completion date is now extended to 20 November 2020. Completion is conditional upon the appointment of administrators and an order under paragraph 71 removing the security of all with purchasers' liens.
e) The contract requires the Company (clause 15) to "take a transfer of the Property from [Sky Apartments 2018 Limited] at the purchase price [£2,747,000] and simultaneously transfer the property to Daisy Property Investments Limited".
f) At the time of the sub-sale Daisy Property Investments Limited will be the Company's parent to ensure compliance with the Landlord and Tenant Act 1987. Although on the information provided to me I am satisfied the requirements of that statute appear to be met, that is not the issue before me and it is for the administrators to be satisfied that is so should the transaction proceed. Similarly, I am not concerned further with its specific terms on the basis that it will be for the administrators to decide whether to proceed if the application under paragraph 71 is successful.
g) I am also not concerned with the contractual arrangements for the transfer of the parent company to Mr Hipkiss's company known as "B4B" but with the fact this is intended to occur. He is the person willing to cause Daisy Property Investments Limited to buy the freehold for £3,347,000 on the conditions that: (i) £2,747,000 is used by the Company to purchase the freehold title from Sky Apartments (2018) Limited free of the charge(s) registered in favour of the Riley Creditors; and (ii) the title is unencumbered by the Notices and the non-registered purchasers' equitable liens pursuant to an order under paragraph 71.
C2) Paragraph 71
C3) Valuation Evidence
D) A Comparison
a) The Company as the developer of the project now has no significant assets (only one of the flats returned to it upon surrender of a long lease) and is insolvent. As matters stand, creditors will receive little, if any, dividend from its insolvency whether secured or not.
b) The property is owned by Sky Apartments (2018) Limited. Notices are registered protecting the equitable charges of the purchasers' liens. Subject to contractual terms, their respective priority will depend upon the order they appear in the charges register, which will reflect the date of registration (s.48 of the Land Registration Act 2002). The charge registered in favour of the Riley Creditors will rank below the prior registered Notices.
c) As to those liens which have not been registered, the special rule of priority for registered land is that they will rank below all registered interests. The concept of notice or knowledge of a pre-existing interest has limited relevance to priorities affecting registered charges under the Land Registration Act 2002 (see ss 29 and 30). There are exceptions, for example an overriding interest within Schedule 3 to the Land Registration Act 2002, but no-one has suggested that topic is relevant before me for the purposes of this application.
d) Sky Apartments (2018) Limited can sell its freehold title (its equity of redemption) subject to all or any registered charges remaining on the title. Obviously, their registration will affect the market value. As a result, based upon the valuation evidence, it is worthless.
e) The Riley Creditors could seek to enforce their charge by sale of the freehold title. However, absent consent or an order under section 50 of the Law of Property Act 1925, the transfer can only be effected subject to the prior encumbrances securing liabilities totalling around £6.5 million. An alternative approach might be to sell the security not the property. However, that would be a sale of a security ranking below Notices securing some £6.5 million. In either case, based upon the valuation evidence, the Riley Creditors' security appears worthless.
f) There is no reason in principle (absent issues of insolvency) why Sky Apartments (2018) Limited cannot refinance the Riley Creditors' lending and the charge may be assigned to the new lender if agreed. However, this too will not affect the prior security protected by the Notices. Based upon the valuation, this will require other security to be offered to the re-financier.
g) Those with Notices can potentially enforce their liens through a sale of the freehold title, albeit with an order of the court. The amount they will receive as a sale price will be the market value of the undeveloped site. It is only if the net proceeds exceed approximately £6.5 million that the debt owed to the Riley Creditors will be repaid (whether in part or in full) pursuant to section 105 of the Law of Property Act 1925. Based on the valuation evidence, those with Notices will benefit from a sale in the region of £600,000. Subject to any contractual provisions, they will share that equally but without those who have not registered notices benefitting. I should add that no-one has sought to argue this point on the part of those without notices and this analysis therefore cannot take account of anything of which I have not been informed.
a) Sky Apartments (2018) Limited will sell the freehold title to the Company free from registration of the Riley Creditors' charge. The arrangements for this have not been disclosed but are between vendor and chargeholder. It is to be assumed, however, that this will benefit not only the Riley Creditors but also the director of the Company and his wife, Mr and Mrs Tomlinson, who under the settlement agreement have a joint and several liability with the Company for repayment of the loans secured under that agreement.
b) This sale requires payment of a consideration of £2,747,000. It will be raised by the Company from the purchase price to be paid upon the back to back sub-sale to Daisy Property Investments Limited. Those with Notices will continue to be secured against the property when owned by the Company.
c) The Company will transfer the freehold title to Daisy Property Investments Limited, who will become the freehold owner with unencumbered title. That will be achieved by a paragraph 71 order (if made). £600,000, the balance of the £3,347,000 paid by Daisy Property Investments Limited after deduction of the £2,747,000, will be distributed amongst all creditors with a purchaser's lien.
F2) Promotion of the Purpose
F3) Market Value
F4) Interests of Creditors