"Further advances" and priority security
(In the matter of Black Ant Co Ltd (in administration)  EWHC 1161 (Ch)(15 April 2014)
In this case the High Court provided useful commentary on the meaning of “further advances” in the context of the priority of security.
The facts were that an insolvent company had various facilities and security including a facility and first legal charge over properties in favour of X and a facility and second legal charge over properties in favour of Y.
X had requested that the company sign a replacement facility letter in substitution of, and not in addition to, the previous facility letters which were deemed to be cancelled. Y claimed that this constituted a "further advance" on the basis that the original loans had been repaid, so depriving X of its priority. Y relied on sections 49 and 50 of the Land Registration Act 2002 which contain anti-tacking provisions limiting the priority of an earlier registered charge to those advances made at the time of the charge together with any further advances that the lender is obliged to make under it. Y also argued that as unpaid interest and fees under the original facility had been rolled up and included in the new facility letter, further advances had actually been made.
The High Court dismissed Y’s claim, holding that the obvious meaning of “further advance” was an advance of additional funds. The words were to be given their ordinary meaning. The High Court concluded that there had been no further funds advanced under the amended facility as it simply updated the terms of an advance already made. X retained first priority ranking.
The rolling up of unpaid interest and fees under a new facility letter could not sensibly be seen as making a "further advance".
This is helpful for lenders who are simply restating their facilities when consolidating extensions of term or agreeing to roll up unpaid interest and fees in respect of the original advance. Priority will not ordinarily be lost in such circumstances.