SPRINGING SECURITY INTERESTS AND REGISTRATION

• Published date: 01 December 2001
• Author: TAN CHENG HAN
• Date: 01 December 2001

In The Asiatic Enterprises (Pte) Ltd v United Overseas Bank Ltd1 the Court of Appeal had to consider a difficult question regarding the registration and enforcement of company charges. In that case, the appellant accepted banking facilities from the respondent bank. Clause 10 of the agreement provided that upon the occurrence of any of the events of default, the respondent would be “entitled (as equitable chargee) to attach the Outstandings to any property of [the appellant] (whether real or personal) or to lodge a caveat against any real property that may now or hereafter be registered in [the name of the appellant]”. When an event of default took place the respondent lodged caveats against three shop units belonging to the appellant on the basis that the respondent was an equitable chargee. The respondent then proceeded to register the charge with the Registry of Companies and a certificate of registration of the charge was issued thereafter. In proceedings by the respondent for an order of sale of the three shop units, the appellant, through its liquidators, opposed the sale. The High Court held that clause 10 created a floating charge on the date the agreement for banking facilities was executed and that the charge should have been registered within 30 days of that date. However, the effect of the certificate of registration was to provide conclusive evidence that the requirements as to registration had been complied with, and precluded the charge from being set aside on the ground that section 131 of the Companies Act (Cap 50, 1994 Ed) had not been complied with. The High Court therefore concluded that the charge was valid.2

On appeal, the appeal was allowed. The Court of Appeal took the view that clause 10 did not create a charge in favour of the respondent. What clause 10 did was to give the respondent the right to lake unilateral action to create a charge over the appellant’s property. However, the mechanism for creating such a charge was not specifically provided for. That being so, the respondent could only avail itself of such mechanism as the law provided. For example, if the respondent happened to have in its possession any funds or movable assets of the appellant, it could assert its right over them. As regards movable property not in its possession or immovable property, the court did not see how the respondent could, by unilateral action on its part, effect or impose a charge on it.

As for the lodgment of the caveats, the court said that this did not have the effect of charging the three shop units. A caveat is premised on a

certain estate or interest in land that the caveator claims. It was impossible, in terms of chronology, for the lodgment of a caveat to be the act that also gave rise to the claim to an interest in land required to support the same caveat. As no charge had been created, the existence of the certificate of registration was irrelevant.

Some of the difficulties associated with the reasoning of the Court of Appeal have already been canvassed elsewhere.3 This author will therefore limit himself to a brief outline of his views. It is submitted that the court was correct to construe clause 10 as not giving rise to a present security, but as allowing one of the parties to act unilaterally to create such a security in future in accordance with the terms of the agreement. As this right was one of the terms agreed upon in the agreement, no issue of past consideration arose when the right was subsequently exercised.4 It is submitted, however, that there should be no difficulty enforcing such a right even where the purported chargee does not have possession of the...