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Black Ant – Tacking and Further Advances

The Black Ant case relates to the meaning of “further advances” in the context of the anti-tacking provisions in the Land Registration Act 2002.  What is tacking and why is the case important?

Tacking is the means by which a lender is able to use its charge to “tack on” (meaning add) any further advances it makes to the amounts secured by the relevant charge ahead of any subsequent charge holders. The Land Registration Act 2002 imposes strict controls on tacking and any obligation to make further advances must be registered at the Land Registry.  The Act limits the priority of a registered advance to the original advance and any further advances that the lender is obliged to make.

In this case, A (the first charge holder) and B (the second charge holder) had security over property owned by Black Ant pursuant to facility agreements of which both lenders were aware. A’s charge was an “all monies” charge (meaning that the charge covered all amounts which Black Ant owed to the lender under any arrangements (including future arrangements) regardless of how they arose). A had also registered an obligation to make further advances but there was no such obligation under the loan documentation and therefore the registration was of no effect.

After B’s charge was registered at the Land Registry, Black Ant signed a number of new facility agreements with A incorporating fresh terms. The amount of the facility was increased on each occasion to reflect unpaid interest but no new money was actually advanced.

B claimed that each new facility agreement was a new or further advance and as A’s original charge did not contain an obligation to make further advances, A could not use its charge to gain priority over B’s charge for these new facilities.

The court looked at the language of the statutory provisions and their purpose.  The ordinary meaning of “further advance” was an advance of further or additional funds. The purpose of the statutory provisions is to ensure that a first charge holder does not obtain priority for an advance which a second charge holder was unaware that the first charge holder had made or was obliged to make.

The court held that in respect of the new facility agreements a deemed repayment and further advance would not have served a useful commercial purpose as the effect would have been to destroy A’s priority and this would not have been the intention.  Furthermore, A’s account showed no credit and debit entries reflecting a repayment and new advance.

Even though the new facility letter included the words “this offer is in substitution of and not in addition to all our previous facility letters to you which shall be deemed cancelled”, the court’s view was that there was no intention for a new contract but merely a variation of the existing terms.  The unpaid interest and fees in the new facilities were just amounts secured by the terms of the original charge which were contractually due and would have to be demanded to make them payable.  Rolling them up in the new facility letter was not regarded as making a further advance.  This judgment was upheld on appeal.

The lessons to be learnt from this are that if there is a subsequent charge in place and the original lender needs to amend the terms of its initial lending, it must be clear that the amendment is just that and not a replacement of the original facility.  In addition, any repayment/redrawing would suggest new funding and therefore should be resisted in these circumstances as the lender could lose its priority.

Case: (Black Ant Co Ltd (In Administration) [2014] EWHC 1161(Ch) (15 April 2014).