A Further Weapon for Distressed Borrowers

Promontoria stopped from enforcing loans where monies were loaned following registration of a lien. These loans are no longer allowed to be secured by way of a lien.

Background

In Promontoria (Oyster) DAC -v- Fox (2022) IEHC 97, the High Court was asked to consider whether Promontoria was entitled to a well-charging order over Land Registry property in relation to which it had acquired a registered lien (pursuant to an earlier loan sale).

The original lender had lent monies to the defendant on the security of an equitable deposit of the land certificate to the property. At the time this was a common informal method of creating security. Subsequently, this method of creating security was abolished (pursuant to the Registration of Deeds and Title Act 2006). To protect the interest of existing lenders with such security, the 2006 Act provided a mechanism allowing lenders to register a lien over the relevant property’s Folio in the Land Registry.

In this case the original lender registered such a lien. However, it also subsequently advanced new monies on foot of further loan agreements. Promontoria argued that those new loans (which it had acquired and was seeking to enforce) were validly secured by the existing registered lien. The defendant argued that the lien could only secure debts in existence at the time of its registration.

Question considered by High Court

The High Court, drawing on prior judgements and its own analysis of applicable legislation, reduced the various arguments made to the following key question:

The High Court decided whether a creditor can rely on a registered lien as security for future advances to the debtor, i.e. as security for additional loans advanced after 31 December 2009. The legislation is silent on this point.

Simons J held that, in the absence of an express statutory prescription of the characteristics of a registered lien, it was necessary to look at the legislative intent by reference to the overall scheme in the 2006 Act. Applying that interpretative approach, Simons J held that:

The fact that security created by a deposit of a land certificate was converted to a “lien” rather than a “charge” (being the prescribed method for creating security over real property for present and future advances);
The introduction of a registered lien as part of the transitional provisions under the 2006 Act was not intended to displace the primacy of the charge;
The right to register a lien had been put in place to protect the existing property rights of the holders of liens by deposit of land certificates;
When the equitable mortgage created by deposit of the land certificate (which could have secured future advances) was converted by statute into a registered lien, the equitable interest was extinguished and replaced by a different interest (namely a registered lien).

In light of the above reasoning and the more limited nature of a registered lien (vs the equitable mortgage is replaced), Simons J held that Promontoria was not entitled to a well-charging order on foot of its registered lien in relation to monies advanced under loan agreements entered into after the date of the lien’s registration.

Conclusion

In general, the funds like Promontoria or other Vulture Funds that have acquired loans from Mainstream Banks which now have to deal with distress borrowers relying on a registered lien as security over Land Registry property is no longer a means capable of enforcement. Where there have been further borrowings, post registration of the lien. Therefore, your loan documentation and conditions of lending should be reviewed to see whether new monies have been advanced on foot of previously registered liens.

If you require any further information on the matter, please contact us on 071 9162211 or email info@carteranhold.ie.