Archive for July, 2010
Savings can cost
Sometime ago I was involved in a refinancing package between two companies which were in common ownership. Company A lent company B money and as part of a cost saving exercise, the loan, although recorded in both companies records, was never protected by a formal charge registered at the Land Registry and at Companies House.
Latterly company A has given a guarantee to Barclays Bank in respect of a loan by that bank to company C. That guarantee is protected by a debenture and charge over company A’s assets. For a variety of reasons, not least the attitude of Barclays, company B wants to protect its position by having a charge over the assets of company A.
I have had to advise that the only way company B’s position can be protected against Barclays bank is for that bank to agree to postpone its protection. The client is going into negotiations with Barclays, I anticipate more in hope than in expectation.
At the time of the original loan there was good reason to spend as little money as possible and the companies remain in the same ownership, so that the common management knows exactly the financial position. However, the story does demonstrate that cost savings can lead to a future adverse position unless those involved remember what happened in the past.
