Rose Cottage Farm Limited - Case Update

The Court of Appeal has overturned a High Court decision compelling a company director to deliver possession of residential property to the company’s administrators under section 234 of the Insolvency Act 1986, emphasising that this section cannot be used to assert greater rights over mortgaged property than the company itself possessed prior to administration.

Rose Cottage Farm was set up by the appellant, Mr Reading, to acquire the property at issue in this appeal — a large six-bedroomed house set in about one acre of land in a gated estate. The acquisition was funded by a £2.85 million loan provided in August 2022 by TFG Capital No.2 (TFG2), a Doncaster-based lender. The loan was secured by way of a mortgage over the land.

Around the time of the company’s default on the loan in April 2023, Mr Reading and his family took up residence at the house on the land. In August 2023, TFG2 appointed LPA receivers and initiated possession proceedings. While these proceedings were pending, in November 2023, TFG2 appointed separate joint administrators. The administrators then applied under section 234 of the Insolvency Act 1986 for possession of the property, arguing it was the company's asset.

The High Court accepted that the administrators could proceed under section 234, finding that the company’s registered title gave it an entitlement to possession and that such an order would further the administration’s purpose. Mr Reading appealed.

The Court of Appeal disagreed with the High Court, holding that section 234 does not permit administrators to seek possession of mortgaged property where receivers had already been appointed. The company’s only remaining right was its equity of redemption, which did not include the right to possession once the mortgagee had taken enforcement action. Since the receivers, acting for the mortgagee, had priority, the administrators could not use section 234 to circumvent the mortgagee’s enforcement rights.

While not necessary to decide, the Court also expressed concern that the administrators’ application may have been an abuse of process, duplicating ongoing possession proceedings in a different venue for the benefit of the mortgagee.

The appeal was allowed and the possession order set aside.

Read the decision HERE.

Professionals involved:

• Clive Wolman of Thomas More Chambers (instructed by William Sturges LLP) for the appellant, Mr Reading

• Eleanor Temple KC and Jonathan Fletcher-Wright of Kings Chambers (instructed by Ashtons Legal LLP) for the respondents, the joint administrators