The invisible gap in UK lending that South African investors overlook

A High Court judge has frozen the sale of two Hilton-branded hotels, in London and York, while the court decides whether Cohort Lendco II, a vehicle of Park Lane lender Cohort Capital, was entitled to appoint administrators over the company behind them, after a facility of more than R2.1bn (£94m).

A FROZEN hotel sale in London, a regulator demanding answers from 900 lenders, and a question every South African with UK property exposure should be asking: Who actually protects your assets when the who protects your assets when the lender takes control?

South Africans have long treated British property as a safe harbour: hard currency, a deep market, and courts that work. The last part is true, and this year it is being tested in an unusually public way. What far fewer investors appreciate is how little else stands between their asset and their lender.

The case worth watching was reported by The South African last week . A High Court judge has frozen the sale of two Hilton-branded hotels, in London and York, while the court decides whether Cohort Lendco II, a vehicle of Park Lane lender Cohort Capital, was entitled to appoint administrators over the company behind them, after a facility of more than R2.1bn (£94m).

Cohort is contesting the application. The expedited trial runs from 1 October, with witnesses on both sides cross-examined, and until judgment, the administrators may not agree to sell any asset of the company.

Behind the single case sits a simple fact about the British market. Roughly 1,200 lenders, brokers and leasing firms operate there as what the regulator calls “Annex 1” businesses.

The label means nothing to outsiders because it comes from a schedule buried in Britain’s money laundering regulations, and what it means in practice is this: These firms must put their names on a register held by the Financial Conduct Authority, Britain’s financial watchdog and the rough counterpart of the FSCA, purely so that their money laundering controls can be inspected, and that is where the oversight ends.

They are not authorised or supervised the way a bank is. No conduct rules govern how they treat the businesses they lend to. There is no ombudsman for their borrowers. The loan contract is, in effect, the entire universe of protection.

Two consequences follow, and the hotel case illustrates both. First, speed: when a loan carries what English law calls a qualifying floating charge, the lender needs nobody’s permission to enforce.

It appoints the administrators itself, choosing which insolvency practitioners take control of the borrower’s business, and the appointment takes effect on filing. The practitioners are licensed professionals who owe duties to all creditors, and defenders of the system say its speed preserves value.

But no independent authority reviews the appointment when it happens. Second, cost: the only route to challenge is the High Court, quickly and expensively, which is precisely what the owner in the hotels case has done.

Britain has wrestled with the fairness of this arrangement before.