D - Default
9/5/13
BNY CORPORATE TRUSTEE SERVICES LTD v EUROSAIL-UK 2007-3BL PLC [2013] UKSC 28, [2013] 1 WLR 1408
Loan notes were issued on terms that those with lowest priority would not be redeemed until 2045 but the trustee could serve an enforcement notice in certain default events, including if the issuer was unable to pay its debts within s 123 Insolvency Act 1986. An option was given for another company to purchase the notes for nominal consideration if the trustee determined that the issuer was unable to pay its debts. The issuer managed to maintain interest payments, but its accounts showed liabilities in excess of assets. Claims that the issuer was unable to pay its debts within s 123 failed. For the purpose of the balance sheet test in s 123(2) the court has to be satisfied on a balance of probabilities that a company has insufficient assets to meet its liabilities, including prospective and contingent liabilities which might not be reflected in statutory accounts. It is inappropriate to apply a test of whether a company has reached the point of no return. The court could not be satisfied that the issuer was in default until much closer to 2045. The existence of the option would have made no difference as it did not affect the issuer’s liabilities.