Bank Notes

E – Events of default

6/3/24

PERHAR v FREESTONE [2024] EWHC 945 (Ch)

The judge below had been wrong to determine on a summary basis the question whether a debenture had been enforceable and that administrators had been properly appointed under it. There were disputed factual issues, including whether the creditor had waived any breach. The debenture did not include any express term as to when the floating charge within it became enforceable and the appeal court did not consider it appropriate to decide on a summary basis the nature of any implied term because this could be fact dependent and might turn on findings made at a trial. The fact that the debenture provided for payment on demand was not sufficient because a term as to reasonable notice might be implied for enforcement of the floating charge.

19/3/20

LOMBARD NORTH CENTRAL PLC v EUROPEAN SKYJETS LTD [2020] EWHC 679 (QB)

When the claimant demanded repayment of a loan it had wrongly believed there were arrears of $300k when the arrears were only $179.99. The court allowed an appeal against a refusal to set aside a default judgment. It was arguable with a real prospect of success that the arrears had been de minimis [45], that the claimant had a duty to state the debt with reasonable accuracy [47], or that there was an estoppel preventing the claimant relying on the lower sum as a default [48]. Discusses arguments that the contract contained penalties or that the defendant could seek relief from forfeiture [50] [57]. The fact that the arrears were so small also meant there was “some other” reason to set aside the judgment. Considers the impact of delay in applying to set aside the judgment [106] and considerations common to set aside and summary judgment applications [120].

26/4/13

GRUPO HOTELERO URVASCO SA v CAREY VALUE ADDED SL [2013] EWHC 1039 (Comm)

Considers the effect of a clause in a loan agreement providing for an event of default if there has been a material adverse change (MAC) in the borrower’s financial condition [321]. The enquiry is not necessarily limited to changes in the company’s financial information: so the fact that the company had ceased paying bank debts was relevant. A material change is one which significantly affects the borrower’s ability to perform its obligations, particularly its ability to repay. A lender cannot rely on circumstances known at the outset but on the facts the borrower’s financial difficulties went well beyond those which had been known so there had been a MAC. There had also been other breaches by the borrower failing to provide information.

9/5/13

BNY CORPORATE TRUSTEE SERVICES LTD v EUROSAIL-UK 2007-3BL PLC [2013] UKSC 28

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. On the facts 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.

19/2/13

CINEMA HOLDINGS 2 LTD v IRISH BANK RESOLUTION CORP LTD, Ch D

A loan was expressed to be repayable on a number of events of default, including where any of the security was in jeopardy. The fact that a compulsory purchase order was likely to be made which would have a detrimental effect on the value of the security meant the security was in jeopardy so the lender was entitled to demand payment.

30/1/13

CUKUROVA FINANCE INTERNATIONAL LTD v ALFA TELECOM TURKEY LTD [2013] UKPC 2

The defendant had been entitled in its discretion to conclude that events had occurred having a material adverse effect in the claimant’s financial conduct, thereby triggering an event of default and giving the defendant the right to enforce a charge on shares. In doing so the defendant had a duty to act for a proper purpose. It had done so by appropriating the shares for the proper purpose of satisfying the debt. The fact that the defendant also wished to use the shares to obtain control of a company was a collateral purpose and did not cause the purpose of enforcement to be improper. But the court’s power to grant relief from forfeiture is not limited to mortgages of land and relief would be allowed on terms to be determined by the court.