The High Court has delivered a judgement that confirms the validity of a lender's actions in appointing administrators to a company, even when the underlying purpose was a hostile takeover, so long as a clear Event of Default (EoD) has occurred.
Facts:
Glint, which had developed a gold-linked credit card app, was a loss-making startup. A potential acquirer, Niven, was seeking to purchase a controlling stake in Glint, although this approach was rejected by the board.
Niven's next step was to acquire Glint's secured loan facility of £1.65m from an existing lender, Brahma Finance. With this debt, Niven became a chargeholder and could exercise rights under the original loan agreements. Niven then exercised its right to request information from Glint. Glint failed to provide the information, which constituted an EoD under the security documents. This failure allowed Niven to accelerate the loan repayment and appoint administrators.
The claimant companies – Glint Pay, Glint Pay Services, and Glint Pay UK – were placed into administration between September and November 2019 following steps taken by Niven Alpha, a special purpose vehicle (SPV) established by Nimoi Holdings. The administrators were appointed on 18 September 2019. Glint's founder, however, quickly raised new capital to pay off the debt. The administrators resigned two months later, and Glint's original owners regained control. Glint then sued the administrators, arguing that their appointment was invalid from the beginning and that they were "illegitimate intermeddlers".
Decision:
The High Court dismissed the claims, granted summary judgement to the administrators, striking out a claim brought by a company challenging the validity of their appointment.
The Court rejected the argument that the assignment of the debt was defective and did not transfer all the necessary rights. The Judge found this interpretation to be "absurd" and commercially nonsensical. The Court reasoned that when a secured debt is assigned, it necessarily includes all the rights incidental to that security, such as the right to demand information. To argue otherwise would mean these rights would be inexplicably extinguished, an interpretation that was not commercially plausible.
The Court dismissed the claim that the information request was invalid because it was confined to physical assets. It held that since the security was a floating charge over the entire company, the right to information would logically extend to all assets and liabilities. The Judge found the claimant's narrow, literal reading of the loan document to be inconsistent with commercial common sense, especially given that the document's language was originally a template from a prior, narrower deal. The Court's interpretation was that the document should be read to reflect the commercial reality of the later, broader floating charge.
The Court concluded that an EoD had occurred because the claimants objectively failed to provide the requested information. The Judge rejected the argument that the request was invalid because it was made for an "improper purpose," such as to facilitate a hostile takeover. The Court reasoned that the administrators' appointment was based on a clear and undisputed breach of a contractual obligation, and the motive behind the request did not invalidate that breach. The failure to pay the debt was a separate and further EoD that gave Niven the right to appoint the administrators.
Implications:
The most significant implication is that a company cannot easily challenge an administrator's appointment by arguing that the lender's motive for calling a default was improper. The Court's ruling makes it clear that if a clear EoD has occurred, then the lender's right to appoint administrators is valid. The lender's purpose—even if it is a hostile takeover—is largely irrelevant so long as the default is genuine.
The case confirms the importance of non-financial covenants in loan agreements, such as the obligation to provide information or financial reports. Breaching these seemingly minor clauses can have severe consequences, including the right for a lender to accelerate the loan and appoint administrators, even if the company is not insolvent.
The ruling clarifies that when a secured debt is assigned, all of the original lender's rights, including the power to enforce covenants and appoint administrators, are transferred to the new creditor. The Court will not accept an argument that the assignment was somehow defective or that a new creditor's rights are less than those of the original lender.