Saltri III Ltd v MD Mezzanine SA Sicar & Ors

A security trustee acting under an intercreditor agreement must comply with the contractual limits on its powers and, when exercising a mortgagee-like power of sale, take reasonable care to obtain the true market value or best price reasonably obtainable. The law does not impose an inflexible requirement to conduct an auction, advertising campaign or full marketing process. The circumstances must be assessed in the round and commercially.

A mortgagee may exercise its power for a collateral purpose if recovery of the secured debt remains a genuine purpose. A breach of the duty to obtain a proper price is not actionable without proof of loss. Contractual subordination and provisions giving senior creditors control of enforcement may exclude broader duties to act in the interests of junior creditors or to avoid conflicts with senior creditors.

The proceedings concerned the validity of a 2010 enforcement and restructuring of the Stabilus Group. Saltri sought declarations that the restructuring was valid. The Mezzanine Defendants challenged the restructuring and advanced claims against JPMEL, the Security Trustee, alleging breaches of Clauses 14 and 15 of the intercreditor agreement and fiduciary duties.

The central issues were whether JPMEL had taken reasonable care to obtain the best price for the secured assets and the Mezzanine Debt, whether it had acted for an improper purpose, and whether the restructuring was unauthorised or ineffective.

1. Disposition. Saltri was entitled to the declarations sought. The Mezzanine Defendants’ claims against JPMEL were dismissed.
2. Contractual framework. The intercreditor agreement subordinated the Mezzanine Liabilities to the Senior Liabilities and gave the Senior Facility Agent control over the timing and manner of enforcement. Clauses 14 and 15 permitted disposals for nominal or non-cash consideration. The waterfall provisions governed amounts received or recovered; they did not prescribe the form of every disposal.
3. Clause 14. JPMEL’s duties were to take reasonable care to obtain the true market value or best price reasonably obtainable at the time of sale, and to exercise the power bona fide and for a proper purpose. There was no absolute requirement to conduct a marketing, market-testing or bidding process, or to obtain and follow independent M&A advice. The relevant circumstances had to be assessed broadly and commercially. The Stabilus Group was a distressed global business facing imminent insolvency. The existing valuation evidence, including the American Appraisal report and earlier indicative bids, showed that the Mezzanine Debt was substantially out of the money. A further process would have been impracticable, potentially damaging and unlikely to produce a price exceeding the Senior Liabilities.
4. The power of sale was not exercised for an improper purpose. Recovery of secured debt remained a genuine purpose, even though the restructuring also facilitated a wider commercial restructuring. In any event, the Mezzanine Defendants failed to establish loss; without proof of loss there was no actionable breach.
5. Clause 15. JPMEL took reasonable care in relation to the disposal of the Mezzanine Debt. The debt had no value at the relevant time. The transfer and associated releases were therefore not shown to breach Clause 15 or to have been exercised for an improper purpose.
6. Fiduciary duties. The parties’ detailed commercial contract shaped and limited JPMEL’s duties. The agreement did not require JPMEL to prefer the Mezzanine Lenders’ interests over those of the Senior Lenders or to avoid the inherent conflict created by the subordination and enforcement structure. JPMEL had acted inappropriately by failing to establish effective information barriers and sharing information with senior creditors to the exclusion of the Mezzanine Lenders. Even assuming that this was a breach, it caused no relevant loss or material consequence.

First instance decision. The judgment does not state any prior appellate decision.