Business Mortgage Finance 6 Plc v Greencoat Investments Ltd & Ors

A beneficial interest acquired under an accepted contract for the sale of notes does not necessarily make the purchaser a Noteholder entitled to exercise voting or other contractual rights. Where notes are held through clearing systems, the relevant beneficial holder is ordinarily the person recorded as entitled in the systems’ records. Contractual powers conferred on a trustee, receiver or company members cannot be exercised by others without a valid appointment or authority. A receiver appointed over charged assets does not thereby acquire power to appoint or remove company directors. A final injunction is justified where unlawful interference threatens substantial, inadequately compensable harm, particularly in light of the defendant’s conduct as a whole.

The claimant issuer operated a securitisation structure governed by a trust deed, deed of charge and related documents. The first defendant acquired or purported to acquire notes under a tender offer and then purported to exercise Noteholder rights, appoint additional trustees and receivers, remove the existing trustee and directors, terminate service agreements, and redeem the notes.

The defendants accepted at trial that the first defendant was not a Noteholder when the relevant steps were taken, but disputed aspects of the declarations and injunctions sought. The court determined the validity of the steps and the proper scope of final injunctive relief.

The claim succeeded. The court held that the purported steps were invalid and of no effect, and granted declarations and injunctive relief, subject to the precise formulation of Declaration 10.

1. Noteholder status. Under the contractual definition of Instrumentholder, the relevant beneficial holders of globally held notes were persons recorded as entitled in the records of Euroclear or Clearstream. An interest arising between buyer and seller under an accepted tender offer did not, without more, make the purchaser a Noteholder under the securitisation documents. The decision in Assenagon Asset Management SA v Irish Bank Resolution Corporation Ltd [2012] EWHC 2000 (Ch) was distinguishable because the relevant contract expressly required the sellers to vote in accordance with the purchaser’s interests. The general principle in Musselwhite v CH Musselwhite & Son Ltd [1962] Ch 964 and Michaels v Harley House (Marylebone) Ltd [2000] Ch 104 supported the conclusion that a purchaser’s beneficial interest does not ordinarily control the seller’s voting rights before completion.
2. Trustee powers and resolutions. The power to appoint additional trustees or an agent vested solely in the existing Trustee. A Noteholder resolution could not itself make such an appointment. Any direction under clause 8.1 would, at minimum, require the relevant Class A Noteholders as a whole and could not compel the Trustee to conclude that an appointment was in the Instrumentholders’ interests. The Trustee had also not been indemnified to its satisfaction.
3. Acceleration and enforcement. No Event of Default had been established under the Conditions. Balance-sheet or cash-flow insolvency, and non-payment concerning junior notes while Class A Notes remained outstanding, did not constitute an Event of Default on the facts. The purported acceleration, enforcement notice and receiver appointment were therefore ineffective. The purported removal of the Trustee also failed because the required Class A majority was absent and no replacement Trust Corporation had been appointed.
4. Company management. A receiver appointed over charged assets would not thereby obtain power to appoint or remove directors. Those powers remained vested in the company in general meeting or, in limited circumstances, the board. The purported termination of agreements and appointment or holding out of directors consequently had no effect.
5. Injunction. The court applied the fourfold approach in Shelfer v City of London Electric Lighting Co [1895] 1 Ch 287, as modified in Lawrence v Fen Tigers Ltd [2014] AC 822. The injury was potentially substantial, could not be adequately compensated by a small payment, and the injunction was not oppressive because GIL could act if it established its status to the Trustee’s satisfaction. The court also considered the defendants’ conduct in the round, following Ottercroft Limited v Scandia Care Limited [2016] EWCA Civ 867, and regarded the injunction as justified.