ACON Equity Management, LLC v Apple Bidco Ltd

A contractual condition requiring financial statements to be accepted by lenders “without default or penalty” concerns sanctions or contractual mechanisms linked to late delivery, rather than every significant payment, concession or onerous obligation agreed during wider refinancing negotiations. Contractual interpretation is an iterative exercise in which text and context are considered together. Where professionally drafted wording points to a specific link with delayed delivery, commercial purpose cannot be used to create an imprecise additional condition. An amendment fee charged for lenders’ additional work, and an equity contribution given as the price of covenant relief, are not penalties in that sense.

ACON sought a US$4 million payment from Bidco under a letter agreement made when ACON sold its interest in Bidco. Payment depended on APR Energy receiving its audited 2016 financial statements in a form compliant with the credit agreement and having them accepted by the lenders without default or penalty.

The accounts were delivered and accepted after repeated extensions and extensive amendments to the credit agreement. Those amendments included a US$1 million amendment fee and a US$30 million equity contribution. The central issue was whether either, or the wider concessions obtained from the lenders, prevented satisfaction of the condition.

1. Claim succeeded. The condition payment became due five days after the lenders accepted the accounts, namely on 8 November 2017.
2. The court applied the iterative approach to contractual construction described in Wood v Capita [2017] AC 1173. Textualism and contextualism are tools used together to ascertain the objective meaning of the language chosen by the parties. The professionally drafted wording of the letter agreement deserved considerable weight.
3. The structure and wording of the condition linked “default or penalty” to late delivery of the accounts. “Default” naturally referred to the credit agreement’s default regime, including a default that had been waived or negotiated around. “Penalty” referred to a sanction or punishment for breach, including contractual mechanisms such as penal interest, rather than a broad commercial concession.
4. The factual matrix reinforced that construction. The agreement did not specify that any significant or onerous concession in the refinancing negotiations would defeat payment. Such an interpretation would leave no workable criterion for distinguishing relevant from irrelevant concessions and could make the payment promise effectively meaningless.
5. The additional US$100,000 fee was an amendment fee charged because late accounting changes required further lender work and credit committee approvals. It was not imposed for late delivery of the accounts and was not a penalty. The US$30 million equity contribution was a negotiated quid pro quo for covenant relief, unrelated to breach of the credit agreement, and likewise was not a penalty.
6. Issues concerning whether a relevant payment had to be specifically attributable to the extension of the accounts deadline, and whether timing affected the condition, were academic on the construction adopted. The court nevertheless indicated that Bidco’s arguments would fail on those issues as well.