Braganza doesnt bite: High Court strikes out challenge to validity of appointment of administrators where enforcement was for the purpose of an attempted takeover

Summary

The English High Court in Glint Pay Ltd & Ors v Baker & Anor¹ struck out a claim challenging the validity of the appointment of administrators who were appointed following a debt acquisition for the purpose of an attempted takeover of the business and subsequent enforcement action.

The judgment addresses key issues including the scope and transfer of security rights, the occurrence of default events, the proper purpose of enforcement, and the application of estoppel and implied good faith terms. The court found no realistic prospect of success on any pleaded ground, emphasising the limited scope for such challenges where security enforcement is properly conducted.

An application for leave to appeal has been heard and refused, solidifying the decision.

Implications

This decision provides clarity and reassurance to lenders, debt acquirers, and officeholders regarding the enforceability of security rights and the limited scope for challenges based on alleged improper purpose or implied duties of good faith. Arguments seeking to limit enforcement powers by reference to implied "Braganza" duties are unlikely to succeed. Further, estoppel may preclude challenges to the validity of the appointment of administrators where companies have previously acknowledged those appointments when dealing with remuneration.

Background

A company seeking to acquire another purchased its secured debt from a third-party lender and, following non-compliance with information covenants, accelerated the loan and appointed administrators. The target company refinanced and exited administration, after which it brought proceedings challenging the validity of the administrators' appointment. The administrators applied to strike out the claim.

Key Issues and Findings

• Assignment and scope of security rights: The court rejected the argument that only a bare security interest had been assigned, holding that the Deed of Assignment transferred the full bundle of information and security rights. Any contrary interpretation was commercially and legally unsustainable.
• Information obligations and event of default: The request for information was validly made on behalf of the assignee chargee. Attempts to confine information rights to fixed assets were unsuccessful; the relevant clause was held to extend to the company’s assets and liabilities generally, particularly in the context of a floating charge. The failure to provide that information constituted a breach and an event of default, triggering the right to accelerate and appoint administrators.
• Proper purpose and bad faith: The court reaffirmed that a chargee must act for a proper purpose, but enforcement is not invalidated merely because other motives also exist; i.e. the chargee's attempted takeover of the business. Seeking the appointment of an independent officeholder to take control of assets was a proper purpose, and collateral motives did not vitiate enforcement.
• Implied "Braganza" duty: The court declined to imply a Braganza-type duty constraining the exercise of chargee rights to request information or enforce security, confirming there was no reasonableness or rationality overlay on these contractual discretions. A chargee must be entitled to act in accordance with its own interests as it perceives them to be.
• Estoppel: Having acknowledged the administrators' appointment in separate proceedings regarding the administrators' remuneration, the claimant was estopped from later challenging the validity of the appointment.