Braganza (still) doesn't bite

Summary

The Court of Appeal in Glint Pay Ltd & Ors v Baker & Anor¹ has partially reversed the High Court's decision to strike out a challenge to the validity of the appointment of administrators over the Glint Pay companies. The Court of Appeal upheld the findings that the information covenant extended to the company's assets generally and that non-compliance constituted an event of default. However, it held that the High Court was wrong to strike out the claim and that there was a realistic prospect of establishing that the administrators' appointment was invalid due to the appointor's improper purpose, and remitted that issue to trial.

On the central Braganza point, the Court of Appeal confirmed that no broad rationality or reasonableness overlay applies to a chargee's fundamental enforcement rights. The appellants no longer pressed a full Braganza-style duty² on appeal. The court did, however, accept a narrower implied term: that ancillary powers such as information request rights must be exercised for "legitimate commercial aims" of the security holder, by analogy with Property Alliance Group v Royal Bank of Scotland³. However, Lord Justice Zacaroli doubted this narrower term would make any practical difference on the facts.

Implications

The judgment confirms that Braganza-style rationality arguments are unlikely to constrain a chargee's core rights to request information, accelerate and enforce security. However, parties structuring loan to own strategies should be alert to the separate equitable "proper purpose" doctrine, which remains a live and potentially potent avenue of challenge where the evidence suggests debt recovery was not any part of the enforcing creditor's actual purpose. The distinction between mixed motives (permissible per Cukurova⁴) and a sole, subjective improper purpose (potentially fatal) is critical and fact-sensitive. The forthcoming trial will provide further guidance on the application of proper purpose principles to the out of court appointment regime under Schedule B1 of the Insolvency Act 1986 ("IA").

Background

The background is set out in our earlier update on the High Court decision. In summary, Niven Alpha Pte Limited ("Niven"), an SPV backed by David Fergusson and Global Precious Metals, made an unsuccessful offer to acquire 51% of Glint Pay Ltd ("GPL") in May 2019. Niven then purchased GPL's secured loan and Debenture from Brahma Finance (BVI) Limited by a Deed of Assignment dated 3 July 2019. On 15 July 2019, Niven sent extensive information requests under the Debenture's information covenant. GPL refused to comply, the loan was accelerated and on 18 September 2019 Niven (as QFCH) appointed administrators through the out of court process. GPL was solvent at the time. The administration was short lived because GPL repaid the loan in full on 10 October 2019 after raising alternative finance.

Mr Simon Gleeson, sitting as a deputy High Court judge, struck out GPL's subsequent challenge to the validity of the administrators’ appointment in its entirety. GPL appealed.

Key Issues and Findings

• Construction of the information covenant and event of default (upheld): The Court of Appeal agreed with the High Court that the request for information in the Debenture was not limited to fixed or physical assets, but extended to the company's assets and liabilities generally in the context of a floating charge over the whole undertaking. Cash balances, for example, have a "location" and a "use", and trade creditors may have a "condition" (in the sense of their days due). GPL's failure to respond to the requests for information therefore constituted a breach and an event of default entitling acceleration and the appointment of administrators.
• Implied Braganza duty and the narrower "legitimate commercial aims": The appellants did not press a full Braganza-style rationality duty on appeal. Instead, they argued for a narrower implied term: that the power to request information is exercisable only for the "legitimate commercial aims" of the security holder, qua security holder. The respondents did not resist this narrower term, and the Court of Appeal accepted it, by analogy with Property Alliance Group v RBS⁵, where the bank's power to call for a valuation was held not to be subject to any duty to balance its interests against the borrower's, but could not be exercised other than in pursuit of "legitimate commercial aims" and not, for example, "to vex [the borrower] maliciously". Zacaroli LJ doubted this narrower term made any practical difference—if GPL failed on the improper purpose challenge, it was highly unlikely to succeed on this alternative ground regarding the information request alone.
• Improper purpose in the appointment of administrators (reversed and remitted to trial): This is the most significant development. The Court of Appeal held that it was wrong to conclude there was no realistic prospect of GPL establishing that the appointment was invalid by reason of Niven's improper purpose. The court accepted there was a realistic prospect of establishing, as a matter of fact, that Niven's sole subjective purpose was to acquire GPL's business and assets, and that it was no part of Niven's purpose to obtain repayment of the loan. Circumstantial factors included: the assignment of the loan quickly following a failed bid to acquire the shares; the timing of the request for information; planning a pre-pack administration and acceleration of the loan; enforcement notwithstanding the solvency of the company; and the reluctance of Niven to accept pre-payment of the loan. Although neither side was able to point to any authority on the validity of an out of court appointment of administrators in circumstances where the appointor was motivated by an improper purpose, the court drew on Downsview Nominees Ltd v First City Corporation Ltd⁶ (mortgagee's powers must be exercised in good faith for the purpose of obtaining repayment) and distinguished "mixed motives" cases from a case where the only purpose is subjectively improper. Under Cukurova⁷, if a chargee enforces for the proper purpose of satisfying the debt, additional collateral purposes do not vitiate enforcement. But here, GPL's pleaded case was that Niven had no debt-recovery purpose at all and that was a properly arguable claim warranting trial. This issue was remitted for determination.
• Estoppel (left to be determined at trial): The administrators relied on four forms of estoppel: by conduct/abuse of process, by convention, by deed, and by representation. Counsel for the administrators accepted there is a triable issue as to whether GPL had reserved its position on the validity of the appointment (including allegations that a director who raised the issue was threatened with dismissal). Given the improper purpose claim was reinstated for trial and factual disputes remained live, the estoppel issues were not resolved on appeal and will be determined at trial alongside the improper purpose claim.

Practical implications for lenders, debt acquirers and officeholders

• Braganza focus: The core message is unaffected. There is no implied reasonableness or rationality constraint on a chargee's fundamental rights to request information, accelerate and enforce security. Practitioners should continue to draft and negotiate to preserve unilateral discretions.
• Narrower "legitimate commercial aims" term: Ancillary contractual discretions (such as information request powers) may be subject to a narrow implied term requiring exercise for the security holder's legitimate commercial purposes. This is a materially lighter constraint than a full Braganza duty; query whether it is likely to add practical protection where the underlying enforcement decision itself withstands scrutiny.
• Proper purpose remains a live constraint: Parties structuring loan-to-own strategies or debt acquisitions with a view to acquiring the target's business should be aware that the equitable proper purpose doctrine may be an avenue for challenge, particularly where the evidence suggests debt recovery was not any part of the enforcing creditor's actual purpose. However, the Court of Appeal did not accept the suggestion that allowing the appeal would open the floodgates to setting side numerous administration appointments given the unusual circumstances of this case being a (sufficiently arguably) solvent company where there was no genuine purpose to protect the appointor’s interests as chargeholder.
• Mixed motives v sole improper purpose: The distinction is critical. Mixed motives will not vitiate enforcement but where the sole purpose is subjectively improper, the appointment may be challenged. Contemporaneous documents, communications about acquisition intent, and conduct (such as refusing offers of prepayment) may be highly relevant evidence.
• Timing and sequencing: The proximity of debt acquisition to a failed share purchase, and the speed of subsequent enforcement steps, were among the circumstantial factors supporting the improper purpose case. Acquirers and their advisers should ensure a genuine debt recovery rationale is maintained and documented throughout.
• Estoppel: Acknowledgments of an administrator's valid appointment e.g. in correspondence relating to remuneration, remain relevant to estoppel defences, but factual disputes about reservations of position may prevent early disposal. Parties should continue to seek clear acknowledgments but cannot assume they will resolve challenges summarily.
• Ongoing litigation: The trial on improper purpose and estoppel will likely provide further guidance on how the courts will apply proper purpose principles to the out-of-court administrator appointment regime under Schedule B1 of the IA. This case is one to watch.