Other creditors (the “Senior Creditors”) subsequently lent money to the parent company but not to its subsidiaries, which loan was secured by a QFC over the parent company’s assets only.
The Senior Creditors entered into a deed of priority with the Junior Creditors by which the Junior Creditors agreed that they would not take any step to enforce any of their security including over the subsidiaries without the prior written consent of the Senior Creditors.
The Senior Creditors appointed administrators to the parent company.
Subsequently, the Junior Creditors purported to appoint administrators over the subsidiaries without obtaining the prior written consent of the Senior Creditors.
The parent company and a senior creditor applied to court seeking an order that the appointment if the administrators over the subsidiaries was invalid.
The judge held that whether a QFC had become enforceable so as to permit the appointment of an administrator was to be assessed objectively. That assessment involved consideration of all the circumstances including not only the debenture itself but also, eg, any collateral agreement. It followed that the issue of enforceability was not required to be determined solely by the terms of the debenture. Nor was the inability of the parent company or the subsidiaries to enforce the deed of priority relevant to the question. The effect of the deed of priority was clear: the Junior Creditors agreed that they would not take any step to enforce their QFCs without first obtaining the prior written consent of the Senior Creditors and this was a condition precedent to the enforcement of the QFCs.
The judge went on to hold that the purported appointments were a nullity and not merely an irregularity that could be cured.
In re ARL 009 Ltd, Chancery Division first instance judgment