The court found there was no arguable case that the chargee's exercise of its right to appoint an administrator was invalid, despite being for the purpose of an attempted takeover
In a recent decision the High Court has struck out a company's claim against its former administrators, finding there was no arguable case that the appointment of the administrators by a chargee was invalid, despite being for the purpose of an attempted takeover of the company by the chargee. In reaching this conclusion, the court found that a chargee's ability to exercise its rights under a charge document is not subject to a Braganza-style implied term: Glint Pay Ltd & Ors v Baker & Anor [2025] EWHC 2166 (Ch).
Where a Braganza duty applies, a decision maker must exercise its discretion in a manner that is reasonable and not irrational, arbitrary or capricious, in accordance with the Supreme Court's decision in Braganza v BP Shipping Ltd [2015] UKSC 17. In the present case, the court held that a chargee is entitled to act in its own interests absolutely, without being subject to any requirement for rationality. Even though the court agreed that it was likely the chargee had engineered the event of default under the facility agreement which formed the basis for the administrators' appointment in order to acquire the claimant companies, it determined that this was a valid use of the chargee's powers under the charge documents.
The court also considered points of contractual interpretation, reaffirming the use of commercial common sense as an aid to contractual construction per Wood v Capita Insurance Services Ltd [2015] EWCA Civ 839 (see our blog post). In the present case, the court was not prepared to endorse an overly literal reading of the contract where the result would be contrary to commercial sense, particularly because there was a clear explanation as to why the wording in question was used. The wording originated from earlier financing arrangements which were expanded to cover a broader set of the company's assets, but the wording in the clause was not amended to reflect this. The court emphasised that understanding the genesis and evolution of the contractual language was crucial, as a strictly literal approach would have produced a result at odds with the parties' commercial objectives and the practical realities of the transaction.
We consider the decision in more detail below.
Background
The three claimant companies (together, Glint) developed a system that allows consumers to buy, sell and spend gold via an application and debit card. An SPV, Niven Alpha Pte Limited (Niven), which the court agreed appeared to have been incorporated by a Singapore-based venture capital firm with the intention of acquiring Glint, made an offer to purchase 51% of Glint's shares. After Glint rejected this offer, Niven purchased a secured loan to Glint from an existing lender.
The Guarantee and Debenture by which the loan was secured contained provisions which required Glint to provide information regarding its assets to the chargee upon request. Breach of this provision was an event of default under the facility agreement, which would entitle the lender to accelerate the loan and demand immediate repayment of the amounts due.
The benefit of the loan and security package was transferred to Niven by a deed of assignment. Shortly after the assignment, Niven made a request pursuant to the security document as chargee for information, which Glint did not provide. Niven alleged an event of default had occurred and demanded payment of the amounts outstanding under the loan agreement. When Glint did not make payment, Niven appointed the defendants as administrators out of court as a qualifying floating charge holder pursuant to paragraph 14 of Schedule B1 Insolvency Act 1986.
Niven began the process of negotiating with the defendant administrators to purchase Glint. However, the founder of Glint raised sufficient funds to repay the amount of the loan to Niven in full. The defendants left office as administrators and Niven was subsequently dissolved (and as such was not a party to the proceedings).
The claimants brought proceedings against the defendant administrators on the basis that they were not validly appointed. It appears that the purpose of the proceedings was to challenge the claimants' liability for payment of the defendants' remuneration and expenses as administrators, which were awarded under a separate judgment handed down by a judge in the Insolvency and Companies List (ICC). The defendants applied to strike out the claim.
Decision
The High Court granted the defendants' application for strike out on the grounds that the claimants had no reasonable grounds for bringing the claim and no real prospect of success.
Right to appoint administrators
The claimants advanced several arguments attempting to demonstrate that Niven did not have the right to appoint administrators, which hinged on the construction of the documents creating the charge and the transfer of those rights to Niven.
These arguments included the proposition that the correct reading of the assignment of the rights in respect of the loan and security package was a narrow one, restricted to the bare security interest only, and not the bundle of associated rights (including the benefit of the information obligations). The court held that this was incorrect: where a security interest is created by agreement, and the security agreement grants rights to the chargee, those rights are proprietary rights, inherent in the security interest itself, and not contractual rights.
The claimants further sought to argue that the information obligations in the security document were limited to real property or fixed assets, rather than information on the business more generally. This was despite the fact that the charge was a floating charge, capable of attaching to any and every form of property. Applying well-established authorities considering contractual interpretation, including Wood, the court said the claimants' literalistic approach of limiting the paragraph in question to the narrow scope of the words used was contrary to common sense. Moreover, it was undermined by the fact that there was a clear explanation as to why the specific contractual words were used – they originated from earlier financing arrangements for the purchase of certain fixed assets. Following subsequent funding, the Guarantee and Debenture was expanded into a floating charge over the whole of Glint's undertaking. In the court's view, it made no commercial sense that the addition of the floating charge would not have triggered any expansion of the right to information. The logic of Wood suggests that, where there is context to explain why a phrase which is not in perfect accord with the context in which it is used, the court should give effect to the presumed intentions of the parties.
The court said it was clearly established that an event of default had occurred and so Niven had the right to appointment the administrators.
Exercise of powers under charge documents reasonably and for proper purpose
The court also dismissed the claimants' arguments that the appointment of the defendants was invalidated on the basis that Niven did not exercise its powers under the charge documents reasonably and for a proper purpose.
The court reaffirmed that a chargee may only exercise its powers under the charge documents for a purpose proper related to that charge (per Quennell v Maltby [1978] EWCA Civ 1). It was clear on the facts that Niven's appointment of administrators was not intended as a means of securing repayment, but in order to acquire the claimants' business. However, the court declined to find that this constituted an improper purpose, stating that it fell within one of the proper purposes identified in Re Aartee Bright Bar Ltd (in Administration) [2023] EWHC 606 (Ch), namely "to enable an independent office holder to take control of the assets".
The court also considered the claimants' argument that in exercising its rights as lender, Niven was subject to a Braganza duty to act honestly and in good faith. The claimants argued that Niven breached this duty because it did not request information in pursuit of a legitimate commercial aim, but rather to assist Niven's takeover bid.
The court referred to authorities establishing that no Braganza term ought to apply to lenders exercising rights to terminate under a loan document: UBS AG v Rose Capital Ventures Limited [2018] EWHC 3137 and Murfet v Property Lending LLP [2024] EWHC 2787 (Ch) (see our blog post). It held that the situation with chargees and charge documents is analogous; the right of a chargee to exercise its rights under a charge document is not subject to a Braganza duty, as it must be entitled to act in accordance with its own interests as it perceives them to be.
Accordingly, the court concluded that the claimants had no real prospect of establishing that the appointment of the administrators was invalidated.
Estoppel
Finally, the court held that, even if the claimants had grounds for arguing that the defendants had not been properly appointed as administrators, they would have been estopped from doing so. This was because the claimants previously acknowledged the defendants as validly appointed in the context of the separate ICC proceedings relating to the fees of the defendants. The court commented that bringing a claim asserting a contrary position was an abuse of process by the claimants.
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