High Court Orders Pre-action Disclosure In Respect Of Liability Management Exercise

The decision indicates that the minority creditors intend to bring a claim against the security trustee and majority creditors, in which they will seek to unwind an out-of-court restructuring 

The High Court has ordered pre-action disclosure under paragraph 31.16 of Practice Direction 57AD of the CPR, requiring the security agent under an Intercreditor Agreement (ICA) to disclose details of an out-of-court restructuring that had been agreed between and implemented by a debtor company and a group of creditors holding a majority in its senior secured debt: Parties listed at Schedule 1 to the N244 v Kroll Trustee Services [2026] EWHC 216 (Ch).

The court found both that the jurisdictional threshold for pre-action disclosure was met and that it was “obvious” that it should exercise its discretion to make the order, highlighting three distinguishing aspects of the application:

1. The application was “relatively narrow and appropriately targeted at documents that relate directly to the central issue” and involved “relatively little inconvenience” to the respondent.
2. The respondent’s reliance on confidentiality obligations owed to the instructing group creditors carried no weight, as the requested documents would clearly fall within the scope of disclosure to be provided in any subsequent proceedings (to which the majority creditors were likely to be defendants).
3. The information asymmetry between the applicant minority creditors on the one hand and the respondent and the instructing group creditors on the other was “itself a reason for the order to be made”. The applicant minority creditors highlighted in their submissions that “informational asymmetry” was a common feature of distressed disposals generally, and of claims based on the abuse of majority power principle (as the court acknowledged in Redwood Master Fund Ltd v TD Bank Europe Limited [2002] EWHC 2703 (Ch)).

Accordingly, the court ordered disclosure of: (1) the restructuring transaction documents and the instructions given to the security agent; (2) documents relating to the financial advisers appointed under the ICA, including their opinion on the fairness of the transaction, the subsequent report prepared in connection with the enforcement of security and the engagement terms; and (3) certain documents identifying the members of the instructing group creditors and their respective crossholdings in the restructured companies. The decision is unusual insofar as many similar applications for pre-action disclosure have been unsuccessful. Courts are typically critical of what they perceive as “fishing expeditions” (see, for example, our blog post here).

The judgment will be of interest to financial institutions and investors exposed to distressed debt governed by English law intercreditor arrangements. It indicates that the applicants intend to bring a claim against the security trustee and the members of the instructing group creditors, in which they will seek to unwind the liability management exercise (LME) through a declaration that the enforcement instructions purportedly given were invalid. 

LME is an umbrella term for a restructuring transaction, generally involving the raising of new debt, that uses permissions in existing finance documents for stressed or distressed borrowers. Litigation has followed some of the more aggressive LMEs, in which typically a group of creditors provides new money (often working in concert with the debtor) and obtains what dissenting, minority creditors perceive as a disproportionate economic upside. LMEs are a facet of creditor-on-creditor violence that initially became a prominent feature in distressed scenarios in the United States but have recently become more common in special situations in Europe and the UK. As is the case in many LMEs, the restructuring in the present case was implemented through an enforcement of transaction security and corresponding transfer and release of secured debt pursuant to the distressed disposals regime under the ICA (also known as “ICA drag”) following instructions from the relevant instructing group of secured creditors.

While the High Court did not resolve any substantive questions regarding the merit of the applicants’ possible upcoming challenge to the validity of the LME itself, the decision is encouraging to any creditors concerned by a lack of transparency surrounding out-of-court restructurings and LMEs. The claim would likely be based on the abuse of majority power principle, per British America Nickel Corporation Ltd v O'Brien [1927] UKPC 7, which suggested that powers conferred on a majority of a special class in order to enable that majority to bind a minority must be exercised for the purpose of benefiting the class as a whole, and not merely individual members only. If the applicants proceed with their claim, the resulting judgment will likely provide important judicial guidance on the scope of the abuse of majority principle in the context of debt restructurings.

We consider the decision in more detail below.

Background

The Hurtigruten group (the Group) operated a Norway-based cruise line business with aggregate secured debt of approximately €650 million. Kroll Trustee Services Limited (Kroll) acted as security agent and trustee under the ICA. The applicants, including Deutsche Bank AG and certain funds managed by Oaktree Capital Management (the Applicants), held approximately €45 million of the Group's senior secured debt facility (the Old Facility B), ranking pari passu with all other creditors in that facility.

In late 2024, an ad hoc group of creditors (the AHG) holding between 75% and 80% of the Old Facility B entered into a lock-up agreement and proposed a restructuring of the Group's debt. The restructuring required the consent of 95% by value of the Old Facility B lenders, but approximately 12% – including the Applicants – voted against it. The AHG then procured the implementation of the restructuring as a distressed disposal under the ICA. On 12 February 2025, the AHG instructed Kroll to enforce transaction security, following which the Old Facility B debt was transferred to a Group entity and extinguished. Under the terms of the restructuring, the AHG members – who provided new money and backstopped new debt facilities – received equity and lending interests in the restructured Group entities of significantly greater value than the consideration available to non-consenting creditors, who received at best a small equity allocation conditional on releasing their claims.

The Applicants sought in correspondence disclosure of the relevant transaction documents from Kroll. Kroll declined to provide these documents, citing confidentiality obligations owed to unidentified third parties. The Applicants issued an application for pre-action disclosure under CPR 31.16.

Decision

The court ordered Kroll to give disclosure.

The court began by considering the threshold requirements for making an order under CPR 31.16, which are whether:

1. the applicant is likely to be a party to the intended proceedings;
2. the respondent is likely to be a party to the intended proceedings; 
3. the documents sought would fall within the scope of standard disclosure by the respondent in those proceedings;
4. the order sought is desirable in order to dispose fairly of the proceedings, assist the dispute to be resolved without proceedings, or to save costs (this is a broad discretion per Black & Ors v Sumitomo Corporation & Ors [2001] EWCA Civ 1819).

The court was persuaded that the first three requirements were satisfied. In respect of the fourth, in the court’s view the disclosure would either result in the proceedings being compromised, or (if not) the documents would be necessary for the Applicants to plead their claim and for the court to dispose of it fairly. Indeed, it noted that the documents to be disclosed were likely to be some of the most relevant evidence in the claim, and that costs and time would likely be saved by making the order at the present time so the claim could be fully and accurately pleaded from the outset. 

Turning to the exercise of discretion, the court commented that the inconvenience to Kroll would be minor and that disclosure would be of considerable importance to the Applicants in formulating their claim. While it was difficult to assess the merits at this stage, the application was relatively narrow and targeted. The court held that the fact that some or all of the documents sought may be confidential to members of the AHG was not a good reason for declining to exercise its discretion. In particular, the members of the AHG (to whom the duties of confidentiality were said to be owed by Kroll) were likely to become defendants to the claim, in which case the relevant confidential documents would clearly fall within the scope of disclosure to be provided by them. The court also placed weight on the significant information asymmetry between the Applicants on the one hand and Kroll and the AHG on the other. The court held that this asymmetry was "itself a reason for the order to be made", noting that without disclosure the Applicants would be unable to assess the merits of their claim or to plead it properly. 

Accordingly, the court ordered disclosure of: (1) the restructuring transaction documents and the actual instructions given to Kroll; (2) documents relating to an independent financial adviser engaged by Kroll, including the adviser’s opinion on the fairness of the transaction, the subsequent report prepared in connection with the enforcement of security and the engagement terms; and (3) documents identifying the members of the instructing majority creditor group and their respective crossholdings in the restructured companies.