High Court Finds No Unfairness In Bank's Restructuring Of Loan Arrangements

• Published date: 19 July 2022
• Subject Matter: Corporate/Commercial Law, Insolvency/Bankruptcy/Re-structuring, Financial Restructuring, Corporate and Company Law, Insolvency/Bankruptcy, Contracts and Commercial Law
• Law Firm: Herbert Smith Freehills
• Author: Ceri Morgan and Nihar Lovell

In a judgment which has only recently become available, the High Court has allowed an application by a bank for summary judgment in its claim against a high net-worth individual, pursuant to a guarantee, for monies due under a loan agreement: Bank of Beirut (UK) Ltd v Moukarzel [2021] EWHC 3777 (Comm).

This is an interesting decision for financial institutions seeking to pursue or defend claims against sophisticated commercial borrowers seeking to set aside any financial restructuring arrangements on the grounds of unfairness. It highlights that borrowers may find it difficult to establish unfairness in the relationship under section 140A of the Consumer Credit Act 1974 (CCA) particularly where: (a) they are a sophisticated counterparty; (b) there were sound commercial reasons for the terms of the lending; (c) there was a clear written warning that the borrower should seek independent legal advice before entering any arrangements; and (d) the financial institution has exercised restraint in its enforcement of any outstanding debt.

In the present case, the court was satisfied that there were no signs which would result in the conclusion that the relationship between the bank and borrower was unfair within the meaning of section 140A CCA. The court emphasised that this was commercial lending to a sophisticated commercial borrower, whereby the part-owner of a multinational group was replacing their own guarantee of some delinquent lending with a new loan on equivalent terms, effectively giving themselves another chance to clear the borrowing, rather than the bank proceeding to enforcement under the guarantee. Furthermore, the borrower could point to nothing about the terms, the way in which the restructuring was done, or about the bank's subsequent conduct which was suggestive of unfairness.

Background

Between 2006 and 2012, the claimant bank (Bank) provided loan facilities to a Swiss company trading in West Africa (Acacia). These loans were secured by corporate and personal guarantees, one of which was given by the defendant individual (who was one of the ultimate beneficial owners of Acacia).

In 2014, Acacia began to experience financial difficulties. Acacia fell behind on its repayments and the Bank suggested to the defendant that, instead of enforcing the guarantees, it could loan them a sum sufficient to repay Acacia's borrowing. The defendant would ultimately repay this loan. The defendant accepted the proposal. In 2016, Acacia went into insolvency. The...