The importance of correct drafting of security documents (Plant and another v Vision Games 1 Ltd and others)

The importance of correct drafting of security documents (Plant and another v Vision Games 1 Ltd and others)

Who has security rights over tax credits paid to a company which subsequently enters into insolvency proceedings? Andrew Ayres QC and James Kinman, barristers at Maitland Chambers, London, discuss their recent case of Plant and another v Vision Games 1 Ltd and others.

Plant and another v Vision Games 1 Ltd and others [2018] EWHC 108 (Ch), [2018] All ER (D) 151 (Jan)

What are the practical implications of this case?

This case serves as a salutary reminder to practitioners that security documents must be drafted so as to be compatible with the transactional documentation to which they relate, and that the security arrangements provided for must, so far as they can, be actually put into practice.

Attempting to rely upon generic security documentation, or provisions for arrangements which are not then actually put into practice, can lead to results which—at least from a lender’s perspective—are unwelcome, and it may not be possible to avoid those results merely by reference to what the lender perceives as the commercial sense of the arrangements, or extraneous concepts such as equitable proprietary interests.

What was the background?

This case involved the insolvency of Relentless Software Ltd, a developer of video games.

In order to fund the development of its games, the company obtained finance from Vision Games 1 Ltd (the funder). The terms on which the finance was provided were set out in three development and sales agreements (DSAs), each one of which related to a different game.

Under the terms of the DSAs, the actual development of the games was to be carried out by a subsidiary of the company called Relentless Vision 1 Ltd (RVL). The company would provide the employees and expertise which RVL required, while the funder would advance money into a ‘production account’ held by RVL on each occasion that pre-defined ‘milestones’ were reached. RVL would then apply this money towards its and the company’s costs of the development. Importantly, any money received by the company by way of tax credits were also to be paid into the production account. By contrast, receipts from the exploitation of the games were to be paid into an ‘exploitation account’, also held by RVL.

No withdrawals were to be made from the exploitation account save with the written consent of the funder, and all monies within the exploitation account were to be paid to the funder until it had been repaid the finance which it had advanced, together with an agreed return.

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About the author:

Neil specialises in banking and asset finance transactions with a particular emphasis on shipping finance, aviation finance, renewable energy finance and in providing corporate finance transactional support. Neil qualified as a solicitor with TLT in 2004 and worked as a finance solicitor in both the Bristol and London offices before joining the asset finance team at DLA Piper.