Syndicated loan agreements—do lenders have the right to enforce independently following an event of default?

Syndicated loan agreements—do lenders have the right to enforce independently following an event of default?

What should lenders and their advisors take from the recent decision of the Hong Kong Court of First Instance in Charmway Hong Kong Investment v Fortunesea?

Original news

Charmway Hong Kong Investment v Fortunesea (Cayman) Ltd & Ors [2015] HKCU 1717

In this recent case, the Hong Kong Court of First Instance considered whether an individual lender has the right under a syndicated loan agreement to take action directly against members of the obligor group (including petitioning for winding-up) independently of the other lenders. The loan agreement in this case was based on the Loan Market Association’s (LMA) form of recommended facility documentation and the points of construction in the loan agreement which were considered in this case may be of interest to users of the LMA documentation. Equivalent provisions in the LMA Multicurrency Term and Revolving Facilities Agreement are indicated below where relevant.

What were the facts of the case

This case concerned a defaulting borrower’s relationship with its lending syndicate and the rights and remedies of the individual syndicate members.

The loan in question was a term loan facility in excess of $600m, with a syndicate of 16 lenders, made available to a group of companies which carried on construction and development in China. When the borrower defaulted under the loan agreement, the then majority lenders (representing 66 ⅔ of the then outstanding commitments) commenced enforcement action against the group’s assets (which involved appointing a receiver) on behalf of the syndicate as a whole in accordance with the terms of the finance documents. Numerous secondary trades subsequently resulted in a change to the composition of the majority lender group, which then gave an instruction to terminate these proceedings.

This change in approach was disputed by a group of minority lenders who sought to enforce their rights under the finance documents individually by bringing separate proceedings to wind up certain group companies.

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About the author:

Neeta has been working as a paralegal in Banking and Insolvency for the past 4 and a half years.

She started her legal career at Allen & Overy in 2008 in the midst of the global financial crisis and the collapse of Lehmans where she gained most of her experience.

Neeta also did a short stint in litigation at the Revenue and Customs Prosecutions Office. Neeta graduated with a 2:1 honours degree from University of London, Queen Mary College and went on to obtain a distinction from the College of Law in the Legal Practice Course. She moved to Lexis®PSL in April 2013.