Agency—the tricky business of disclosing what you know or don't know

Agency—the tricky business of disclosing what you know or don't know
Should the agent have disclosed information relating to an event of default and/or a revised business plan and cashflow to other junior lenders that would have alerted them to the financial difficulties of the borrower?


Torre Asset Funding Ltd v Royal Bank of Scotland Plc [2013] EWHC 2670 (Ch), [2013] All ER (D) 27 (Sep)

How did the issue arise in this case?

The claim arose out of structured lending to a property company that defaulted on its lending and went into administrative receivership in September 2008. The structured lending included senior debt, three tranches of mezzanine debt (tranche A, B1 and B2) and loan notes together with securitised mortgage-backed notes issued by a special purpose vehicle. The Royal Bank of Scotland Plc (RBS ) initially lent the whole sum required and sold certain tranches of debt and the notes in the market. The claimants acquired a portion of B1 mezzanine debt and RBS remained the agent for this tranche.

In July 2007, the borrower fell behind its original business plan expectations for improving the income stream from the property portfolio. The slippage was not major but would have a significant effect on the operation of the financing structure and the borrower’s ability to meet interest payments. Accordingly, the borrower approached RBS with a view to restructuring the financing structure in place. For this purpose, the borrower presented a new business plan and cash flow to RBS, which included rolling up interest on the B2 loan (which was held by RBS).

The claimants argued that:

  • events that occurred in July 2007 constituted an event of default and that RBS was under a duty as agent to inform the claimants (the event of default claim)
  • a revised business plan and cash flow prepared by the borrower should have been distributed by RBS as agent (the business plan claim)

The third limb of the claimants’ case concerned statements made by RBS regarding the reason why it (as lender) was

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