The appointment of administrators in the absence of an event of default (Re Capital Funding One Limited)

The appointment of administrators in the absence of an event of default (Re Capital Funding One Limited)

Daniel Webb, barrister at St Philips Stone, examines the decision in Re Capital Funding One Limited, in which the court had to consider whether, in connection with the purported appointment of administrators, an event of default had occurred where the parties to a joint venture agreement did not expressly agree the repayment terms of a loan.

Re Capital Funding One Limited; Capital Funding One Limited v King Street Bridging and others [2017] EWHC 3567 (Ch)

What are the practical implications of this case?

This case exposes the danger of failing to fully reduce an agreement to writing, especially when it is the basis for appointing administrators using the out-of-court process.

In circumstances where parties to a joint venture did not expressly agree the repayment terms of a loan, it was unclear exactly when liability to repay arose. The court had to do its best to fill the gap. In doing so, it was held that the applicant was not liable to repay at the time when the secured creditor purported to appointed administrators under a debenture.

As there was no liability to repay, there was no event of default under the debenture and no right to appoint administrators. The appointment was therefore held to be invalid.

What was the background?

Capital Funding One Limited (C) was a special purpose vehicle incorporated for peer-to-peer lending funded by third-party investors. By way of a largely informal joint venture with King Street Bridging Limited (K), K would regularly put C in funds for peer-to-peer lending to ultimate borrowers. K would receive invitations from C for funds, advance them to C, and C would lend the monies on. C would collect the revenue, which would tend to be shared between C and K.

On 25 November 2013, C granted K a debenture containing fixed and floating charges to secure all monies then or thereafter due to K. It was a term of the debenture that non-payment of sums due from C to K upon demand constituted an event of default. An event of default gave K the right to appoint administrators using the out of court process.

Between November 2013 and November 2015, a number of loans were advanced to C and on to ultimate borrowers. Certain of these borrowers repaid C late, meaning that K was repaid late. But at no point during this period did K made a demand under the debenture or even threaten to do

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About the author:

Anna joined the Restructuring and Insolvency team at Lexis®PSL in August 2013 from Berwin Leighton Paisner where she was a senior associate in the Restructuring Team.

Anna has worked on a number of large scale restructurings primarily in the UK market acting on behalf of lending institutions.

Recent transactions include the restructuring of a UK hotel chain and the administration sale of part of the Connaught group. Anna has also spent time on secondment at The Royal Bank of Scotland and trained at Clifford Chance qualifying in 2007.