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Can an expanded definition of ‘share’ in a security document catch a shareholder loan agreement?
Fons HF (in Liq) v Pillar Securitisation S.à.r.l  EWCA Civ 304,  All ER (D) 215 (Mar)
In this case the Court of Appeal held that a shareholder loan agreement could constitute a ‘debenture’ as it is an instrument which evidences a debt.
The effect of this decision was to bring two shareholder loan agreements within the meaning of debenture within the definition of ‘shares’ under a legal charge. Consequently, the two shareholder loan agreements formed part of the assets secured by a legal charge over the shares as defined in the legal charge.
What happened in the Fons case?
Fons HF (in liquidation) (Fons) held ordinary and preference shares in Corporal Limited (Corporal).
In October 2007, Fons granted an unsecured loan to Corporal of £563,500 to assist it to expand concessions of the Hamleys toyshop into House of Fraser stores.
In February 2008, Fons provided 35% of a joint unsecured loan with BG Holding EHF (Baugur) providing the remaining 65%, totalling £1.5m to Corporal to finance the refurbishment of the Hamleys, Regent Street toy store in London. The proportions of this shareholder loan were linked to the size of their respective shareholding in Corporal.
Fons had granted a legal charge to Kaupthing Bank Luxembourg (‘Kaupthing’) in September 2008 (the ‘Kaupthing legal charge’) in respect of indebtedness which was in the region of £14m at that time.
The question arose whether the rights of Fons in each of the unsecured shareholder loan agreements could fall within the definition of ‘shares’ in the Kaupthing legal charge.
Why was the definition of ‘shares’ in the security document important?
It is the definition of ‘shares’ in the Kaupthing legal charge which the Court of Appeal examined in detail.
The term ‘shares’ was defined as meaning ‘all shares (if any) specified in Schedule 1 (Shares) and also all other stocks, shares, debentures, bonds, warrants, coupons or other securities now or in the future owned by the Chargor [Fons] in Corporal from time to time or any in which it has an interest’.
Fons claimed that a mere unsecured loan could not fall within the term ‘shares’ and, therefore, was outside the scope of the Kaupthing legal charge. Corporal, however, argued that it was wi
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