Factual and Procedural Background
The claimant, Business Mortgage Finance 6 PLC ("BMF6"), is the issuer of six classes of notes under a true-sale securitisation structure originated in 2007, with maturity in 2040. The income to fund BMF6's obligations arises from a portfolio of commercial mortgages secured on UK property. The securitisation structure is governed by a series of documents including a Trust Deed appointing BNY Mellon Corporate Trustee Services Limited ("BNY" or the "Trustee") as note trustee, the Conditions of the Notes, a Deed of Charge granting fixed and floating charges over BMF6's assets, and a Master Definitions Schedule (together, the "Securitisation Documents").
Since June 2019, the first defendant, Greencoat Investments Limited ("GIL"), along with other defendants, purported to take control of the securitisation structure by appointing additional note trustees, receivers, removing the Trustee, replacing BMF6's directors, purporting to sell the loan portfolio, and announcing an intention to redeem all Notes. GIL claimed to act as a Noteholder by virtue of a Tender Offer issued in January 2019 inviting Noteholders to tender Notes for purchase by GIL. However, settlement under the Tender Offer had not conclusively occurred by July 2019.
BMF6 contended that GIL had not satisfied the requirements of the Trust Deed to act as a Noteholder and that the steps taken by GIL and other defendants were void and of no legal effect. On 4 July 2019, BMF6 issued a Part 8 claim seeking declarations to that effect and interlocutory injunctions restraining the defendants from acting pursuant to those steps. An interlocutory injunction was granted on 11 July 2019 and the trial was expedited to late July 2019.
During proceedings, evidence was served regarding a purported sale of BMF6's loan portfolio by the purported receivers to a company called Roundstone Technologies Limited ("Roundstone"). BMF6 expressed serious concerns about the propriety of this transaction, especially given the involvement of certain individuals previously criticised by the court in related proceedings.
Legal Issues Presented
- Whether GIL was a valid Noteholder entitled to take the steps it purported to take under the Securitisation Documents;
- Whether the various steps taken by GIL and other defendants, including appointment of additional note trustees, issuance of Enforcement Notices, appointment of receivers, removal of the Trustee, removal and appointment of directors, and purported sale of assets, were valid and of legal effect;
- Whether the purported Written Resolutions passed by GIL complied with the requirements of the Trust Deed, including the necessary majorities and procedural formalities;
- The scope and appropriateness of injunctive relief to restrain the defendants from acting in purported capacities without proper authority;
- The legal effect and scope of the declarations sought by BMF6, including the implications for third party purchasers such as Roundstone.
Arguments of the Parties
Claimant's (BMF6) Arguments
- GIL was not a Noteholder under the Trust Deed at the relevant time as it had not completed settlement of the Tender Offer and did not hold beneficial interests in the Notes as defined.
- The steps taken by GIL and the other defendants, including appointment of additional trustees, issuance of Enforcement Notices, appointment of receivers, removal of the Trustee, removal of directors, and purported sale of assets, were invalid and void.
- The power to appoint additional trustees and agents vested solely in the Trustee, not in Noteholders or any particular class thereof.
- The purported Written Resolutions failed to meet the necessary majorities, particularly as GIL held insufficient Notes across the relevant classes.
- There was no Event of Default as defined in the Conditions justifying acceleration or enforcement.
- The purported receivers had no valid appointment and lacked authority to terminate agreements or remove directors.
- The purported notices to the Special Servicer and Cash/Bond Administrator were invalid due to lack of valid appointment and absence of a valid Enforcement Notice.
- The declarations sought were necessary to clarify the invalidity of the defendants’ actions and to restrain further unauthorized interference with the securitisation structure.
Defendants' Arguments
- Initially, GIL contended it was a Noteholder by virtue of the Tender Offer and acceptance of Notes tendered.
- Defendants contended that GIL could pass Written Resolutions directing the Trustee to appoint additional trustees.
- They argued that the Trustee was bound to act on directions of Noteholders by Extraordinary Resolution under clause 8.1 of the Trust Deed.
- Defendants asserted that BMF6 was insolvent and that this constituted an Event of Default.
- They challenged the scope of the injunctions sought, particularly the breadth of the injunction against GIL.
- At the hearing, defendants accepted that GIL was not a Noteholder at the time of the contested steps, but disputed some of BMF6’s legal arguments and challenged the terms of injunctions.
- Defendants contended that GIL had now provided sufficient evidence to establish Noteholder status based on clearing system emails, a contention rejected by the Court.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Assenagon Asset Management SA v Irish Bank Resolution Corporation Ltd [2012] EWHC 2000 (Ch) |
Beneficial ownership under specifically enforceable contracts for sale of notes and their effect on voting rights prior to settlement. |
The Court distinguished this case, holding that without express contractual provisions, beneficial interest acquired under a contract for sale does not confer Noteholder status or voting rights prior to settlement. |
| Ottercroft Limited v Scandia Care Limited [2016] EWCA Civ 867 |
Consideration of defendant's conduct in the exercise of discretion for injunctive relief. |
The Court applied this precedent to justify injunctive relief given the defendants' conduct in attempting to take control without proper authority. |
| Shelfer v City of London Electric Lighting Co [1895] 1 Ch 287 |
Four-fold test for granting injunctions balancing injury and adequacy of damages. |
The Court applied the test, modified by subsequent authority, concluding that injunctive relief was appropriate given the nature and risk of harm. |
| Lawrence v Fen Tigers Ltd [2014] AC 822 |
Modification of the Shelfer test emphasizing judicial discretion in granting injunctions. |
The Court used the modified test to confirm the appropriateness of injunctions in this case. |
| Colls v Home & Colonial Stores Ltd [1904] AC 179 |
Instances when injunctions are necessary, including where injury cannot be compensated by money or defendant acts in bad faith. |
The Court cited this case to support granting an injunction due to defendants' high-handed conduct and risk of irreparable harm. |
| Kilimanjaro AM Limited v Mann Made Corporate Services [2019] EWHC 1189 (Ch) |
Assessment of witness credibility and dishonesty. |
The Court referenced this case to highlight concerns over Mr Hussain’s credibility and conduct relevant to the present proceedings. |
Court's Reasoning and Analysis
The Court began by examining whether GIL was a Noteholder entitled to act under the Securitisation Documents. It held that GIL was not a Noteholder at the relevant time because settlement under the Tender Offer had not occurred and GIL did not hold beneficial interests as defined. The Court interpreted the definitions in the Trust Deed and related documents to require that only persons recorded as holders in the clearing systems (Euroclear and Clearstream) are Instrumentholders entitled to vote and take action.
The Court rejected the defendants’ contention that GIL could pass Written Resolutions directing the Trustee to appoint additional trustees, holding that the power to appoint additional trustees and agents rested solely with the Trustee under clauses 23.1, 23.2, and 18 of the Trust Deed. Even if Noteholders could direct the Trustee, the relevant class would be the Class A Notes as a whole, not just Class A1, and GIL did not hold sufficient Notes for the required majorities.
The Court found no Event of Default had occurred as defined in the Conditions, and thus the purported acceleration of the Notes and appointment of receivers were invalid. It further held that the purported note trustees (GHL and PLL) had no standing because their appointment was invalid, and therefore their actions including appointment of receivers and removal of the Trustee were void.
The Court also held that receivers, even if validly appointed, would have no power to remove or appoint directors, which is a power vested in the company’s shareholders and board under the articles of association. The purported termination of corporate administration agreements and notices to the Special Servicer and Cash/Bond Administrator were also invalid due to lack of valid appointment and absence of a valid Enforcement Notice.
Regarding the declarations sought, the Court agreed that all acts purportedly done by the defendants in their purported capacities were void and of no effect as between the parties to the Securitisation Documents and the present action. However, the Court recognized the possibility that a bona fide purchaser such as Roundstone might raise different issues, but as Roundstone was not a party and no relief was sought against it, this judgment did not prejudge those questions.
The Court considered the appropriate scope of injunctive relief. It accepted that injunctions restraining the defendants from acting in purported capacities were justified due to the defendants’ conduct, the risk of irreparable harm to BMF6 and Noteholders, and the lack of adequate remedy in damages. The Court modified the proposed injunction against GIL to prevent it from acting or holding itself out as a Noteholder only until the Trustee confirmed it was satisfied that GIL was a Noteholder, rejecting arguments that the injunction was too wide.
The Court rejected the defendants’ contention that GIL had now provided sufficient evidence of Noteholder status, finding the clearing system emails unclear, containing unexplained redactions, and insufficient to satisfy the Trustee or the Court. The Court emphasized the Trustee’s role in determining entitlement and the necessity of proper evidence from clearing system account holders.
Holding and Implications
The Court’s final decision was to grant the declarations sought by BMF6 that the nine steps taken by GIL and other defendants, including appointments of trustees, receivers, removal of the Trustee, removal and appointment of directors, and notices given, were invalid and of no legal effect.
It further granted injunctive relief restraining the defendants from acting in purported capacities without proper authority, subject to the Trustee’s confirmation of Noteholder status. The injunction against GIL was limited to prevent it from acting or holding itself out as a Noteholder until the Trustee was satisfied of its status.
The direct effect of the decision is to preserve the status quo of the securitisation structure under BMF6’s control and the Trustee’s authority, preventing unauthorized interference by GIL and associated parties. The Court did not set new precedent but applied existing legal principles governing securitisation structures, trust deeds, and the rights of Noteholders and trustees. The judgment also highlights the importance of proper procedural compliance and evidentiary standards in establishing Noteholder status and exercising rights under complex securitisation documentation.