Can a lender withhold its consent to the sale of secured assets where the sale proceeds from those assets will be insufficient to clear the borrower’s debt? This was the question for the High Court in Crowther and another v Arbuthnot Latham & Co Ltd.
The borrower had debts of €5.9m and the lender’s security for these debts was a property in France valued at €4m. The borrower had accepted an offer in excess of €4m for the property (which was in line with its market valuation) but the lender refused its consent to the sale due to the borrower failing to provide alternative security or a repayment plan for the outstanding debt. The sale fell through.
The borrower sought a declaration from the High Court that the lender had acted unreasonably. The High Court agreed. The lender had unreasonably withheld its consent to the sale property as its refusal had not been based on the sale price but due to a lack of alternative security or a repayment plan.
Lenders need to be aware that whilst their consent may be required for the borrower to perform certain actions, lenders may, in fact, have little leeway to refuse the borrower’s request.