In Arlington Infrastructure Ltd (In administration) and another v Woolrych and others  EWHC 3123 (Ch), the Court considered the meaning of a deed of priority entered into between the senior and junior secured creditors of Arlington Infrastructure Limited (AIL). The junior creditors (but not the senior creditor) also held debentures over AIL's subsidiary companies.
The deed of priority provided that the junior creditors wouldn't take any step to enforce any security interest (including over the subsidiaries) without the prior written consent of the senior creditors. Without seeking prior consent, the junior creditors purported to appoint administrators over the subsidiaries.
The senior creditors applied to challenge the validity of that appointment on the grounds that – without the necessary consent (which would not be granted) – the junior creditors' floating charge was not "enforceable" under Paragraph 16 of Schedule B1 Insolvency Act 1986.
- The Court agreed with the senior creditors. It found that the meaning of "enforceable" should be considered objectively and involves consideration of "all the circumstances including the terms of the debenture or other security document between the parties, any collateral contract or agreement, whether between the parties or between the floating chargeholder and a third party, any promise against enforcement, and any statutory provision."
- The charge was not enforceable because the contractual notice required under the deed of priority had not been given. The junior creditor's right to appoint administrators had not, therefore, arisen and the appointment was invalid.
This decision demonstrates the importance of a secured creditor reviewing all security documentation (as broadly defined above) and obtaining any consents required under the terms of any intercreditor arrangements before taking enforcement action. To discuss the decision in more detail, please reach out to a member of our Restructuring & Insolvency team.