BR-2024-000761 - [2025] EWHC 2900 (Ch)

The Deed of Priority (the “Deed”) is made between the Company (defined as the “Borrower”, SIA (defined as the “Senior Creditor”) and MCL (defined as the “Junior Creditor”). The recital states that the Senior Creditor has agreed with the Junior Creditor that the Senior Creditor interests have priority over the Junior Creditor.

I do not intend the recite all the clauses in the Deed but highlight the protection afforded to SIA by reference to certain clauses such as clause 6 that provides priority for SIA over the deferred consideration owed to MCL.

Other contractual mechanisms, to ensure that the debt owed by the Company would not be jeopardised by a priority payment to MCL included firstly, that MCL agreed to provide notice of enforcement to SIA:

“Written notice delivered to the Senior Creditor from the Junior Creditor of the Junior Creditor’s intention to demand payment from the Borrower of the Junior Debt such written notice not to expire before a minimum period of 45 days prior to 12 April 2023. For the avoidance of doubt no demand of the Junior Debt shall be made by Junior Creditor until on or after 12 April 2023.”

Secondly, an undertaking was provided by the Company (clause 4) which included the following:

“Until the Senior Discharge Date or unless any repayment of the Junior Debt is permitted in accordance with clause 5.1 the Borrower covenants with a Senior Creditor that they shall not, without prior written consent of the Senior Creditor:

4.1.1

pay, prepay or repay, or make any distribution in respect of t, or purchase or acquire, any of the Junior Debt in cash or in kind;

4.1.2

discharge any of the Junior Debt by set-off or any right of combination of accounts…”

Thirdly, an undertaking (as well as a contractual obligation (clause 14)) in similar terms provided by MCL to the effect that it will not receive discharge of the deferred payment before SIA, without its written consent.

Fourthly, clause 7 obliged MCL to account to SIA for any payment it received before the debt owed to SIA had been repaid in full (known as the Senior Discharge Date):

“If at any time before the Senior Discharge Date any person makes any payment or distribution in cash or in kind in respect of the Junior Debt any person makes any payment or distribution in cash or in kind in respect of the purchase or other acquisition of the Junior Debt or any of the Junior Debt is discharged by set off the Junior Creditor will hold any such payment or distribution or an amount equal to the amount discharged by any such set off on trust for the Senior Creditor and pay and distribute it as soon as possible to the Senior Creditor for application in or towards payment and/or discharge of the Senior Debt.”

Lastly, clause 8 provided a continuing subordination “irrespective of any intermediate payment or performance of the Senior Debt.”

The Deed excluded the ability of the contracting parties to amend or waive without the amendment or waiver being agreed in writing. However, there was no such clause contained in the unlimited personal guarantee executed by Mr Leahy.