BL-2024-000734 - [2025] EWHC 2166 (Ch)

The Claimants say that it is clear that the purpose of the chargee in exercising its powers as it did was for a collateral purpose, since:

Accordingly, they say that Niven’s enforcement of its security interest (i.e. the appointment of Ds) was neither to obtain repayment, nor for any statutory purpose. The enforcement was wholly for a collateral purpose and the appointment is therefore void.

Putting it at its highest, I think the Claimants’ arguments on this point can be summarised as follows. The purpose of the request for information was to secure an event of default, the purpose of which was to accelerate obligations, the purpose of which was to appoint administrators, the purpose of which was to enable the lender to acquire the business from the administrator at a lower price than that for which the shareholders would have been prepared to sell it. The purpose behind the request for information was therefore illegitimate, since its objective was to secure the appointment of administrators.

In Re Aartee Bright Bar Ltd (in Administration) [2023] EWHC 606 (Ch); [2023] BCC 704, HHJ Stephen Davies (sitting as a judge of the High Court) held (in the context of a creditor’s application under the Insolvency Act 1986 Sch.B1 para.81) that it could not be said that the only proper purpose for the appointor to appoint an administrator is to obtain repayment, because:

“It seems to me that it could not be improper for the appointor to be motivated, in whole or in part, by the belief that the appointment of an administrator was likely to achieve the statutory purpose, even if it could not be said that the appointor would necessarily receive payment in full, or possibly even any payment, at the conclusion of the administration and even if it could not be said that on an objective analysis his own economic interests would better be suited by not appointing an administrator. There is no reason, in my view, why the appointor should not be motivated, in whole or in part, by what he considered in good faith was a desire to improve the position of the general body of creditors or to enable an independent office holder to take control of the assets or to investigate alleged misconduct on the part of those in control of the company.”

I think that the objectives of Niven here fall clearly into the second of these instances – “to enable an independent office holder to take control of the assets”. I accept that the reason that they wanted such an independent officer appointed was in order to have the opportunity to acquire the business from that independent officer, but I do not consider that that motivation renders the objective of the exercise of chargee’s rights improper.