![CR-2024-005081 - [2025] EWHC 2374 (Ch)](https://backend.juristeca.com/files/emisores/logo_O3rEzCI.png){kind=logo}
Background
Background
Circular Tech Solutions Limited (“CTS”) is a subsidiary of the Company based in Northern Ireland. Mr Chesney for the Company explains that CTS operates a phone refurbishment business.
On 9 September 2022, Abcor Finance Limited (“Abcor”) which I understand is part of Abcor’s group of companies issued an offer letter to CTS, stating that CTS “has been approved for a trade finance Facility … to be provided by Abcor and its subsidiaries” as detailed in that offer letter. The letter goes on to state, under the heading “Overview of the Proposed Transaction”:
“Abcor hereby offers the Facility to CTS to enable CTS to source and purchase goods (“Goods”) to be used by [the Company] in its normal course of business. Specifically for the purpose of this facility CTS purchase and sale [sic] of the related stock.
Abcor will finance the Goods from CTS Suppliers, upon confirmation of order and Supplier invoice… The invoices/funds from the sales will be assigned to Abcor.
Abcor will retain title (ROT) over sold goods until the proceeds from those Goods are paid directly to an account controlled by Abcor. The ROT will remain in place until the Goods have been paid for in full.
Abcor will finance supplier against a Purchase Order and confirmation of Supplier invoice…”
The offer letter goes on to state that “Funding will be up to a maximum of 45 days and will be linked to the purchase and sale cycle.” The offer is stated to remain valid until 21 days from the date of the offer letter. The version of the offer letter before the Court is signed by Abcor’s director but is not countersigned by CTS. However it was not suggested by the Company before me that the offer letter was never received or did not form part of the background to the matter.
On 9 October 2022, CTS entered into a loan agreement with Abcor Finance No 2 Limited (“Abcor 2”) (a subsidiary of Abcor) pursuant to which Abcor 2 made available a £250,000 loan facility to CTS (the “Loan Agreement”). Mr Chesney for the Company explains that the purpose of this loan was for CTS to buy stock (mainly high-end phones) to refurbish and resell at a higher price.
It is necessary to set out some of the terms of the Loan Agreement.
Clause 1.1 (Definition) includes the following defined terms:
“Drawdown | means the utilisation of the Facility; |
Event of Default | has the meaning given to it in Clause 11 (Events of Default); |
Facility | means the Sterling term loan facility made available under this Agreement; |
Interest Rate | means 1.75% (one point five [sic] percent) per 30 days equivalent to 21.3% (twenty one point three percent) per annum; |
Loan | means the loan made under this Agreement to the extent not repaid; |
Potential Event | means an event that with the giving of notice, lapse of time or other applicable condition would be an Event of Default” |
Clause 2 (The Facility) provides as follows:
“2.1 Subject to the terms of this Agreement, the Lender makes the Facility available to the Borrower.
2.2 The Facility to be made available to the Borrower by the Lender is up to £250,000.00 and shall be paid directly into the Bank Account, which is governed in accordance with the Finance Documents.
2.3 Following the drawdown of the Facility into the Bank Account, the Borrower requires the Lender to make payment as set out in appendix 1 of this Agreement.
2.4 The Lender is under no obligation to investigate how any amount borrowed under this Agreement is used.”
Clause 3 (Interest) provides as follows:
“3.1 Payment of interest
3.1.1 Interest on the principal amount of the Loan shall accrue daily on the basis of a 365–day year and for the actual number of days elapsed. A minimum of 30 days interest will accrue for any loan drawdown.
3.2 Interest Rate
The rate of interest applicable to the Loan shall be the Interest Rate.
3.3 Default interest
If the Borrower fails to make any payment due under this Agreement or any Finance Document on its due date, interest on the unpaid amount shall accrue daily, from the date of non-payment to the date of actual payment (both before and after judgment) at a rate of 8% (eight per cent) above the Interest Rate and the Borrower undertakes to pay any such interest to the Lender immediately on demand by the Lender.”
Clause 4 (Repayment, prepayment and cancellation) provides as follows:
“4.1 Repayment
4.1.1 The term of the Facility provided to the Borrower will be up to 90 days from the date of drawdown in accordance with clause 2.
4.1.2 The Borrower must repay the Loan in full by way of a single repayment upon sale of all goods purchased with the Loan; or
4.1.3 The Borrower must repay the Loan in instalments on the following basis set out in Appendix 1 of this agreement”
Clause 6 (Costs, expenses and indemnity) provides as follows:
“6.1 The Borrower must, within 3 Business Days of demand by the Lender, pay to the Lender on a full indemnity basis all costs, expenses, losses and liabilities (including legal fees) together with VAT on such amounts incurred by or on behalf of the Lender arising at any time as a result of or in connection with:
6.1.1 the occurrence of an Event of Default;
6.1.2 the negotiation, preparation, execution, perfection, or enforcement of this Agreement or the Finance Documents;
6.1.3 any losses, taxation, penalties or levies incurred by the Lender in relation to the Loan.”
Clauses 9.1 and 11 include the following terms:
“9.1 Notification of default
The Borrower must, promptly on becoming aware of the same, notify the Lender of the occurrence of:
9.1.1 any Event of Default or Potential Event of Default together with the steps being taken to remedy it (if applicable); and
9.1.2 any default under any other agreement or instrument which is binding on it.”
“11 Events of Default
11.1 The occurrence of any of the following is an Event of Default:
11.1.1 Non-payment: the Borrower fails to pay any amount payable by it under this Agreement or any Finance Document to which it is a party on the date it falls due;
11.1.2 Breach of obligations: the Borrower fails to perform promptly any of its obligations under this Agreement or any Finance Document to which it is a party;
11.1.3 Misrepresentation: any representation or warranty contained in this Agreement or any Finance Document or in any document or instrument delivered under or in connection with this Agreement or any Finance Document, is incorrect or misleading when made or deemed to be made;
11.1.4 Enforcement of security: any step is taken to enforce any security over the undertaking, property, revenue or assets of the Borrower”.
Clause 11.2 provides as follows:
“11.2 Consequences
If an Event of Default occurs and is continuing, the Lender may, by notice to the Borrower, declare that:
11.2.1 the Loan and any other amount due or becoming due to the Lender is immediately due and payable (in which case those amounts shall be immediately due and payable); and/or
11.2.2 it intends to exercise any or all of its rights, remedies, powers or discretions under this Agreement or the Finance Documents (in which case it may exercise any such rights).”
Clauses 15 and 16 provide as follows:
“15 Notices
15.1 Any notice or other communication given by a party under this Agreement must be in writing and be signed by or on behalf of the party giving it.
15.2 Notices will be delivered by hand by pre-paid first-class post or other next working day delivery service to the parties at the addresses detailed at the outset of this Agreement.
15.3 A Party may change any of its details given in Clause 15.2 by giving not less than 5 Business Days’ notice to the other Party.
15.4 This Clause 15 (Notices) does not apply to any notice given in legal proceedings, arbitration or other dispute resolution proceedings.
16 Amendments
No amendment, waiver or variation of any of the terms of this Agreement will be valid or effective unless made in writing and signed by or on behalf of the Parties.”
Appendix 1, which is referred to in clauses 2.3 and 4.1.3 above, states as follows:
“Appendix1
[insert date]
To: Abcor Finance no 2 Limited (the Lender)
From: Circular Technology Solutions Limited (the Borrower)
Dear Abcor Finance no 2 Limited,
Loan agreement between the Borrower and the Lender dated [insert date] (the Loan Agreement)
Terms defined and references construed in the Loan Agreement have the same meaning and construction in this notice.
We request [the OR a] Loan to be drawn down under the Loan Agreement as follows:
Amount of Loan: £[insert amount]
Drawdown Date: [insert date]
Purpose of Loan: [insert purpose of loan]
Please pay the Loan into the following account:
Bank: [insert name of bank]
Account name: [insert name of account]
Account number: [insert account number]
Sort code: [insert sort code]
We confirm that on the date of this notice and on the Drawdown Date:
1 no Event of Default or Potential Event of Default has occurred and is continuing or will occur on the making of the Loan; and
2 all representations and warranties set out in Clause 8 (Representations and warranties) of the Loan Agreement are true.
……………………………….
[insert name of director or other authorised person]
[Director OR Authorised signatory]
for and on behalf of Circular Technology Solutions Limited”
In the version of the Loan Agreement before the Court, the references in square brackets to inserting dates, names or other information is italicised and highlighted in yellow. In any event, it appears that Appendix 1 is essentially a pro forma document, for later completion by one or both of the parties.
Together with the Loan Agreement, the parties entered into a number of other agreements, namely:
A debenture dated 12 October 2022 between CTS and Abcor, pursuant to which CTS provided fixed and floating charges in respect of its obligations under the Loan Agreement;
A Security Trust Deed dated 9 October 2022 made between CTS as borrower, Abcor as security trustee and 4 Abcor group companies including Abcor 2, who are described as “original lenders”;
A personal guarantee and indemnity from the Company’s director to Abcor dated 9 October 2022; and
A Parent Company Guarantee dated 9 October 2022 (the “Guarantee”) made between the Company and Abcor, pursuant to which the Company guaranteed CTS’ due performance of the Loan Agreement on the terms and conditions set out in the Guarantee.
Turning specifically to the Guarantee, clause 3 provides (inter alia) as follows:
“3 Guarantee
3.1 In consideration of the Security Trustee and/or the Original Lenders entering into the Agreement with the Customer, the Guarantor:
3.1.1 unconditionally and irrevocably guarantees and undertakes to the Security Trustee to procure the due and punctual performance by the Customer of each and all of the obligations, representations, warranties, duties and undertakings of the Customer under the Agreement when and if the same become due and performable under the terms of the Agreement; and
3.1.2 unconditionally and irrevocably agrees that, in the event that the Customer fails to pay any amount or perform any obligation under the Agreement, the Guarantor will on demand pay such amount or perform such obligation as if it were the principal obligor under the Agreement;
3.1.3 as a separate and independent obligation, agrees to indemnify the Security Trustee against all losses which the Security Trustee and/or the Original Lenders suffer under or otherwise in connection with the Agreement, whether in contract or tort (including negligence), breach of statutory duty, or otherwise:
(a) including by reason of any breach by the Customer of its obligations, representations or warranties under the Agreement; and
(b) if any obligation guaranteed by the Guarantor is or becomes totally or partially unenforceable, invalid or illegal as if the obligation guaranteed had not become unenforceable, invalid or illegal, provided that the Guarantor's liability shall be no greater than the Customer's liability is or would have been under the Agreement.
3.2 This Guarantee is a primary obligation of the Guarantor and accordingly the Security Trustee shall not be obliged before enforcing this Guarantee to take any action or proceedings against the Customer, to make any claim against or any demand of the Customer, to enforce any other security held by it in respect of the obligations of the Customer under the Agreement or to exercise, levy or enforce any distress, diligence or other process of execution against the Customer. If the Security Trustee brings proceedings against the Customer, the Guarantor shall be bound by any findings of fact, interim or final award or judgment made by an arbitrator or the court in such proceedings.”
Clause 9 of the Guarantee provides as follows:
“9 Variations to and extension of the Agreement
9.1 The Guarantor acknowledges and agrees that:
9.1.1 nothing in this Guarantee prevents the Customer and the Security Trustee from making any addendum or variation to the Agreement (in accordance with the terms of the Agreement); and
9.1.2 it shall guarantee the due and punctual performance of the Agreement, as amended by the addendum or variation, in the same manner and in accordance with the terms of this Guarantee.
9.2 This Guarantee shall continue if the Agreement is extended or renewed and shall automatically apply to the terms of the amended or extended Agreement.”
Finally, clause 11 of the Guarantee provides as follows:
“11 Notices
11.1 Notices under this Guarantee shall be in writing and sent to a party's address as set out on the first page of this Guarantee (or to the fax number or email address set out below). Notices may be given, and shall be deemed received:
11.1.1 by first-class post: 2 Business Days after posting;
11.1.2 by airmail: 7 Business Days after posting;
11.1.3 by hand: on delivery;
11.1.4 by email to [email protected] in the case of Abcor Finance Securities Limited and [email protected] in the case of Binomia Limited: on receipt of a delivery return email.
11.2 This clause does not apply to notices given in legal proceedings or arbitration.”
On 9 March 2023, CTS and Abcor 2 entered into an Addendum Loan Agreement pursuant to which they increased the value of the facility provided under the Loan Agreement from £250,000 to £400,000. It was not suggested by either party before me that this in any way affected the validity of the Guarantee or the other security documents entered into by the parties on 9 and 12 October 2022.
Mr O’Reilly for the Petitioner says that there were 19 separate drawdowns/trades made by CTS under the Loan Agreement which were successfully repaid. He exhibits to his statement 8 drawdown requests dated between 5 April 2023 and 30 June 2023 which are in the form of Appendix 1 to the Loan Agreement, but in each case fully completed. Mr O’Reilly points out that in each of these drawdowns, the maturity date stated is “up to 90 days”. The total loan amount under these 8 drawdown requests is £294,629.96. Mr O’Reilly also exhibits to his statement a breakdown of how the petition debt is calculated (in the form of a table). That table lists these same 8 drawdown requests.
Mr O’Reilly also exhibits a number of emails which passed between him and Mr Chesney from 5 July 2023. This seems to indicate that the Company was seeking extensions for the repayment of some of the loan drawdowns, which the Petitioner was willing to support. By an email of 19 July 2023 Mr O’Reilly said that the Petitioner was “willing to support and help” but that this would be “on a strict basis”. Mr O’Reilly then sets out a number of items of information that he says he wanted to see. This includes “an unequivocal confirmation from you [Mr Chesney] that sales proceeds from the stock we have purchased come back to Abcor. No commingling or diversion of funds” and “The area where the stock is held needs to have signage confirming that all stock is pledged to Abcor Finance.”
Mr O’Reilly’s evidence is that at the end of July 2023, Mr Chesney contacted him and confirmed that there had been an issue with the staff at CTS, the Company and another company within the Company’s group, Trueblue Ecommerce Limited (“Trueblue”) and that a significant amount of staff had left the business. This account is not accepted by Mr Chesney.
On 31 July 2023, Mr O’Reilly emailed Mr Chesney to say that “I will be visiting Cork on Wednesday 2/8 and doing a full reconciliation of the stock, payments etc. I will be there at approximately 10am.” The evidence before me is that the Cork premises to which Mr O’Reilly was referring to were the premises of Trueblue.
Mr O’Reilly says that when he arrived at the Cork site, “one worker presented themselves to me … and confirmed that he was the only person working as everyone else had walked out.” He says the worker then showed him a computer and allowed Mr O’Reilly to review the stock list. Mr O’Reilly says it became apparent to him that “a large amount of stock, in particular high end iPhones, had already been sold and were no longer on the premises, but the funds had not been used to repay [Abcor 2] for the existing outstanding loans.”
Mr O’Reilly then seized a substantial volume of stock which was at the Cork site. A list of those items seized is before the Court and shows 1,741 items (various phones of differing models) were seized with a “cost value” of Euro 234,849.85.
On 30 August 2023, Mr Chesney emailed Mr O’Reilly, suggesting that either the parties “try to work together to sell the stock in an orderly manner to realise the best value of the stock” or CTS would need to consider an insolvency process. Further emails between the two directors show attempts to discuss the co-operation around selling the stock. Mr O’Reilly draws attention to the fact that in none of those emails does Mr Chesney take issue with the Petitioner having seized the stock in the first place, or suggest that this was not permitted under the parties’ contractual arrangements.
On 22 September 2023, solicitors acting for the Petitioner wrote to the Company making “formal demand” under the Guarantee for the immediate payment of the sums said to be outstanding from the Company in the total sum of £265,529.05. That letter also notes that the Petitioner had made “a formal demand on the [Company] on 16 August 2023 for payment” of the outstanding loan sums. I have not been provided with a copy of that demand by either party before me.
Mr O’Reilly says that the Company did not co-operate with the efforts to sell the stock, and in the end the Petitioner sold the stock and realised some £74,000 itself.
On 11 June 2024, the Petitioner served a statutory demand (dated 7 June 2024) upon the Company in the sum of £305,811.91. Curiously, the demand refers to the debenture, Guarantee and the personal guarantee given by Mr Chesney, but does not specify the exact basis upon which the Company’s liability arises. However, the demand does say that the Petitioner has “filed a formal demand on Binomia Limited to request immediate repayment of the funds under the Parent Company Guarantee on 22 September 2023 but to date no payment has been made.” It would therefore appear the petition debt is based upon the Company’s alleged liability under the Guarantee.
The statutory demand remained unpaid, and on 30 August 2024, the Petitioner presented the Petition. This was in the same sum as the statutory demand. The particulars of debt essentially repeat the details of debt set out in the statutory demand, although reference is now added to some of the seized stock having been sold by the Petitioner.
I turn to consider the grounds upon which the Company opposes the Petition.