[2024] UKUT 00418 (IAC)

Mr Symes refers to the Directors Loan Agreement. The Lender is the applicant and the Borrower is Fametex. Insofar as is material, the Loan Agreement provides:

“2.1

The Lender has agreed to lend to the Borrower the amount set out in the Schedule ('the Loan'), and this agreement contains the terms of the Loan. It includes details of the interest to be paid, and explains what the Lender can do if the Borrower does not repay the Loan. It also explains what happens if the Loan is not repaid and is instead converted into shares in the Borrower.

…

5.

Repayment

5.1

The Borrower must repay the Loan, and all interest that has built up, on or before the date specified in the Schedule (unless the Lender chooses to convert the Loan into shares in the Borrower prior to that date as per Clause 9).

…

8.

Events of Default

8.

8.1 The following are Events of Default;

…

8.2

If an Event of Default happens, then what it says in clause 9 below will apply

9.

Conversion of the Loan into Shares

In summary, Mr Symes submits there are three grounds, albeit overlapping, that demonstrate the respondent’s decision is vitiated by public law error. First, the respondent erred in construing the rules as requiring an express statement that the loan is unsecured and subordinated to other creditors’ loans, rather than reaching a decision based upon an informed analysis of the Directors Loan agreement. Second, the respondent failed to undertake the informed analysis required, and third, reasonably construed, the loan agreement demonstrates that the loan was unsecured and subordinated to other creditors.

Mr Symes submits the natural and ordinary meaning of the Rules is straightforward. The word “showing” does not mandate one of the higher forms of demonstrative intensity that might be implied from words such as “specifying” or “stating”. A document may ‘show’ something, Mr Symes submits, when it is read and sensibly construed. The relevant rule is designed to encourage the extension of stay for legitimate businesspeople, including company directors, so long as the promised investment monies have generally been invested in the business compatibly with the policy of the Rules. With the level of fee payable, decision makers administering the scheme must reasonably be expected to know something of the field in which they operate, particularly the meaning of terms which must recur in most applications they address. Mr Symes submits the objective of achieving simplicity cannot confine the interpretation of a document more narrowly than the Rules, properly construed, provide. Here, the Directors Loan was unsecured because there is no reference to any security being offered. Failure by Fametex to deliver particulars in respect of any charge to Companies House will mean that the charge is void against any liquidator, administrator or any creditor of the company: Companies Act 2006, s. 859H. Mr Symes submits that absent a challenge to the applicant’s honesty, the only reasonable response to the loan agreement was to accept that the loan was unsecured.

Mr Symes submits the loan is also subordinated to other creditors’ loans because Fametex was not to enter into any other loan agreement and in the event of default, the loan would convert into shares. Shareholders are last in the queue in the event of insolvency. Mr Symes submits the respondent made no attempt to engage with or interpret the loan agreement relied upon by the applicant and instead, simply searched for the phrases such as ‘unsecured’ and ‘subordinated’ and refused the application because those phrases do not appear.