In a recent judgment the High Court determined that the bank was in breach of the requirement not to withhold its consent unreasonably to the release of a secured asset from its security package for the purposes of sale.
The claimant borrowers had various loan agreements with the bank under which the outstanding amount was EUR 5.9million. The bank held security over the borrowers' property in France which was approximately worth EUR 4million.
According to the relevant clause in the facility agreement, if with the prior consent of the bank (which consent not to be unreasonably withheld or delayed) the property was sold, the borrowers were required to repay to the bank the net proceeds of sale. However, when the borrowers received an offer on the property, the bank refused to grant its consent without additional security for the remaining indebtedness and an agreed repayment plan. Therefore the sale was lost.
The claimants argued that the bank’s refusal to approve the sale of the property was in breach of the terms of the loan agreement.
The Court held that in the circumstances the bank's refusal to provide its consent was unreasonable and the claimants were therefore entitled to declaratory relief.
The full transcript is not available but this is an unusual case as courts are usually slow to challenge the exercise of a bank’s reasonable discretion, and may cause some alarm for secured lenders and a need to put in place clear policies when faced with a request for release of security for a sale.
We will review and comment on the full transcript of the decision once it has been published.
Jonathan Porteous