25th July 2013

Negotiating loan documentation

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25th July 2013

Negotiating loan documentation


The High Court in Grupo Hotelero Urvasco SA v Carey Value Added SL and another [2013] EWHC 1039 (Comm) (26 April 2013) had to interpret two clauses which are standard clauses in most finance documents.

The issue at the heart of the case was whether an event of default had occurred under the Loan Agreement and the two clauses that the court was asked to consider in order to determine this were:

  • a representation that there had been no material adverse change in the financial condition (consolidated if applicable) of the companies since a particular date; and
  • an event of default which was caused by a company beginning negotiations with another creditor to reschedule its indebtedness because of actual or anticipated financial difficulties.

What makes this decision particularly interesting is that there is very limited case law (if any) on how these clauses should be interpreted. The decision followed extensive expert evidence and was necessarily fact specific but the approach of the Court to the interpretation of the clauses in light of the evidence will be of interest not only to lenders and (prospective) borrowers but also to any other party contracting on similar terms, and to insolvency practitioners and others providing advice where the application of key ‘trigger clauses’ in finance agreements may be critical.

For a full analysis of the decision and its practical ramifications, please see our risk guide available to members of the Paris Smith Business Club at www.parissmithbusinessclub.co.uk