Waterfall Provisions meaning

Galapagos Bidco Sarl v Kebekus [2023] EWHC 1931 (Ch) What are the practical implications of this case? This decision offers useful clarification on the interpretation of familiar provisions and expressions found in the ‘distressed disposals’ clause of English law intercreditor agreements. The court scrutinised the distressed disposal mechanics in an English law-governed intercreditor to decide whether the restructuring had been properly implemented. A central question was whether the sale of the insolvent group could be treated as being ‘for cash’, notwithstanding that creditors of the insolvent group subscribed for notes in the newly reorganised group and set off the subscription monies against their entitlements under the payment waterfall. The court also considered whether that investment meant the relevant creditors’ claims had not been unconditionally released at the same time as the sale, as the intercreditor required. The court concluded that the restructuring was validly carried out, providing reassurance to senior creditors and companies that such terms do not prevent creditors from investing in the new group after a...

Re Avanti Communications Ltd (in administration) [2023] EWHC 940 (Ch) What are the practical implications of this case? Avanti is poised to carry three major consequences for restructuring lawyers, insolvency litigators, and finance lawyers. First, the ruling lowers the bar for taking fixed security, notably over fixed assets. It confirms that the Spectrum analysis is nuanced, and that absolute control is not a prerequisite for a fixed charge. The assets in Avanti were ‘fixed’ income‑producing capital assets rather than receivables or stock‑in‑trade, leaving charges over such property, in particular, less susceptible to recharacterisation. Second, although the facility documentation was intricate, it drew on Loan Market Association (LMA) templates. Those contracts included permissions for the debtor to dispose of assets where (among other conditions) proceeds were paid through a creditor ‘waterfall’, or where assets had become obsolete. Avanti confirms that these permissions, and other provisions that cede a measure of control back to the debtor, do not automatically reclassify a fixed charge as floating. Third, if it is easier...

Mayfair Capital Residential 2 LLP v Reim Katch Securities Ltd [2024] EWHC 1920 (Ch) What are the practical implications of this case? In Mayfair Capital, the court concluded that an intercreditor deed permitted ongoing ‘permitted payments’ to the junior lender, notwithstanding the appointment of a receiver. The application of proceeds clause, which directs amounts received by the lenders to be applied first in discharge of the senior debt and then the junior debt, was held, by necessary implication, to operate subject to the permitted payments provision. Accordingly, the permitted payments regime prevailed over that clause to this extent. The decision is a helpful reminder to practitioners to ensure intercreditor agreements and deeds of priority contain express payment stops (where this is commercially agreed). Further, where the parties intend the way in which proceeds are applied to differ before and after enforcement, this should be made clear within the agreement. What was the background? The focus of the dispute was the proper interpretation of particular provisions in...

ARCHIVED: This Practice Note has been archived and is not maintained. This archived Practice Note is no longer updated. It outlines the Loan Market Association (LMA)’s method for calculating interest in its LIBOR-based facility documentation. It reviews the interest calculation clause—covering margin, the London Interbank Offered Rate (LIBOR), the Euro Interbank Offered Rate (EURIBOR) or another benchmark, plus mandatory costs—before concentrating on how the benchmark rate (such as LIBOR) is derived. How LMA documents define and compute LIBOR, EURIBOR or an alternative benchmark, including calculation of the Screen Rate—see Definition of LIBOR, EURIBOR and Benchmark Rate in LMA documents and Definition of Screen Rate in LMA documents Drafting implications of ICE Benchmark Administration Limited assuming responsibility for administering LIBOR Drafting effects of the ICE LIBOR Error Policy and the Euribor Intraday Refixing Policy, which set out refixing and republication of LIBOR and EURIBOR respectively—see Intra-day correction, recalculation or republication of a Screen Rate The fallback waterfall where the Screen Rate is unavailable for...

Background The purpose of an intercreditor agreement—also called a deed of priority—is to manage and resolve the conflicts that will inevitably emerge between different classes of secured lender during a restructuring. Waterfall of payments Such an agreement commonly details a distribution waterfall instructing the security trustee on how to deploy any funds it receives (including sale proceeds, litigation recoveries, or amounts originally paid in error by a debtor to a junior creditor and then transferred under turnover provisions). The waterfall may apply either: (i) universally in all situations; or (ii) by distinguishing between ordinary operations (pre-enforcement) and post-enforcement, namely via a ‘flip’ clause. Ordinarily, the waterfall requires the security trustee’s fees to be settled first, after which monies are distributed to creditors in line with their ranking (with secured lenders typically at the top of the order), and any remaining balance is ultimately returned to the debtors...

This Practice Note traces differences between European Market Infrastructure Regulation (EU) 648/2012 (EU EMIR) and Assimilated Regulation (EU) 648/2012 (UK EMIR). How to use this Practice Note Use this Practice Note as a navigational aid when reviewing Assimilated Regulation (EU) 648/2012 (UK EMIR), by comparing it with the parallel provisions in Regulation (EU) 648/2012 (EU EMIR). Set out below are links to all Articles and Annexes in UK EMIR and EU EMIR respectively. Each section provides: the relevant Articles and Annexes as they currently stand, including: the latest changes made, when they were made, and details of the implementing/amending/repealing legislation proposed reforms to specified Articles a brief summary of points of divergence (ie how the relevant Article or Annex has evolved in the UK and/or the EU since 31 December 2020, being the end of the Brexit transition period) The degree of variance between the regimes is signposted as...

Insert the following as new definitions (if not already included) in the articles of association of the relevant company: A Ordinary Shares — refers to the A ordinary shares of [ insert amount ] each comprised within the share capital of the Company; Available Profits — signifies profits that are distributable as construed under the Companies Act; B Ordinary Shares — denotes the B ordinary shares of [ insert amount ] apiece forming part of the Company’s capital; Issue Price — indicates the price at which the relevant Share is allotted, being the combined total of amounts paid or treated as paid in respect of its nominal value together with any share premium applicable; Preference Dividend — means the dividend payable in accordance with Article [ insert number of article dealing with company dividend payments ]; Preference ...

1 Model Articles 1.1 Save to the extent that these Articles amend, disapply or conflict with them, the Model Articles govern the Company. Subject to any such amendments, disapplications or conflicts, the Model Articles, together with these Articles, comprise the Company’s articles of association, to the exclusion of any other articles or regulations contained in any statute, statutory instrument or other subordinate legislation. 1.2 The following provisions of the Model Articles shall have no effect in relation to the Company: 11(2) (quorum for directors’ meetings), 12 (chairing of directors’ meetings), 13 (casting vote), 14(1)–(5) (conflicts of interest), 21 (all shares to be fully paid up), 26(5) (share transfers), 30(5)–(7) (procedure for declaring dividends), 39 (chairing general meetings), 42 (voting: general), 44(2) (poll votes), 50 (no right to inspect accounts and other records), 51 (provision for employees on cessation of business), 52 (indemnity) and 53 (insurance)...