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ture cou­pled with re­leas­ing ex­ist­ing debt which was swapped with new, lower value debt. The claimant was the agent and se­cu­rity agent, and the se­cond and third de­fen­dants were both se­nior lenders and first and se­cond lien debt hold­ers re­spec­tively.

In clause 11 of the se­nior fa­cil­i­ties agree­ment, all pro­ceeds from dis­pos­als, flota­tions, in­surance, US tax pay­ments and 75% of ex­cess cash flow for any financial year had to be pre­paid in a stip­u­lated pay­ment order. The con­sent of lenders hold­ing 662/3 of the loan was re­quired to amend or waive a fi­nance doc­u­ment term and all lenders were re­quired to amend the order of pri­or­ity or sub­or­di­na­tion under the in­ter­cred­i­tor agree­ment.

An­tic­i­pat­ing breaches to the financial covenants, Truvo ne­go­ti­ated a lim­i­ta­tion of the lenders en­force­ment rights with some lenders and re­quested the fa­cil­ity agent act­ing for the ma­jor­ity lenders to con­sent thereto. The amend­ment re­versed the manda­tory pro­ceeds pay­ment order, al­legedly to the detri­ment of the se­cond lien hold­ers.

The court held that gen­er­ally, the terms pri­or­ity and sub­or­di­na­tion were used to rank pay­ment among cred­i­tors where there was a short­fall in the debtor’s as­sets re­quired to meet

Pic­ture: iS­TOCK

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