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Defaulting Company Can’t Escape $45 Million Loan

A pharmaceuticals company that defaulted on a $45 million loan is facing financial catastrophe after failing to convince the High Court that the facility agreement was infected by misrepresentation or that a bank involved in the transaction breached its fiduciary duty.

The money had been advanced to the overseas company by a syndicate of lenders and the bank had acted as agent and offshore security trustee under the facility agreement. The company had, for more than two years, paid interest as required. However, when the principal sum became repayable, it defaulted, evidently due to impecuniosity.

The bank sought enforcement of the outstanding balance. However, the company argued that the bank had given it negligent advice and had failed in its obligation to enter into a currency swap so as to reduce its exposure to losses. The company, amongst other things, sought damages for alleged misrepresentation.

In upholding the bank’s claim, and dismissing the company’s counterclaim, the Court found that arguments that the bank had breached the fiduciary duty it owed its client were ‘utterly hopeless’. The contractual documentation had stated that the bank was not acting in either a fiduciary or advisory capacity.

The bank had never represented that it would enter into a currency swap and the duty of care that it owed the company could not in any event have extended beyond using its best efforts to hedge the transaction and to obtain for its client the best deal available at the time the agreement was signed. The company also had ‘no case’ that the loan facility was not on the most favourable terms that could then be found.

In those circumstances, the company was ordered to repay the principal sum still owing – more than $35 million – plus more than $4 million in interest which was continuing to accrue. Further substantial sums were also due in respect of fees and costs.