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Refinancing Your Business? Pause for Thought and Take Professional Advice!

Businesses in a hurry to raise finance sadly often make rushed decisions without the benefit of legal advice. In a case on point, a judge refused to relieve a company that entered into what turned out to be unwise hedging arrangements from the consequences of a bad deal.

A property company was approaching the bottom of a £40 million loan facility when it agreed to refinance its debts in order to raise a further £10 million. As part of that process, its existing hedging arrangements were superseded by fresh ones. The new arrangements did not provide the hoped-for protection against movements in interest rates and the company suffered very substantial losses.

In seeking compensation from the bank, the company claimed that it had entered into the hedging arrangements on the basis of negligent misrepresentations made by a bank employee during a 10-minute telephone conversation. He was said to have given false information and to have misled the company into believing that the fresh arrangements would decrease its level of risk.

In ruling on the case, the judge noted that, on any commercial view, the transaction had been unsatisfactory. The attention to detail on both sides had not been great and the company had clearly expected more from the bank than it received. The bank’s witnesses had not evinced professional pride in the transaction.

However, the company had the advantage of capable and experienced leadership. On a detailed analysis of a recording of the telephone call, the bank employee’s statements were not false and did not amount to misrepresentations. However unfortunate the transaction may have been, the company’s claim failed in law.