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Published: Fri, 02 Feb 2018
Critical coverage of syndicated loan agreement
The case in question scrutinizes what will happen when a lender is a group of people rather than one individual and how they may desire to vary their terms. A Syndicated Loan Facility is an Agreement that empowers two-thirds of the lenders majority to consent to the changes in facility agreement and at the same time agrees to waivers there-under agreement to provide that any waiver should bind all the lenders. With this, lenders have been split into three classes with no provision made for any separate class. The claimants alleging the variation to amount to a fraud on them see themselves as minority because they are discriminated and see themselves as a class being subjected into an unfair risk exposure mainly for the purpose of removing any risk from the other lenders. The majority lenders are alleged to have breached the duty of acting as the bona fides for the benefits of the lenders.  This is whether the variation of the agreement is valid or not.
What is held is that there has never been evidence that majority of these lenders or any other lender had been motivated in consenting to these variations of the modified waiver letter through any kind of consideration of bad faith. Their motivation has always been to come up with an implementation of reducing the overall sizes of the facilities in order to benefit the lenders.  The starting point is always in the assessment of the validity of the exercise of the power as conferred by clause 25. In order to properly conduct the assessment, by reference to all the available evidences, whether being exercised in good faith or not, the purpose for which it was conferred should be clearly mentioned. If it was, the fact that it would be shown that the minority of the affected have been highly disadvantaged compared with the majority, this will not automatically mean that it has been improperly exercised. Viewed objectively, this modified letter was not at any rate discriminatory or unfair towards this class of lenders on which these claimants justified that it was not necessarily for the benefit of whole of the lenders or was an improper exercise of the clause of power.  Clause 25 brought power and enabled majority of the lenders to be able to make own binding decisions on all these three classes, even though the clause might be seen to be of benefit to one class and not the other. All the three lending classes are, or were part of a long-term lending package, and that way no single class had been entitled to halt its own commitments whatsoever.  By signing at this outset, each of the lenders had to submit to the decision of majority of lenders as an important fork in this road. The claimants had therefore been bound by the waiver letter modification. The application therefore had to be refused with the Redwood Case which is the major case of discussion in this paper.
Syndicated Loan Agreement
Also, it would be necessary to look in details what A Syndicated Loan Agreement is. There are standard syndicated loan agreements stipulated in the Companies Act of 1985 which was repealed in 2006 by the Companies Act 2006. The LMA is known to have produced some two major guides which assist those individuals who may not be acquainted with all the operational terminologies and structures of syndicated loan and their leveraged facilities.  It will be noted that these guides are not necessarily intended in the provision of detailed explanations for these provisions by LMA. There are two major guides that have been created by LMA. These are; Guide for Syndicated Loans and Guide to Syndicated Leveraged Finance. The main purpose of this Guide to Syndicated Loans has been in the provision of explanations on various aspects of a given syndicated transaction on loan and focuses on the types of the borrowing facilities that are usually seen in a given loan agreement. There is the provision on the time-line for the typical syndicated transaction on loan, and a detailed description of all the usual methods used by the lenders in transferring the syndicated loan and participations.  The aim of the Guide to Syndicated Leveraged Finance has been the provision of an explanation for the various major aspects of leveraged transaction on finance and focused on all the types of structures or borrowing facilities seen within senior syndicated leveraged agreement. There is also the time-line for the typical syndicated leveraged transactions and a detailed description of the transfer arrangements within a senior syndicated leveraged transaction. 
From the Act, Syndicated Loan Agreements will contain only some terms or a revolving facility, or the combination of the two or several of the types. For instance, multiple term-loans issued in different currencies and having different profile maturity may not be uncommon. We can be having one borrower, or some group of borrowers providing for the accession of the new borrowers giving them some circumstances from moment to another. This facility will tend to have a guarantor, or guarantors, and the provisions will be incorporated in a way that they will allow some more guarantors to come to terms to this agreement. The Agent therefore carries some standard responsibilities and duties. The facility agreement thus contains a number of provisions that limit the Agent’s relationship scope with the lenders syndicate and also with the borrowers. 
All the duties that have been imposed upon this Security Trustee will typically be more extensive as compared to those of the agent. With larger syndicates, sometimes it is decided that most of the decision-making powers have to be delegated to the majority within one time or the other. These are the ‘majority lenders’, also called the ‘instructing group’. The group consists of all syndicate members from the appropriate time in holding the specified percentage with all the commitments of the facility.  Through delegation, it would be necessary to mention that most of these decision-making processes will work effectively as compared to when each member of the syndicate has to be informed and consulted, and subsequently reaching a unanimous agreement for every request that has been made by the borrower.
The Case: Redwood Master Fund Ltd and Others v TD Bank Europe Limited
In contrast with the existing global effects that may be positive, sometimes there may occur uncertainties which apply the main overriding principles in a given circumstances involving a difference or a dispute. For example, with respect to ‘good faith’, in some legal arenas involving loan agreement, for years, it is said that English law does not have any obligation towards good faith as understood by some legal systems in other places. Looking at the commercial arena which gives respect to a syndicated loan agreement involving Redwood Master Fund and TD Bank of Europe, among others, the court declined to imply into this syndicated loan agreement with a term that majority of the lenders could exercise the power in binding the minority with the ‘good faith.’
With the this Redwood case, it was yet more news from the courts whereby it had been held that minority of the lenders within a Syndicated Loan Facility Agreement were at all means bound by the decision by majority of the lenders in waiving the borrowers’ defaults and varying the loan facility.  This was the ultimate judge’s decision. Although this decision was against the expectations of the minority, the Supreme Court did not rule out of any possibility that a given minority bank may still be able to come up with a challenge against some majority’s decisions, but to succeed in the claim, the minority will hence have to show more than what had been discriminated against. It would thus have to show that majority acted specifically for an improper purpose, and not with a genuine reason that is commercial or in connection with the given facility.
For instance, such a conflict of interest that existed in this case of Redwood Master Fund Ltd and Others v TD Bank Europe Limited and Others in 2002, a syndicate of group lenders had given or lent to some distressed borrower with which a A facility, the revolving loan, and a B facility, the term loan, had been involved. Most of these lenders had some key positions in the A and B facilities. As part aimed in restructuring these distressed borrowers, majority of the lenders decided to vote to the use of the A facility in order to repay the B facility, and this was something which was greatly opposed by the lenders who held positions in the A facility only. The lenders who had cross holdings had thus been conflicted in with voting and therefore they had to benefit from the use of the first A facility in order to repay the second B facility. This meant that they therefore were not at all opposed to using the first A facility.
However, it will be noted that the requirement of good faith is something that should not be literally interpreted to mean that a given change to this agreement might have been quite prejudicial to a given class of lenders, or some sub-group of that given class, could not be held in the good interests of the lenders as a whole.  As the major purpose of this doctrine was in the prevention of abuse of the majority powers in order to favour the sectional interests over the syndicate as a whole, it was therefore quite sufficient for the court to have been satisfied that this power was exercised in good faith.  With this case, the final claim was that that majority banks’ decision whenever it came to funds in syndicated loans was nothing but a fraud on the few minorities.
From the judgement, the judge’s decision arose out of the background from the existing articles which gave rise to some conflicts of interest between the different shareholders and groups. The purpose of this alteration was in resolving the existing conflict.  Inevitably, this alteration did not in the least please everyone, and thus the challenged resolution would not be defended by anyone on this single basis that it could be seem to be a benefit of the corporators and the company as a whole. However, there was no suggestions regarding bad faith or fraud by anyone, and also there was no evidence that these alteration had been made with the need or aim of oppressing the minority or depriving their rights. Before coming up with the final verdict, Judge Rich J, tried to refer to various English cases and authorities like the Sidebottom and Shuttleworth cases. From the passage of the judgement, six of the major payers whose values amounted to about 2.03 per cent sought some declaration for having not been bound by this modified waiver, and they did that by claiming that the waiver letter had discriminated them and it was truly unfair. This resolution must have been brought forward in solving an existing difficulty and by so doing bringing about a possible capitalization. It can therefore be hardly supposed that, the final solution to any difficulty of this intensity will be adopted lawfully so long as it gives the minority a considerable advantage in the expense of the majority. 
Implications of the judgement and affect on the relationship between groups of lenders
The author regards the judgment to be particularly a very valuable one concerning this case. For instance, the power in altering of articles is something which is limited or controlled and for another to come up with definitions on the grounds on which power exercise will be considered totally invalid.  It would therefore be necessary to must look at the effects of this given judgement on the commercial relationships between lenders and groups. Looking at whatever will constitute or result in a bad faith, it will be evident that whenever a resolution has been regularly passed with the aim of increasing the company’s interests compared to the corporate whole as a whole, it will therefore fall within the limits of the statutory powers in altering the articles and therefore it can never be criticized as mala-fides.
If there was no restraint at all being laid on the power in altering of the articles of association, it will therefore be extremely possible for any given shareholder to control all the voting power in order to mould all the company’s regulations thus affecting the relationships between the groups and the shareholders.  This way its operations will have to be conducted and as well its property being used to profit in some different capacity than the one of being a company member. If, as a member, in some special way is inconsistent with the conceptions of truth and honesty as widely held, might farther bring about fraud. According to the LMA guidelines, facility loan agreements will govern multiple borrowers. For example, it would be quite possible for a given group to adopt the articles that require that given company to supply the group with the indicated goods at a cost, or pay the group about ninety-nine per cent of the total profits for some imaginary or even real services, or submit to the group’s determination.  The major reason for such a denial for an unlimited effects to some highly expressed powers like the alteration of altering the company’s articles is nothing but the fear that any regular exercise in power may be a means of ensuring some individual or group gains, something which will not just arise from the subjects being dealt with by these powers and may be outside or inconsistent with the power objects being contemplated. 
If for any chance the challenged alterations are relation to the article which is not affecting a given individual, as, for example, a given director having been appointed for life-time or having a shareholder with whom it is desired to duly expropriate, or to a given article which affects the liabilities and rights inter se of the shareholders or some given classes and descriptions of the shareholders, the subject will involve some conflicts of interests and unfair advantages on one side.  In order to say that most of these shareholders who form the greater majority will have to consider the major advantages for the company in whole in accordance to the key questions which might seem inappropriate.
The company, as a whole, should be seen as a fully equipped corporate entity which is consistent of the entire shareholders. If a proposal has been put forward on revision of the already stated articles of regulation on the rights of the shareholders, or even the classes of the shareholders, the main question will be on how the conflicting interests can be fairly adjusted, and whether the adjustment will be left by the law in the determination of the people whose interests are in conflict.  However, to this condition, the already existing provision will only be altered in a way that it will be for three-fourths of the majority. But, in case the question has been determined to be a conflict of the interests, the major purpose for this resolution, as it is distinguished by the given individuals’ motives, often it must resolve the existing conflicts in the favour of one interest and against the other stated interest.
In this particular case, it was really within this scope and the purpose of power of the alteration with a three-fourths of the majority to come up with the decision on the basis in which the distribution of the issued shares will be done for the sole purpose of ensuring that the accumulated profits are capitalized, and even all the profits that arise from goodwill.  Therefore it will be necessary for us to agree that this resolution did not in any way involve any form of oppression, and there was either no appropriation of any form of unjust as well as reprehensible nature. It also did not in any way imply a purpose which was outside the power’s scope.
The major starting point here is that this agreement facility will be a commercial contract existing between the larger lending bankers and the consecutive borrowers. This will govern not only the relationship of the lenders with their individual borrowers, but also in the relationship of the lenders amongst themselves.  From the judgement, the contract is seen to have been professionally and carefully drawn to bring about Clause 25 which is devoted in settling out any existing contractual basis which may bring about varied terms between the borrowers and the lenders. Since Clause 25 has empowered these lenders majority in agreeing to the waivers under this agreement, there has been a governed relationship between the two groups.
The other vital effect here was that minority of the lenders were lost on both grounds. This is because they were all bound by the so-called waiver agreement. These majority lenders also did not in any way acted in ‘bad faith’. If that had been the case, any acting with a subjective bad faith aim in the promotion of consent to this waiver agreement might have amount to the following: a wish of improving own positions in the very expense of A lenders, or bring about an act which is vindictive-nurtured and malice on the claimants and the A lenders. From the judgment, majority of the lenders did not become motivated by some self-interests or ill-disposition towards these claimants; on the contrary, their decisions were commercial and exercised in the scope the Clause 25 and the power there-in. Looking at it keenly, the judgement definitely motivated the goals of the conclusions which brought about a mechanism of restructuring the borrowers’ requirements on capital while at the same time reducing the exposure to the lenders.  After the case, there has been no facility agreement existing between majority powers under the 25 who should act as the bona-fides for benefiting as a whole in comparison to the other lenders. In fact, this principle which is in the interests of all the lenders was seen regarded to be incorrect in the decision for this case. With about three classes of the lenders with their individual interests, there was a potential for a conflict of interest.
It would therefore in practise be quite impossible for the given majority to fully exercise the clause powers in some manner which would be seen to benefit each of the hypothetical members in each given class.  This waiver agreement may also have been quite discriminating while the result would be difficult negotiations conducted at the length of the arm. In an event on reduction allocation would thus be determined by the very borrowers and not by the majority of the lenders. Having signed the outset, each of the lenders would have to submit to this decision within the majority as the important forks along the road. Basically, if the mere fact is that it can be proved that the minority of the affected by the decision have relatively been disadvantaged in comparison with majority of the lenders, it cannot be automatically undertaken to mean that jurisdiction has been improperly exercised. 
Generally, the adverse effects would be in part of prices in achieving an overall reduction in facility which was mainly for the benefit of all the lenders, both A and B lenders. Although, according to me, this effect will not in any way undermine this fairness regarding the reduction of the scheme in whole, while at the same time does not cause it to sway out of the purpose of the power of the Clause 25. In my view, therefore, the exercise of this power does not become bad since it was very necessary, and in order to achieve the implementation of the proposed reductions, so that the majority of the lenders may amend the existing covenants in order to enable the UPCD to come up with the necessary draws.  It should also be noted that the lenders in whole will tend to appreciate all these since it is clearly not known up to what extent they will know the profiles each other lender.
From the discussion, we have been able to see that facility agreements are a commercial contract on themselves. These agreements are therefore vital in governing the relationships between lenders and the borrowers. This relationship is important if any two given parties were to benefit from each other. The Redwood case gives a better dimension of these relationships between lenders and borrowers, and borrowers and borrowers. Looking at the LMA, we note the major guidelines which have been useful in ensuring these relationships are carefully dictated. The legal systems applied in the Redwood case are not in any way at conflict with each other, and are definitely working well together. The outcome of the case brought better situations in terms of lenders relationships. Of course, if it is shown clearly that power has been done carefully and exercised with the sole purpose of converging special benefits to the majority, or if the acquisition of these collateral benefits has been the main motive in this exercise of power. This would have been exercised mainly for the purpose on which it is conferred, and the exercise in this circumstance will definitely amount into a fraud for the minority. 
If this exercise has been motivated by malicious wishes to oppress the minority interests, then this will definitely have vitiated the entire exercise; and because that would not amount to fraud for the minority, therefore the legal systems are in harmony with each other  . It will be quite clear that any proof for matters of this kind may be quite difficult since different legal systems will tend to work differently within different people and societies depending on the practise of law in that given society. Therefore, these legal systems are better and should the facts provided be strong enough, then the court will as well be in a position to draw to the necessary conclusion. Finally, according to me, I think this legislation is in order and can be applied in any similar research. Though it would be necessary to look at some of the past events and see how different cases were handled to come up with reputable analyses and judgements. The main loophole with the Legal System here is that it fails to have what we call: an obligation for good faith, something which misses entirely in the English Law. This can be addressed by future research to have better legal systems whenever dealing with similar cases involving financial issues.
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