The importance of intercreditor agreement drafting

The case of Re Arboretum Devon (RLH) Ltd (28 April 2021) concerned a challenge to the validity of the ranking of the parties to an intercreditor agreement, the outcome of which signified the importance of intercreditor agreements and their drafting.

An intercreditor agreement (“ICA”) can be a very powerful tool and it can limit or prohibit unwary creditors from being able to take action and recover debt. In the case of Re Arboretum Devon (RLH) Ltd (in which Shoosmiths acted for the successful respondent parties) there were three issues of particular note:

The power that a senior creditor can get from an ICA;

The interpretation of the wording “pursuant to … [a Finance Document]” may be much wider than the documented loan;

The importance of clear ‘recitals’ (usually in the introductory paragraphs) to set the context of the contract.

Case background

Arboretum Devon (RLH) Ltd ("Arboretum") wanted to borrow money to fund the purchase and development of a site in Devon. On 5 September 2016, Lendy Ltd (“Lendy”) - a peer-to-peer lending platform - entered into two loan agreements with Arboretum. Security for these loans was to be granted in favour of Saving Stream Security Holding Ltd ("SSSHL") as security agent, namely a debenture to SSSHL creating fixed and floating charges over all its assets and undertaking. Shortly after, Arboretum entered into a loan agreement with Shoby Investments Ltd ("Shoby"), granting a debenture in favour of Shoby. About 18 months later in March 2018, Arboretum granted further legal charges in favour of both SSSHL and Shoby over the property it had then acquired. Lendy and Shoby then entered into the ICA under which they agreed that the security in favour of SSSHL would rank in priority ahead of Shoby’s to an amount of up to £7.845m plus interest.

Administrators were appointed to Arboretum in May 2019 and later that year they realised £902,500 in total from sale of its assets (the “Fund”). Under the intercreditor, the administrators sought an order for the Fund to be paid to SSSHL. However, Shoby, as junior creditor, contested that the security held by SSSHL did not secure the money Lendy provided to Arboretum and that those loans were unsecured because the security to SSSHL was not ‘pursuant to any Finance Document’. Shoby’s claim was escalated to the High Court.


The ICA in question included the provision “Neither lender should challenge or question...the validity or enforceability of any Security constituted by a Security Document”. By definition, Shoby could not contest the validity of SSSHL’s claim to the Fund. To circumvent this Shoby challenged the quantifiable “value” of the Fund and the interest accrued, instead of its validity.

The court confirmed that this remained a challenge to the validity in its more general sense, as Shoby were questioning whether the SSSHL security was effective to secure the monies lent by Lendy to Arboretum. The court therefore rejected this argument.

Moreover, “Secured Liabilities” was defined in the debenture as "all present and future monies obligations and liabilities of the Borrower ... pursuant to any Finance Document.” The court applied an objective test to the definition, holding that a reasonable observer would conclude that the meaning of the phrase “obligations ... pursuant to any Finance Document” was intended to be “obligations arising from the transactions provided for in any Finance Document” and not just obligations directly under a particular loan agreement. In this case, it covered restitutionary obligations or implied rather than express obligations in the written contract. As it was clear that Lendy had lent money to Arboretum to develop the site, the Court did not need to determine whether the monies were lent in accordance with the Lendy loan agreement. The monies were covered by the security in any event.

Finally, even if Shoby’s claim was successful it would have ultimately failed because of the concept of contractual estoppel: the facts around entering into the ICA agreement prevented Shoby from claiming that Lendy’s loan was not pursuant to the Finance Documents. Although not contractually binding, the recital that “[Lendy] has agreed to provide, or has provided, the Senior Debt to the Borrower on behalf of the [Lenders] secured by way of the Senior Security” was recognised as an acknowledgment by Shoby at the time of entering the intercreditor agreement that the advances gave rise to liabilities under the Finance Documents. This highlights the importance that recitals can provide in a contract.


The contractual agreement in the ICA was upheld and the priority ranking maintained. This judgement will probably not be appealed as the amount recoverable would be too low to make it worthwhile and the judgment was robust in favour of Lendy/SSSHL. Nevertheless, this judgement signifies two key points: firstly, the importance of drafting broad and clear provisions and, secondly, how broadly the court interpreted the phrase ‘pursuant to any Finance Document’.


This information is for general information purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Please contact us for specific advice on your circumstances. © Shoosmiths LLP 2024.



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