In June 2015 Keith Ainsworth and Christopher Jones (of our Banking & Finance team) and Claire Waring (of our Development team) acted for a housing developer on a land purchase that had to be structured in an unusual and inventive way.
Our client (the “Purchaser”) entered into a land purchase contract in 2010 that obliged it to purchase land from a company (the “Seller”) in three phases; two phases had been completed already and the third constituted our transaction.
By the time of the purchase, the Seller (along with certain other companies in its corporate group (the “Affiliates”)) was at risk of insolvency, in part because of circa £13m of debt owed to a bank (the “Bank”) in respect of which it had long been in default. Consequently, the Bank wished to exit and was prepared to sell its debt at a deep discount. The Bank had other bidders for the debt, so our transaction had to be concluded as a matter of urgency.
Our transaction had to be structured so as to allow our client, the Purchaser, to acquire the third phase land (which had an agreed purchase price of £3.5m) whilst also relieving the burden of the Bank debt on the Seller. Our transaction therefore saw the following happen simultaneously at completion:
- the Purchaser made a loan of £4.5m to a newly-incorporated special purpose company that shared the same controlling stakeholders as the Seller and the Affiliates (the “NewCo”);
- the NewCo acquired from the Bank for £4.35m the Bank debt and all related security originally provided by the Seller and the Affiliates in favour of the Bank;
- the Seller transferred title to the third phase land to the Purchaser; and
- the Purchaser treated the title transfer to the third phase land as constituting repayment by the NewCo of £3.5m of its loan to the NewCo, and the NewCo treated that transfer as constituting repayment by the Seller of £3.5m of the Bank’s loan to the Seller (now acquired by the NewCo).
The end result of the above for our client, the Purchaser, is that a loan of £1m is outstanding owing to it by the NewCo. Our particular finance and insolvency expertise were required to obtain for the Purchaser the best possible security package for this ongoing loan – this issue was a complicated one because of, not only the threat of insolvency facing the Seller and the Affiliates, but also the fact that Seller and Affiliate assets were already charged in favour of the NewCo (following its acquisition of the Bank debt and security).
Our client’s security package therefore comprised:
- a charge over the shares in NewCo;
- an all-assets debenture granted by NewCo;
- multiple sub-charges granted by NewCo in respect of legal mortgages granted by the Seller and the Affiliate and acquired by the NewCo from the Bank;
- a legal mortgage by an Affiliate in respect of a particularly valuable piece of land; and
- a floating charge granted by that Affiliate, together with appropriate priority arrangements between the Purchaser and the NewCo.
All of the above was completed in four working days, allowing the NewCo to win the race to acquire the Bank debt and thus allowing our client to conclude the purchase of the third phase land.