In Business Mortgage Finance 4 Plc & Ors v Hussain & Ors [2021] EWHC 171 (Ch), the High Court granted injunctions and other relief to the issuers of notes under securitisations structures in respect of a “corporate assault” on the structures. Mr Justice Miles held that the Defendants, who had assumed offices and taken steps to interfere with the business of the Claimants, were “strangers” to the structures and had relentlessly pursued their actions “in the teeth” of earlier rulings of the courts. This decision will be welcome to institutions who face interference with their securitisation structures.

The Claimants sought relief in relation to a “sustained and determined assault” on securitisation structures by the Defendants. The Claimants are the issuers of publicly traded notes. According to the issuers, the Defendants purported, since early 2019, to assume various roles and offices in relation to the securitisation structures without legal basis. In January 2019, an Isle of Man company (in which two of the Defendants were directors) claimed to have acquired a beneficial interest in the notes resulting from a tender offer, yet the company provided no evidence of this. The Defendants attempted to take direct control of the structures, including by replacing the directors of the issuers with a number of the Defendants. To date, one or other of the Defendants have purported (largely in their assumed role as directors) to:

• remove the original directors of the issuers;
• appoint themselves or associated entities in various roles, including as trustees for the noteholders, receivers of the underlying assets, special servicers, and financial advisers to the issuers;
• make calls on the shares in the issuers and forfeit and sell those shares;
• change the issuers’ registered offices;
• make corporate filings at Companies House in respect of the issuers;
• make regulatory news service announcements to investors on behalf of the issuers; and
• make a number of (unsuccessful) court applications to uphold their purported positions.

The Claimants sought and obtained orders to halt the Defendants’ conduct. In July 2019, Mr Justice Zacaroli found that the Isle of Man company was not a noteholder and that the steps purportedly taken by the Defendants were invalid. In July 2020, Mr Justice Birss held, among other things, that a Defendant (Mr Hussain) and his associates had never been appointed as directors of the issuers, since no valid method of appointment was employed (the sole justification for this position was a resolution purported to be made by one of the noteholders).

Yet these prior rulings were ignored or sidestepped by the Defendants, some of whom were not personally a party to such rulings. In fact, just days after Birss J’s ruling on the invalid appointments and acts of the purported directors, Mr Hussain, who was not a party to that ruling, continued to make Companies House filings in his purported capacity as director.

The issuers applied for, and were granted, relief against all Defendants. The relief sought included orders to rectify filings made by the Defendants at Companies House as well as declarations and wide-ranging injunctions. In his judgment, Miles J agreed with the prior rulings and was satisfied that none of the Defendants had the capacities they claimed and that it followed that the acts they purported to carry out in those capacities were invalid. Miles J considered that the key question at the heart of the claims was whether the Defendants were appointed as directors of the issuers. Miles J found that the Defendants were not validly appointed as directors and that they were, for legal purposes, “strangers” to the securitisation structures. Miles J found that the claims of the Defendants to have occupied positions and the acts they purported to take in those capacities had been calculated to cause damage to the Claimants and sow confusion among investors, borrowers and other parties involved in the securitisation structures. Miles J noted that the securitisation structures had incurred over £2.4m of unrecoverable legal costs, which would ultimately fall on the noteholders. There was also the question of the court's resources and the impact on other court users; it was found that the court should seek to restrain further abuses and wasteful litigation. Miles J ordered rectification of the Companies House registers; declarations that the various steps taken by the Defendants were invalid and of no effect; and final injunctions restraining the Defendants from holding themselves out as having certain positions and from taking steps in respect of the Issuers.

The Court has demonstrated that it is willing to take pragmatic steps to ensure clarity in the market and to dissuade parties from abusive practices. The injunctions were considered appropriate as the issuers had a real and reasonable apprehension that the Defendants, unless restrained, would continue to carry on making appointments and terminating others, and taking actions in their purported roles. It was also held to be vital to allay any misapprehensions there may be in the market or among the underlying borrowers as a result of the Defendants’ conduct.

Liberty Brown, Associate in London

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