Syndicated Credit Agreement: Majority Voting

Extract

In Redwood Master Fund Ltd. v. TD Bank Europe Ltd. [2002] EWHC 2703(Ch), [2002] All E.R. (D) 141 (Chancery Division, Rimer J.) the court upheld a clause in a syndicated bank credit agreement empowering a majority to bind a dissentient minority even though the minority were placed in a worse position than the majority.

The effect in summary of the case law on creditor voting clauses—mainly in the context of bond issues—when combined with the case law on shareholder voting, voting on corporate schemes of arrangement and the like, is that the clauses are valid provided that (1) the decision was clearly within the terms of the power, (2) the majority were in good faith, i.e. not motivated solely by malice or vindictiveness, (3) there were no secret advantages to some creditors to procure their votes, e.g. bribes, and (4) most difficult of all, there was no unjust oppression of the minority so as to constitute a fraud on the minority, e.g. by a discriminatory decision denying the minority an advantage granted to the majority.