6 September 2018
The High Court considered the application of administrators to determine the security interest of a lender.
Vision Games 1 Ltd (the Lender) entered into three development and sales agreements in 2013 and 2014 (the DSAs) with Relentless Software Ltd (RSL) and Relentless Vision 1 Ltd (RVL) pursuant to which the Lender made financing available to RSL for the development of video games (the Products) by RVL.
The financing documents contemplated that RVL would be a wholly-owned subsidiary of RSL. However, the restructuring of the group by way of share transfer to RSL never took place.
The DSAs obliged RSL and RVL to pay certain tax credits (the Tax Credits) owing to RSL to an RVL account (the Production Account). However, the DSAs did not expressly state how the Tax Credits should be dealt with, having been paid into the Production Account, other than to say that if RSL overpaid into the Production Account, then it should notify RVL; and RVL should repay the amount within 30 days.
The Production Account was also the account into which the Lender made payments to RVL on completion of certain milestones in the development of the Products. The monies would then be released by RVL to RSL to meet production costs, whenever RVL determined appropriate.
As part of the financing, RVL granted the Lender a debenture (the RVL Debenture), which was expressed to create fixed charges over all book debts and all accounts of RVL. Under the RVL Debenture, RVL agreed to pay all book debts into a 'designated account' and prior to doing so, to hold all book debts on trust for the Lender.
RSL granted the Lender a security document that was stated to be a 'fixed charge' (the RSL Fixed Charge) and was expressed to create a fixed charge over 'all present and future book and other debts and monetary claims due or owing to [RSL] in respect of the Products'. Under the RSL Fixed Charge, RSL agreed to pay all book debts into a 'designated account' and prior to doing so, to hold all book debts on trust for the Lender.
RSL required further funding. It entered into secured invoice financing arrangements with two other finance providers, Ultimate Finance Ltd (Ultimate) and Thincats Loan Syndicates Ltd (Thincats).
On 3 August 2016, RSL received a payment of £190,000 from HMRC in respect of Tax Credits. This was paid into an RSL trading account (not RVL's Production Account). On 8 August 2016, Ultimate, the holder of a qualifying floating charge, appointed administrators over RSL. The Lender sought to claim the Tax Credits in RSL's account; RSL's administrators brought the matter to court.
The Lender's counsel submitted three main arguments:
This case serves as a timely reminder that the documentation pertaining to a transaction should always be reviewed carefully and holistically. Consistency and clarity of drafting is paramount for certainty and in order to protect the lenders' interests.