Lender’s right to refuse consent to a borrower’s proposed refinancing

The High Court has considered whether a lender is entitled to refuse consent to a borrower’s proposed refinancing. The High Court’s judgment in MacDonald Botley Park Limited v Bank of Scotland Plc was published on 24 January 2025.

The judgment will be a reassurance to lenders as the High Court was clear that a lender maintains freedom to refuse consent provided the lender reasonably considers that a refusal is in their commercial best interests.

Despite the judgment in favour of the lender, there may be room for future decisions to be decided differently. This is because the High Court also said the lender would not be entitled to refuse consent “for reasons unconnected with the lender’s commercial best interests when no reasonable entity in the position of [the lender] could have refused consent”.

The facts

• Bank of Scotland Plc (the lender) granted loan facilities to MacDonald Hotels Limited (the borrower) under two secured loan facility agreements (the facility agreements)
• The facility agreements included provisions which prevented the borrower from disposing of its assets without the lender’s written consent
• The borrower sought to refinance the facility agreements and pay off debt owed to the lender earlier than intended under the facility agreements, and as part of its plan to do this, it intended to enter into security arrangements with another lender. The lender refused its consent to these arrangements
• As a result of the lender refusing its consent, the borrower was forced to sell off some of its properties to service the debt owed to the lender under the facility agreements
• The borrower claimed that the lender acted in breach of a duty to act in good faith, and that it was pressured to sell its properties to reduce its debt
• The lender maintained that it had an unqualified right to refuse its consent and there were no implied terms in the facility agreements requiring the lender to act in good faith.

The decision

The High Court concluded that whilst a term should be implied into the facility agreements to the effect that the lender was not entitled to refuse consent “for a reason or reasons unconnected with what it perceived to be its own commercial best interests or … when no reasonable entity in the position of [the lender] could have refused consent”, the lender had not been in breach of the implied term in this case.

Allowing the borrower to enter into a security agreement with a different lender to refinance the facility agreements could prejudice the lender’s commercial position. The lender was therefore entitled to refuse consent to a refinancing and thereby hold the borrower to the facility agreements.

The Court’s ruling may be subject to appeal.

It is worth noting that the facility agreements in this case were bespoke and were not standard form documents. Furthermore, the facility agreements included what would otherwise be an unqualified prohibition on the borrower’s disposal, save that disposal could be permitted with the consent of the lender. Had the facility agreements been drafted differently, the case may have been decided differently.

The implications

This decision is interesting for lenders and borrowers alike. For borrowers, a reminder that they will not necessarily be able to refinance themselves out of a facility agreement which they are committed to. For lenders, a decision in their favour, but a reminder to document the commercial interests motivating a decision to refuse consents applied for, and to consider whether doing so would be a “reasonable” approach that would be shared with other lenders in their shoes, as the High Court did imply some requirement on the side of the lender to act reasonably when considering the borrower’s application. Commenting on why an implied term had been found by the Court, His Honour Judge Kelling KC said “excluding such a term in all circumstances would risk unfairness and injustice for those who may not be as strong or well-resourced as the parties in this case.”

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