Vol 20 (2023) - Issue 2

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Enforcement via Self-Help Remedy of Appropriation Upheld by English Court, Notwithstanding Valuation Dispute

Synopsis
In the first case to consider what is required to make a valuation 'in a commercially reasonable manner' for the purposes of exercising the self-help enforcement remedy of appropriation under English law, the court upheld the collateral-taker's appropriation in full.
In doing so, it rejected the collateral-provider's case that the requisite valuation of the collateral was not conducted in a commercially reasonable manner (as is required by the relevant legislation).
The court held that there is no separate and independent requirement for a collateral-taker exercising the remedy of appropriation to act in good faith. The statutory requirement in exercising the remedy of appropriation is simply that the valuation must be made in accordance with the terms of the arrangement and in any event in a commercially reasonable manner – 'no more, no less'.
This imports an objective standard. The collateraltaker is not permitted to act in an arbitrary or unreasonable method in choosing the method of valuation. The question of what is commercially reasonable in any given case is of course fact-sensitive.
Even if the valuation had not been conducted in a commercially reasonable manner, it would not have been void from the beginning, the court held. Instead, the primary remedy would have been for the court to set aside the valuation, to substitute a compliant one, and to make any necessary consequential orders.
Cases on appropriation are rare, but the valuation issues raised in this case may apply more broadly. In a precursor of the approach we anticipate the English court is likely to adopt in future restructuring cases involving valuation disputes (including restructuring plans), the parties' valuation experts were directed to meet and produce a joint memorandum setting out the matters on which they were agreed and those about which they did not agree.