• At Kemp Little, we are known for our ability to serve the very particular needs of a large but diverse technology client base. Our hands-on industry know-how makes us a good fit with many of the world's biggest technology and digital media businesses, yet means we are equally relevant to companies with a technology bias, in sectors such as professional services, financial services, retail, travel and healthcare.
  • Kemp Little specialises in the technology and digital media sectors and provides a range of legal services that are crucial to fast-moving, innovative businesses.Our blend of sector awareness, technical excellence and responsiveness, means we are regularly ranked as a leading firm by directories such as Legal 500, Chambers and PLC Which Lawyer. Our practice areas cover a wide range of legal issues and advice.
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  • Our team provides practical and commercial advice founded on years of experience and technical know-how to technology and digital media companies that need to be alert to the rules and regulations of competition law.
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  • Our legal professionals work alongside social media providers and users in relation to the commercial, privacy, data, advertising, intellectual property, employment and corporate issues that arise in this dynamic sector.
  • Our years of working alongside diverse software clients have given us an in-depth understanding of the dynamics of the software marketplace, market practice and alternative negotiating strategies.
  • Working with direct providers of travel services, including aggregators, facilitators and suppliers of transport and technology, our team has developed a unique specialist knowledge of the sector
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  • Kemp Little is trusted by some of the world’s leading luxury brands and some of the most innovative e-commerce retailers changing the face of the industry.
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  • FlightDeck is our portal designed especially with start-up and emerging technology businesses in mind to help you get your business up and running in the right way. We provide a free pack of all the things no-one tells you and things they don’t give away to get you started.

M&A Diligence: does any obligation of good faith extend to making amendments to loan notes?

Although an implied duty to act in good faith has recently found traction in certain contractual cases, the recent case of Myers and another v Kestrel Acquisitions Ltd and others [2015] EWHC 916 serves to highlight its limits.  In the Myers case, the High Court confirmed no term of good faith should be implied into the wide power given to the issuer of loan notes to modify the terms of those notes. 

The facts of the case were that the claimants had sold their shares in a target company to Kestrel Acquisitions Limited (Kestrel) for cash and fixed rate loan notes issued by Kestrel (the Consideration Loan Notes).  To fund the acquisition, a separate set of loan notes, created by a separate instrument (the Investment Loan Notes), had been issued to investors in Kestrel. 

The Consideration Loan Notes allowed Kestrel to “make any modification” to the Consideration Loan Notes if approved by the holders of the Consideration Loan Notes or unilaterally, if the amendment was consistent with changes made to the Investment Loan Notes.  After the issue of the Consideration Loan Notes, certain amendments were made postponing the repayment date by eight years to 2018, and the claimants argued that this went beyond the scope of the permitted modification, was subject to an implied obligation of good faith and should have been made for the benefit of the holders of the Consideration Loan notes and Investment Loan Notes as a whole, taking them together as a single class.

The court disagreed.  The judge was unwilling to imply a duty of good faith for a number of reasons, including that the holders of each type of loan note could not be taken as a single class and so there was no requirement for the majority (the holders of the Investment Loan Notes) to act in the interests of the holders of the Consideration Loan Notes; in fact a clause in the instrument issuing the Consideration Loan Notes requiring Kestrel to treat the holders of the Investment Loan Notes in the same manner as if members of a single class in certain circumstances, implied that they should not be treated as members of the same class in all purposes.

The judge also considered that, taking into account previous case law on the amendment of corporate loan stock instruments: “in each case amendments providing for a sub-ordination of the indebtedness (secured or unsecured) or a postponement of its redemption have been held to be a permissible modification of rights.” 

Whilst we are seeing a line of recent cases where the courts are open to either upholding an express provision to act in good faith (for example, Copass Group UK and Ireland Limited (t/a Medirest) v Mid Essex Hospital Services NHS Trust [2013] All ER (D) 200 (Mar)) or even implying a general duty of good faith (from Yam Seng Pte Limited v International trade Corporation Limited [2013] EWHC 111 to D&G Cars Limited v Essex Police Authority [2015] EWHC 226 – also reported on in this month’s KL Business Bytes), the Myers case shows that the courts are still primarily concerned with upholding the parties’ intentions by looking at the drafting of any document on its face.  

For more information, please contact Andy Moseby, Corporate Partner