Kuits recently acted for a lender against a borrower who had (i) breached a contractual agreement and used monies loaned to it for a specific purpose for other, unauthorised purposes; and (ii) failed to account for charges registered as security in its name ('Charges'), which were held on trust for the lender.
The lender had made a number of enquiries of the borrower further to monies being advanced, however it encountered delays and ultimately silence. The lender became concerned as to whether the borrower would comply with its contractual obligations or alternatively whether it would be able to recover the monies it had loaned (which exceeded £1 million) from the borrower. Further, it received no assurances that the borrower would comply with the trust arrangement agreed between the parties in respect of the Charges (which were valued in excess of £7 million).
It was apparent that in order to protect the lender's position it was necessary in this instance to apply to the court for an order requiring the borrower to provide information relating to the use of the monies loaned and, importantly, an injunction prohibiting the borrower from disposing of, dealing with or diminishing the value of the Charges ('Injunction Application').
Briefly, an injunction is an order granted by a court requiring the party against who the injunction is sought to either do or refrain from doing a specific act. These are known respectively as mandatory or prohibitory injunctions.
In order to obtain an injunction, which in this case was on notice to the borrower, the lender had to prove there was a serious issue to be tried at court (in this case the breach of (i) the loan agreement and (ii) the trust created over the Charges); whether damages would be an adequate remedy and if it was just and convenient to grant an injunction.
Kuits was successful in arguing for the lender that an injunction should be granted and the court made an order in line with the Injunction Application.
This ultimately had the effect of bringing about a swift and very satisfactory outcome for the lender, which could have faced a lengthy court claim to recover the money it had loaned and to secure the Charges.
While not always suitable or indeed appropriate, injunctions can be a vital (albeit not inexpensive) tool in preserving assets and/or funds where there is suspected wrongdoing and a real threat they could be dissipated.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.