Key takeaways
The decision is one of the first English rulings to emerge from the wave of cross-border disputes generated by LMEs and from the use of the “distressed disposal” mechanism in English-law governed intercreditor agreements (ICAs) to produce non-pro rata outcomes, which also include Selecta and Hurtigruten2.
This decision highlights the limitations on pursuit of a multi-jurisdictional litigation strategy challenging cross border restructurings. The sequencing and formulation of claims in different jurisdictions will need to be considered carefully when commencing a litigation strategy looking to challenge complex cross-border LMEs.
The decision also highlights the need for noteholders carefully to assess the effect of jurisdiction agreements in contractual documentation, to understand whether the benefit of such terms is limited only to the “registered” holder of such notes and does not create rights on the part of the ultimate beneficial holders of such notes.
Background
Hunkemöller is a Netherlands-based lingerie retailer. In light of increasing financial difficulties, in 2024 Redwood Capital (who held a majority position in the group’s New York law governed 2022 senior secured notes (SSNs)) agreed to provide a EUR50 million super senior new money term loan (SSTL) in exchange for an “uptiering” of its holdings in the 2022 SSNs. Redwood’s holdings of 2022 SSNs were exchanged for new 2024 SSNs ranking ahead of the residual 2022 SSNs.
In 2025 Hunkemöller defaulted on several payments due under certain of its facilities. This gave rise to an event of default for the purposes of the English law governed ICA to which the SSTL, the 2024 SSNs and remaining 2022 SSNs were subject.
Acting on Redwood’s instructions, the ICA security agent enforced a Luxembourg pledge over the shares in a group holding company and transferred the shares and the group’s super senior and senior secured liabilities to a Redwood SPV. Pursuant to a fairness opinion obtained from the security agent’s financial advisers, the consideration derived from the enforcement was “fair” and represented “the best price reasonably obtainable having regard to the prevailing market conditions.”
Shortly following the completion of this transaction (which constituted a “distressed disposal” for the purposes of the ICA), the 2022 SSNs were cancelled.
In November 2024, an ad hoc group of holders of the 2022 SSNs filed suit in New York challenging the 2024 uptier (the New York Proceedings), alleging (amongst other things) that the transaction breached a number of provisions in the 2022 SSN indenture (the Indenture).
Following the 2025 enforcement, the ad hoc group also issued proceedings against the company and the ICA security agent in the English High Court (the English Proceedings) arguing that the enforcement was invalid and ineffective on the basis that:
- the security agent had not been validly instructed to enforce per the terms of the ICA because the uptiered notes are not valid meaning that Redwood did not hold the necessary interest to instruct (the Uptiering Claim), and/or
- Redwood had not acted in good faith in the interests of the 2022 SSN holders as a whole, but in a manner that was oppressive or otherwise unfair to the other 2022 SSN holders (the Assenagon Claim)—a claim depending on the implication of a term applicable when the majority of a class is exercising its powers to bind a minority, as previously articulated by the English High Court in Assenagon3 in 2012.
In addition to the New York and English Proceedings, the ad hoc group commenced pre-litigation discovery proceedings before the Dutch Courts, seeking an order for disclosure of documents as well as a preliminary examination of witnesses. The application was brought in support of an alleged Dutch tort claim against the directors, on the basis that their cooperation in the uptier transaction and subsequent distressed disposal constituted unlawful conduct.
In January 2026, the Amsterdam District Court dismissed the application on substantive grounds, finding inter alia that alleged wrongdoing attributable to the directors had been insufficiently specified and the requests were premature and speculative in nature. The ad hoc group have filed an appeal against this decision.
Decision to stay the English Proceedings
The English Court has power to stay proceedings on case management grounds where it is “the interests of justice” that it does so. Leech J considered whether to stay the two claims advanced by the AHG.
The Uptiering Claim
Leech J found that the Uptiering Claim required the court to determine whether the uptier breached the Indenture: the same issues that are live in the New York Proceedings.
He concluded that there was a real risk that the English and New York courts would issue inconsistent judgments and this was a strong reason to grant a case management stay of the Uptiering Claim. He cited, too, the general desirability of issues being decided by the court whose law applies (New York in relation to the Indenture) and the fact that the New York Proceedings are significantly more advanced than the English ones as well as the saving of time and cost.
The Assenagon Claim
Leech J acknowledged that the Assenagon Claim would have to be determined by the English court regardless of whether the ad hoc group were successful in the New York Proceedings or not.
However, he considered that it would not be possible to separate the two claims given their close relationship. In particular, the Assenagon Claim would involve consideration of whether the 2022 SSNs were “out of the money” at the time of enforcement, which is linked to the question of validity of the up tiering—to be determined in the New York Proceedings.
Interestingly, Leech J went on to say that were the English court to determine that the 2022 SSNs were indeed out of the money at the time of the enforcement, it was unlikely that the court would then find that the security agent knew that Redwood had committed a breach of the Assenagon principle, let alone that it had colluded or participated in such breach.
Exclusive jurisdiction clause in the ICA
The ad hoc group relied heavily on the ICA’s exclusive jurisdiction clause in favor of English law and the English courts as a strong reason for refusing a stay. However, the English court noted that the definition of “Senior Secured Noteholder” in the ICA was limited to the “registered holder… of Senior Secured Notes.”
In a typical structure where securities are held and traded via a clearing system, the relevant instrument itself is usually held by a custodian who in turn holds it for the clearing system, which maintains accounts for members to hold and deal in interests for themselves as principal or to the order of clients (those with the ultimate “beneficial” interest in the security). Each party in the structure has rights only against their own direct counterparty (the “no look through” principle).
As such, and in light of the terms of the ICA, the ad hoc group (with only beneficial interest in the 2022 SSNs) did not enjoy the benefit of the ICA exclusive jurisdiction clause.
Whilst Leech J acknowledged that the ad hoc group nevertheless were entitled to bring proceedings in England for negative declarations as to the conduct of Redwood and the security agent, he did not believe that this entitlement outweighed the risk of inconsistent judgments if the stay were not granted.
Prejudice of a stay to the ad hoc group?
The court is required to consider the balance of prejudice in granting or refusing a stay application. Leech J accepted that the litigation generally would cause prejudice as the ad hoc group could not enforce their rights in the meantime, and that this might be “particularly acute” where any relevant funds are reaching their end of life.
However, he noted that the ad hoc group commenced the litigations “in the knowledge that it would take years to determine each claim,” therefore some prejudice of this nature would be inevitable.
Footnotes
1. [2026] EWHC 2091 (Ch)
2. Earlier this year, the English court ordered the security agent and trustee under an ICA relating to lending to the Hurtigruten group to give pre action disclosure to dissenting creditors in relation to Hurtigruten’s 2025 distressed disposal and restructuring transaction—The Parties Listed at Schedule 1 to the N244 v. Kroll Trustee Services [2026] EWHC 216 (Ch).
3. Assénagon Asset Management SA v. Irish Bank Resolution Corporation Ltd [2012] EWHC 2090 (Ch).
