BAHR represented Nordic Trustee in the Court of Appeal in a BOD liability case – Thule’s chairman and Thule’s majority owner held liable

The main issue of the case was whether or not the board acted negligently towards Nordic Trustee (NT)/ the bondholders in the capacity as creditor/mortgagee when the board entered into an agreement regarding the sale of all of Thule’s pledged assets on credit to Royal Oyster General Trading LLC (ROG).

The loan and mortgage agreements prohibited sale of the assets, and all loans were due in full. For the general manager the question was whether or not he contributed to the unlawful BOD decision.

In the alternative claim, the question was whether Thule’s management and BOD exposed Nordic Trustee’s/the bondholder’s mortgage to risk by carrying out the credit sales agreements with Royal Oyster, in whole or in part.

The case was heard by the Court of Appeal for five weeks during fall 2017 and the decision was made on 18 January 2018.

In the principal claim, the Court of Appeal held that normally there would not be any negligence unless an action is objectively unjustifiable. The Court of Appeal found that entering into the ROG agreements was a breach of the loan and mortgage agreements, but concluded, under doubt, that it was not objectively unjustifiable to enter into the agreements. The Court of Appeal said that the board was entitled to fight to ensure the company’s future as long as there was a chance for success, and that it was not unrealistic for the board that the bondholders would approve of the agreements, as the most likely alternatives would be bankruptcy or orderly liquidation.

All of the board members and the general manager were acquitted for the principle claim.

Under the alternative claim, the chairman and the majority owner were held joint and severable responsible for USD 11.5 million. The Court found that a release of the mortgaged equipment to ROG was in violation of the loan agreements, as it put the mortgage at risk, and that the chairman and the majority owner acted negligently. The court held that the release of equipment was performed by the board members in their capacity as board members, and thus the general manager was under doubt acquitted for the alternative claim with reference to that he, in fact, had no influence on the decisions made by the board members.

The additional claim against the majority owner for the withdrawal of funds that, according to the loan agreement, should have been channelled to a restricted mortgage account, succeeded. The majority owner was held liable for USD 3,133,464.

The respondents statements regarding NT’s contribution to the loss did not succeed. However, the compensation for loss of equipment was substantially reduced as a consequence of accrued time, uncertainty upon realisation of mortgage in the UAE and other secured creditors precedence.

NT was awarded 25% of NTs costs related to the chairman and the majority owner.

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