RX101: Assénagon Revisited: The Abuse Principle in Hunkemoller and Hurtigruten LME Challenges

Legal Analysis: Shan Qureshi

European liability management exercises, or LMEs, have now moved beyond questions of whether aggressive transactions can be done. The question now is: Can they be effectively challenged and if so, how?

The Hunkemoller LME in 2024 is one of the key cases to bring that question into sharp legal focus. The dispute centers on an uptier followed by a distressed disposal, an increasingly familiar LME playbook now being tested in the courts.

The challenge marks an attempt by minority creditors to reframe the transaction as something more fundamental: A misuse of contractual power within the intercreditor agreement as an abuse of power by majority lenders against a minority, which has longstanding case law protections under English Law.

Similar arguments are set to be tested in the English courts in Hurtigruten’s LME challenge. Together, they suggest an effort by challenging creditors to establish limits on how control positions are deployed under English-law intercreditor agreements, or ICAs.

At the center of both sits the precedent most recently confirmed in the Assénagon case, which is that majority creditor powers must not coerce minorities or expropriate value; improper purpose or bad faith renders restructuring decisions invalid under English law.

Could this precedent be the equitable hook to challenge aggressive LMEs?

Key Takeaways

• The Assénagon abuse principle (English law) is now being actively deployed as a challenge by creditors who dispute ICA-driven enforcement outcomes as part of LMEs.
   
• The principle provides that majority creditor powers should not be used to coerce minorities or expropriate value; improper purpose or bad faith renders restructuring decisions invalid under English law.
   
• In Hunkemoller, claimants argue the LME formed part of entire transaction that was a pre-arranged value extraction strategy, not a bona fide enforcement under the ICA.
   
• Hurtigruten shows the same arguments emerging even where creditors are not wiped out, but selectively advantaged.
   
• It is as yet unclear whether the English court will allow the abuse principle to be extended and applied to the exercise of contractual rights under a heavily negotiated and mutually agreed document (the ICA).
   
• A further real issue is whether majority creditors can engineer outcomes through control of process prescribed in an ICA, rather than merely exercise their contractual rights.

This RX101 sets out the abuse principles in the Assénagon case and seeks to explore how the precedent may apply to the English law aspects of the LME challenges launched in Hunkemoller and Hurtigruten.

The Abuse Principle

The abuse principle is of longstanding and ancient origin. The judge in Assenagon traced it back to the law code of the Byzantine Emperor Justitian in the 6th century and noted that it has featured in English cases since the mid 19th century. But the most authoritative source for the basic principle comes from one paragraph in the 1927 British American Nickel case (British America Nickel Corporation Ltd. v. O’Brien AC 369). It provides that the power given must be exercised for the purpose of benefiting the class as a whole and not merely individual members:

“They must be exercised subject to a general principle, which is applicable to all authorities conferred on majorities of classes enabling them to bind minorities; namely, that the power given must be exercised for the purpose of benefiting the class as a whole, and not merely individual members only. Subject to this, the power may be unrestricted.”

The starting point is that the exercise of a contractual power is unrestricted, but that the power should not be abused. In the century since then, English courts have attempted to flesh out the objective content of the principle. For example, should the exercise of the power be bona fide in the best interests of the class as a whole? The trouble with this test is that in almost all cases some members of the class are going to be worse off than others because of the exercise of the contractual power.

What about a test focusing on the “hypothetical reasonable” member of the class concerned? The issue with this test is that it could be seen to be intellectual cover for the court deciding what it liked.

The modern and current approach is found in the case of Redwood (Redwood Master Fund Ltd v. TD Bank Europe Ltd [2002] EWHC 2703). In Redwood, the judge looked at the principle in British American Nickel and found that it’s really a test of bad faith.

Assénagon

In Assénagon Asset Management SA v Irish Bank Resolution Corporation Ltd [2012] EWHC 2090(Assénagon) the English court confronted the outer limits of majority creditor power in the context of exit consents, and in doing so gave modern force to the abuse principle in a restructuring setting. An exit consent is a mechanism used in bond restructurings where holders who agree to exchange their bonds into new instruments simultaneously vote to strip protective covenants from the old bonds, making holdout positions economically unattractive.

An exchange transaction was structured in the case such that consenting bondholders were offered enhanced recoveries, while dissenting creditors faced redemption at a nominal value, creating a stark asymmetry in outcomes. The court’s focus was not simply on the differential treatment, but on the mechanism by which consent was procured.

By engineering a scenario in which voting against the proposal would leave holders “taken out for very little,” the majority deployed its power as a tool of coercion rather than collective value maximization.

As described in a recent Octus webinar, this dynamic resembles a “Prisoner’s Dilemma,” where rational creditors are driven to support a transaction not because it is substantively fair, but because the downside of dissent is deliberately punitive.

It was this coercive intent directed at the minority that proved fatal. The court held that the power to amend bond terms could not be exercised to expropriate value from a dissenting minority under the guise of majority approval, and that such use of exit consents constituted an abusive exercise of contractual rights.

In that sense, Assénagon stands as a clear warning that, while English law affords significant flexibility to majority lenders, that flexibility has limits: Where the structure of a transaction is designed to compel agreement through economic duress rather than reflect a bona fide restructuring of the creditor class as a whole, it risks being struck down as invalid.

The challenge therefore reframes what appears to be a mechanically compliant ICA enforcement as, in substance, a coordinated value transfer engineered through control of the instructing group.

Could the precedent in Assénagon be the Achilles heel to aggressive LME challenges in the context of ICAs?

While Assénagon provides a doctrinal hook to challenging creditors, its application to ICAs is so far uncertain and faces significant contractual and structural hurdles. The central question is whether Assénagon’s abuse principle can meaningfully constrain a heavily negotiated and agreed intercreditor framework, or whether it is confined to bondholder amendment mechanics.

The difficulty for claimants is that Assénagon was concerned with the use of majority voting powers to amend bond terms, not with the exercise of enforcement rights under a negotiated intercreditor framework. In the LME context, majority creditors are not merely voting, they are deploying structural control mechanisms expressly contemplated by the documentation.

The question is therefore not whether the outcome of such deployment is harsh, but whether the court is willing to impose or imply an equitable constraint on a framework designed to permit precisely that outcome.

Why Assénagon Is Not a Perfect Fit for Challenge

Assénagon arose in a specific and narrow context: A majority of bondholders deploying exit consent mechanics to coerce dissenting minorities into accepting an exchange, with holdouts facing redemption at near-zero value. The English court struck it down because the voting power was being used not to advance a collective restructuring but to deliberately punish dissent.

The two LME cases discussed below are structurally different in two important respects.

First, Assénagon was about majority voting on bond amendments, a decision-making process applied across a single creditor class, contained in a consent solicitation negotiated by majority lenders and the debtor. Hunkemoller and Hurtigruten involve the exercise of enforcement rights under a negotiated intercreditor agreement, a framework that expressly allocates control to an instructing group and contemplates precisely the kind of distressed disposal now being challenged. The minorities agreed to that framework at inception.

Second, the ICA is not a bond indenture. It is a heavily negotiated commercial document between sophisticated parties with counsel, designed to govern enforcement priority and process. Importing an equitable override into that framework is a materially harder argument than applying it to standardised bond mechanics.

The challenging creditors are therefore not applying Assénagon directly; they are asking the court to extend it into territory it has never previously occupied. That extension is the real legal question both cases will turn on.

Hunkemoller Uptier Transaction and Grounds for Challenge

Transaction Overview

In June 2024, Hunkemoller completed a controversial non-pro-rata uptier transaction involving its €272.5 million 9% senior secured notes due 2027. Redwood Capital, holding €186 million of these notes, provided a €50 million super senior loan to the company. In exchange, Redwood elevated its portion of the notes by exchanging them into priority “first-out” secured notes, ranking ahead of the remaining €86.5 million bonds held by minority noteholders.

The transaction effectively subordinated the minority noteholders’ previously pari passu debt behind new senior debt held exclusively by Redwood, without offering them the opportunity to participate.
In March 2025, a Redwood entity took control of the Hunkemoller group by instructing the senior debt trustee (TMF Trustee Ltd.) to enforce a newly created Luxembourg share pledge over the operating company after an unspecified event of default. Relying on an equity valuation of zero provided by Grant Thornton, Redwood’s bidco acquired the group for €0 but paid €86.7 million to the trustee as consideration for transferring unspecified liabilities.

The Instructing Group Mechanism

The English-law intercreditor agreement contained distressed disposal provisions that allowed the “instructing group” to enforce security upon an event of default. Based on market-standard intercreditor agreement structures, the instructing group typically comprises creditors holding more than 66.67% of aggregate super senior commitments and creditors holding more than 50% of the outstanding principal amount of senior secured notes.

Under the ICA, the instructing group must comprise both the super majority super senior creditors and the majority senior secured creditors. Redwood, having elevated €186 million of its €272.5 million senior secured notes into priority “first-out” secured notes in June 2024, held sufficient voting power to constitute the instructing group.. The transaction was effectively implemented with only the votes of Redwood, using the uptiered notes from the June 2024 transaction for voting purposes.

Execution of the Distressed Disposal

After an unspecified event of default, the “Instructing Group” instructed the security agent TMF Trustee Ltd. to enforce the LuxCo 2 share pledge on March 21, 2025. A continuing event of default allowed acceleration of the notes and made the transaction security enforceable, meeting the requirement for a distressed disposal to be undertaken by the instructing group.

Under the ICA’s distressed disposal provisions (sometimes called an “ICA drag”), the security agent enforced the newly created Luxembourg share pledge over the operating company (Hunkemoller International, formerly named Shero Bidco BV). Distressed disposals under English-law intercreditor agreements typically operate through either enforcing a share pledge through a single enforcement mechanism that transfers shares to new owners, or shifting the holding company’s center of main interests and appointing administrators who immediately sell shares to new owners.

English Legal Challenges and Grounds

Challenges are taking place in the Netherlands, New York courts and English courts – for the purposes of the English law Assénagon principle we focus on the English law challenge.

In October 2025, the ad hoc group filed a claim in London’s High Court against Hunkemoller and security agent TMF Trustee Ltd., challenging the March 2025 acquisition of the group by Redwood Capital. This is one of the first tests of the abuse principle provided in Assénagon in English law (intended to prevent minority creditor oppression) since the arrival of aggressive U.S.-style LMEs in Europe.

Grounds for the English Challenge:

1. No Valid Instruction to Security Agent: The ad hoc group contends that Redwood’s elevated notes from the June 2024 uptiering transaction are not valid and therefore cannot be relied upon to instruct the security agent as part of the distressed disposal. The indenture and intercreditor agreement stipulate that notes owned by any person directly or indirectly controlling the Issuer will be disregarded and deemed not to be outstanding. The claimants believe that since at least the date of the uptiering, Redwood has been controlling Hunkemoller.

Additionally, Redwood’s instructions to the security agent are alleged to be invalid because they were not exercised bona fide and in the best interests of the class of senior secured noteholders as a whole, but rather were exercised in bad faith and for a collateral purpose, namely to improperly acquire the value in the group for the benefit of Redwood alone.

2. Breach of Enforcement Principles: The intercreditor agreement requires the security agent to effect a distressed disposal in a manner that takes reasonable care to obtain the best price reasonably obtainable. The claimants argue that TMF was not entitled to rely on a valuation report by Grant Thornton, which found the company’s shares to be worthless. There is also “no rational justification” for the transfer of the company to the Redwood bidco for the purported market value of €86.7 million.

The 2012 Assénagon case is cited as the most recent authority for the equitable abuse principle.

3. Failure to Comply With Notice and Consultation Provisions: The intercreditor agreement sets out various notice and consultation provisions designed to protect minority creditors. TMF allegedly failed to comply with these provisions, thereby depriving the ad hoc group of any ability to challenge the transaction.
In their letter before action, the challenging creditors cite the Assénagon case, explaining:

“Further and alternatively (and without prejudice to our clients’ other claims), any instructions provided by Redwood (as Senior Secured Creditor) are invalid and ineffective on the basis that they were not exercised bona fide and in the best interests of the class of Senior Secured Noteholders as a whole, but rather were exercised in bad faith and for a collateral purpose, namely to improperly acquire the value in the Group for the benefit of Redwood alone and to the detriment and harm of other creditors of the Group.”
TMF’s Defense

In a defense filed Dec. 12, 2025, TMF argues that the English litigation is “parasitic” on claims that the June 2024 uptiering transaction is invalid as a matter of New York law. TMF denies receiving invalid enforcement instructions or that these instructions were abusive or improper. TMF maintains that the enforcement instructions received on March 21, 2025, were valid, and that it was entitled to rely on and obliged to act on those instructions. TMF also states it had no knowledge of any purported defects in the enforcement instructions.

TMF denies that the ICA contained any express or implied term equivalent to the Assénagon principle. TMF argues that such an implied term is inconsistent with the express terms of the ICA, not necessary to give business efficacy to the ICA, and not so obvious as to go without saying.

Hurtigruten Group AS’ ICA-Drag Restructuring Challenge

The Assénagon abuse principle is central to Deutsche Bank and Oaktree’s legal challenge against Hurtigruten Group AS’ February 2025 restructuring.

Unlike Hunkemoller, in this LME, the minority is not wiped out, but the same allegation persists: that control of the ICA process has been used to allocate value selectively rather than collectively.

The Restructuring Mechanics

Hurtigruten’s February 2025 LME formed part of a broader recapitalization that overhauled the group’s debt and structure. Existing bond obligations were largely released at the group level, with a new package comprising reinstated bonds, €100 million of junior senior secured notes, and a €40 million cross-funding facility. A revised security framework placed key collateral on a shared (pari passu) basis across these instruments, governed by an intercreditor waterfall.

The deal was originally intended to be implemented consensually under the ICA, requiring 95% by value of the old facility B lenders to approve it. However, by December 2024, 12% of the old facility B lenders, including a €45 million stake held by Deutsche Bank and Oaktree, voted against the proposal, blocking the ad hoc group’s intentions. The ad hoc group, which held between 75% and 80% of the B debt, then implemented the deal as a distressed disposal, requiring only a majority to instruct the security agent.

Disproportionate Value Distribution

The claimants argue that the ad hoc group received a disproportionately far greater share of the restructuring benefits than nonconsenting members. The deal proposed cancellation of the entire old facility B debt in return for an opportunity to lend new debt, a slice of a small 2.5% equity share worth approximately €4.7 million in one Hurtigruten company, and a share in a further 45% of this equity if lenders consented to the restructuring and/or provided new money.

If an existing lender did not participate in providing new money, its debt was cancelled and it obtained a share of the 2.5% equity. Meanwhile, the remaining equity was allocated to the ad hoc group and participants in new lending.

Based on post-implementation trading levels, the claimants estimate the value of the core Norwegian coastal business Hurtigruten, or HRN’s, equity at €187.5 million to €262.5 million, and its high-end Hurtigruten Expeditions, or HX, cruise business at €50 million to €60 million. The ad hoc group received various fees payable in equity with indicative values ranging from €9.4 million to €63.5 million.

Legal Basis of the Challenge

Deutsche Bank, Oaktree and CLO accounts managed by Oaktree from the Arbour CLO are arguing that the exercise by the majority of Hurtigruten’s €345 million “Old Facility B” lenders of the power to instruct Kroll (as security agent) to dispose of the relevant debt under the intercreditor agreement was abusive. They contend it was not exercised bona fide in the interests of the class as a whole, but for the benefit or in preference to the private interests of an ad hoc group of lenders.

The Assénagon case is the most recent authority for the equitable abuse principle in English law that the prospective claimants would seek to rely on. The challenging creditor’s skeleton argument sets out that:

“The abuse of majority power principle has been held to be a “general principle[] of law and equity” (Allen v Gold Reefs of West Africa [1900] 1 Ch 656 at 671), and alternatively a term implied according to contractual principles (Redwood at [92]; Assenagon Asset Management SA v Irish Bank Resolution Corporation Ltd [2012] EWHC 2090 (Ch) at [46]). A purported exercise of a contractual power in breach of the abuse of majority power principle is invalid and void.”
Court Recognition and Next Steps

Justice Fancourt has granted Oaktree’s and Deutsche Bank’s application for pre-action disclosure in full in January 2026, recognizing the need to identify the members of the ad hoc group and any crossholdings.
In its claim, Deutsche Bank and Oaktree will seek declarations from the English High Court that the enforcement instruction to Kroll was invalid, and so the exercise of the powers by Kroll to sell the debt was invalid, as well as other consequential relief to be determined.