Bondholders in Cattles plc have launched an
appeal against a High Court decision which placed their rights
below that of a guarantee provided to Royal Bank of Scotland (RBS)
by Cattles’ subsidiary, Welcome Financial Services Ltd.

The action follows a claim brought by subprime
lender Cattles, seeking guidance on legal issues in connection to
debts which were owed to different types of creditor. The debts in
question were incurred by Cattles, with funds used by its
subsidiaries, including Welcome FS, to provide business and
consumer finance.

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Cattles issued proceedings “in order to clarify a
number of issues in relation to its debt,” said law firm Davies
Arnold Cooper (DAC). Cattles had three main financing liabilities,
DAC said, namely: a credit facility with RBS, underwritten by “a
group cross-guarantee, by which Cattles and Welcome and other
subsidiaries each guaranteed the payment of all obligations owed by
any of them to RBS”; guaranteed unsecured loan notes, guaranteed by
Welcome and other subsidiaries; and two sets of bonds issued by
Cattles, which did not have any kind of guarantee attached to
them.

RBS claimed that its guarantee meant it was
entitled to repayment in full of its facility, before any other
inter-company debts could be settled. The High Court ruled in RBS’s
favour.

“The ruling is significant due to the fact that the
principal asset of Cattles was the repayment of loan monies made to
Welcome, which was estimated to be for the value of $2.9 billion
[£1.9 billion]. The total value of RBS’s debt was estimated to be
in the region of £1.7 billion, which after repayment left virtually
no assets available to fund a payment to bondholders, the total
liability of which is thought to be in the region of £750 million,”
DAC explained.

One bondholder subsequently launched an appeal on
behalf of all other creditors in the same position, with the
intention of taking the appeal to the Supreme Court, if
necessary.

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