A Transatlantic Test Case for Liability Management: Hunkemöller Bondholders Challenge Distressed Disposal in the English High Court
February 2026
Following a period of slower adoption driven by factors such as more stringent directors’ duties and a smaller, more relationship-driven market that places a premium on reputational considerations, 2025 saw a marked increase in the use of aggressive U.S.-style liability management strategies in Europe. This evolution is characterized by a hybridization of traditional U.S. liability management transaction structures with European documentation standards and implementation frameworks.
One technique that has been deployed across a number of recent transactions (including the liability management transactions relating to European lingerie retailer Hunkemöller and Dutch vending machine operator Selecta) is the use of distressed disposal mechanics in English law intercreditor agreements (ICAs) to enable the relevant contractual majority (most commonly a simple majority or, in some cases, a two-thirds majority) of the relevant creditor group to drive the implementation of a non-consensual transaction.
Following a period of slower adoption driven by factors such as more stringent directors’ duties and a smaller, more relationship-driven market that places a premium on reputational considerations, 2025 saw a marked increase in the use of aggressive U.S.-style liability management strategies in Europe. This evolution is characterized by a hybridization of traditional U.S. liability management transaction structures with European documentation standards and implementation frameworks.
One technique that has been deployed across a number of recent transactions (including the liability management transactions relating to European lingerie retailer Hunkemöller and Dutch vending machine operator Selecta) is the use of distressed disposal mechanics in English law intercreditor agreements (ICAs) to enable the relevant contractual majority (most commonly a simple majority or, in some cases, a two-thirds majority) of the relevant creditor group to drive the implementation of a non-consensual transaction.
Redwood Capital Management
and Hunkemöller
In Hunkemöller, this mechanism effected a transfer of the shares in Hunkemöller and the secured claims against it to one of the super senior creditors, neutralizing the claims of the pre-transfer secured creditors. In Selecta, it was used to implement a more comprehensive balance sheet restructuring involving the rightsizing of liabilities, the injection of new money, a partial debt-to-equity conversion, and an adjustment of the priorities and contractual rights of existing creditor groups. Each of these transactions involved restructuring debt instruments governed by New York law.
Both transactions are being challenged in New York on grounds similar to those seen in previous cases. However, the Hunkemöller transaction has also been challenged in England, marking the first time that such a transaction has been challenged in English courts since the rise in popularity of liability management transactions.
In Hunkemöller, this mechanism effected a transfer of the shares in Hunkemöller and the secured claims against it to one of the super senior creditors, neutralizing the claims of the pre-transfer secured creditors. In Selecta, it was used to implement a more comprehensive balance sheet restructuring involving the rightsizing of liabilities, the injection of new money, a partial debt-to-equity conversion, and an adjustment of the priorities and contractual rights of existing creditor groups. Each of these transactions involved restructuring debt instruments governed by New York law.
Both transactions are being challenged in New York on grounds similar to those seen in previous cases. However, the Hunkemöller transaction has also been challenged in England, marking the first time that such a transaction has been challenged in English courts since the rise in popularity of liability management transactions.
Redwood Capital Management
and Hunkemöller
Among the grounds for challenge advanced by the claimants is the argument that Redwood, the creditor instructing enforcement (as the holder of a majority of the super senior and senior secured claims against Hunkemöller), acted in a manner that was oppressive and/or otherwise unfair to the minority senior secured creditors, and failed to exercise its powers bona fide in the interests of the class of senior secured creditors as a whole, in contravention of the so-called “abuse principle.”
The abuse principle is an established proposition of English law that where a majority is empowered to bind a minority, that power must be exercised in good faith for the benefit of the class as a whole.
While the abuse principle is frequently cited as a constraint on aggressive liability management transactions involving English law-governed debt instruments, the current state of the law leaves significant uncertainty as to both the scope of the principle and the circumstances in which it may be contravened. Further judicial consideration of the principle by the English High Court would therefore be a welcome development, offering much-needed clarity to market participants.
Below, we examine the structure of the Hunkemöller transaction and delve deeper into the contention that Redwood’s enforcement instructions breached the abuse principle.
The Transaction
The Uptiering
In June 2024, Hunkemöller obtained a €50mn super senior term loan from Redwood and, at the same time, exchanged €186mn of its senior secured notes (which were subsequently cancelled) for new priority “first-out” senior secured notes ranking ahead of the remaining €86.5mn of senior secured notes held by other creditors, including the claimants. The first out notes were issued by supplementing the indenture under which the senior secured notes were issued.
The uptiering transaction was subsequently challenged in the Supreme Court of the State of New York in November 2024 (the New York Proceedings) where it was argued that the issuance of the new first-out senior secured notes was invalid. The New York Proceedings remain ongoing in parallel with the English proceedings.
Introduction and Enforcement of the Share Pledge
Subsequently, Redwood provided further funding to Hunkemöller through unsecured interim facilities, which was conditional upon a double LuxCo structure being inserted above Hunkemöller and a share pledge being granted in favor of the secured lenders.
In March 2025, following an event of default and pursuant to the distressed disposal provisions in the English law ICA, Redwood instructed the security agent (Agent), to enforce this share pledge and effect a disposal of (a) the shares in the Hunkemöller Group, and (b) secured debt claims against the Hunkemöller Group to a BidCo controlled by Redwood. It is alleged by the claimants that the Agent knew that the interim facilities were insufficient to meet payment obligations imminently due and were structured to allow the defaults to arise.
Under the ICA, an “Instructing Group”, being super senior creditors holding more than 66.66% of super senior credit participations and senior secured creditors holding more than 50% of senior secured credit participations (in each case acting through its respective creditor representative), was entitled to instruct the Agent.
At the time, Redwood held €83.1mn (84.5%) of the super senior liabilities (comprising liabilities under the RCF and the super senior term loan), and €253.3mn (74.5%) of the senior secured credit participations (comprised of the bridge facilities and the senior secured notes), with the remaining senior debt comprising the €86.5mn of senior secured notes held by creditors including the claimants.
Although not a focus of this article, the claimants also contend that at the time of the enforcement action, Redwood did not hold a majority of the super senior credit participations because the original senior secured notes it held had been cancelled and the first-out senior secured notes issued to it were not validly issued.
The enforcement action was supported by a valuation report and fairness opinion prepared by financial advisors engaged by the Agent. The valuation report valued the shares of the Hunkemöller group at zero because the value of the group was insufficient to repay the debts owed to creditors and valued the secured debt transferred at €58.9mn. The fairness opinion provided that:
- the distressed disposal was the most optimal method of enforcement to maximize the recovery of any enforcement action and achieve the Security Enforcement Principles in the ICA which the enforcement instructions were required to comply with; and
- the proceeds to be received from the distressed disposal were fair (taking into account all relevant circumstances) and represented the best price reasonably obtainable having regard to prevailing market conditions.
Redwood paid €86.7mn to the Agent for the secured debt claims (and zero for the shares) which were transferred to it. This amount was less than the debt owed to the super senior creditors (approximately €98.4mn in aggregate). Pursuant to an agreement by the super senior creditors to cap their recoveries at €85,000,001, €1.7mn was made available for distribution to senior secured creditors. Under the indenture, Redwood, as the sole holder of priority first-out secured notes, was wholly entitled to this amount. The claimants did not receive any return.
Proceedings in the English High Court
In October 2025, minority noteholders issued proceedings against Hunkemöller and the Agent in the English High Court, seeking declarations that the enforcement of the share pledge was invalid and ineffective. They are seeking to unwind the enforcement and restore their claims as holders of the senior secured notes.
They seek relief on the following grounds: the giving of the enforcement instructions involved a contravention of the abuse principle; the “Instructing Group” was not properly constituted, rendering the enforcement instructions to the Agent invalid1; and the Agent had actual notice or blind eye knowledge that the enforcement instructions were invalid or ineffective.
In a defence and counterclaim filed on 12 December 2025, Hunkemöller and the Agent have denied these claims. The claimants have subsequently filed a reply and defense to the counterclaim, rejecting key elements of Hunkemöller’s counterclaim. In this article, we examine the first ground of challenge outlined above in greater detail.
Proceedings in the English High Court
In October 2025, minority noteholders issued proceedings against Hunkemöller and the Agent in the English High Court, seeking declarations that the enforcement of the share pledge was invalid and ineffective. They are seeking to unwind the enforcement and restore their claims as holders of the senior secured notes.
They seek relief on the following grounds: the giving of the enforcement instructions involved a contravention of the abuse principle; the “Instructing Group” was not properly constituted, rendering the enforcement instructions to the Agent invalid1; and the Agent had actual notice or blind eye knowledge that the enforcement instructions were invalid or ineffective.
In a defence and counterclaim filed on 12 December 2025, Hunkemöller and the Agent have denied these claims. The claimants have subsequently filed a reply and defense to the counterclaim, rejecting key elements of Hunkemöller’s counterclaim. In this article, we examine the first ground of challenge outlined above in greater detail.
The Abuse Principle
In the context of liability management transactions, the abuse principle was most notably applied in the 2012 case of Assenagon Asset Management SA v Irish Bank Resolution Corp Ltd2, where the Court held unlawful an exchange offer under which participating noteholders received €0.20 of new notes for every €1 of existing notes tendered, conditional upon voting in favor of an extraordinary resolution that granted the issuer the right to redeem all remaining notes at a rate of €0.01 per €1,000 of face value.
His Honor Justice Briggs considered that a general and enduring expression of the principle was that a resolution would be liable to be impeached if the effect of it was to discriminate between the majority and the minority so as to give to the former an advantage of which the latter were deprived3.
Ultimately, the question considered by his Honor was a narrow one: whether it can be lawful for the majority to aid the coercion of a minority by voting for a resolution which expropriates the minority’s rights under their notes for nominal consideration.
His Honor considered that the sole purpose of the resolution in that case was to coerce the minority into accepting the exchange offer and concluded that this form of coercion was entirely at variance with the purposes for which majorities in a class are given power to bind minorities. The oppression of a minority is precisely what principles restraining the abusive exercise of powers to bind minorities are designed to prevent.
The Abuse Principle
In the context of liability management transactions, the abuse principle was most notably applied in the 2012 case of Assenagon Asset Management SA v Irish Bank Resolution Corp Ltd2, where the Court held unlawful an exchange offer under which participating noteholders received €0.20 of new notes for every €1 of existing notes tendered, conditional upon voting in favor of an extraordinary resolution that granted the issuer the right to redeem all remaining notes at a rate of €0.01 per €1,000 of face value.
His Honor Justice Briggs considered that a general and enduring expression of the principle was that a resolution would be liable to be impeached if the effect of it was to discriminate between the majority and the minority so as to give to the former an advantage of which the latter were deprived3.
Ultimately, the question considered by his Honor was a narrow one: whether it can be lawful for the majority to aid the coercion of a minority by voting for a resolution which expropriates the minority’s rights under their notes for nominal consideration.
His Honor considered that the sole purpose of the resolution in that case was to coerce the minority into accepting the exchange offer and concluded that this form of coercion was entirely at variance with the purposes for which majorities in a class are given power to bind minorities. The oppression of a minority is precisely what principles restraining the abusive exercise of powers to bind minorities are designed to prevent.
Is the Abuse Principle Relevant?
The claimants allege that the abuse principle is implied into the ICA because it is required for business efficacy purposes, and/or because it is necessary to give effect to the reasonable expectation of the parties, and/or because such a term is customarily implied in provisions giving powers to majorities to bind minorities.
Under English law, a term is only implied if it is reasonable and equitable, necessary to give business efficacy to the contract or so obvious that it goes without saying, capable of clear expression, and not contradictory of any express term. The test is applied stringently such that terms will only be implied where they are necessary. Alternatively, in relation to particular types of contracts, the court will imply certain terms because the law sees them as a necessary characteristic of a particular type of contract.
The defendants deny that the ICA contains any term equivalent to the abuse principle. In this respect, the defendants argue that because the ICA expressly sets out a detailed framework for determining whether enforcement instructions are valid, and requires the Agent to act on the instructions of the Instructing Group where those requirements are complied with, implying a term equivalent to the abuse principle would be inconsistent with the express provisions of the ICA. Furthermore, such a term cannot be implied as a matter of custom or law as the abuse principle is not necessary to give business efficacy to the ICA.
In response to these arguments, the claimants contend that implying the abuse principle into the ICA does not contradict its express terms but rather regulates how the Instructing Group may exercise its express powers to instruct the Agent to take enforcement action. They say that while the ICA explicitly defines the obligations of the Agent and precludes the implication of additional duties upon the Agent, the implication of the abuse principle into the ICA is not inconsistent with this because the abuse principle does not impose obligations on the Agent at all. Rather, it constrains how the Instructing Group may exercise its powers under the ICA to bind the minority.
Was the Abuse Principle Contravened?
The claimants argue that the enforcement instructions were invalid and ineffective because they “were given in bad faith and for an improper, collateral purpose, being the extraction of value only for itself and with the effect of rendering the interests of other creditors valueless”, contrary to the abuse principle.
In effect, the claimants say that in giving the enforcement instructions, Redwood did not act in the interests of the senior secured creditors as a whole but rather in its own interests to acquire the company at an undervalue. They argue that the enforcement instructions and distressed disposal steps were not in the interests of the senior secured creditors, as these resulted in their claims becoming immediately valueless.
The defendants argue that the abuse principle was not breached for the reasons set forth by the claimants because (amongst other things):
- the acquisition was not at an undervalue. BidCo paid €86.7mn for the transferred debt, which represented a 47% premium over the valuation of €58.9mn, being a proper price and the best price reasonably obtainable in the market conditions then prevailing;
- as established in the valuation obtained, there was no liquidity available to run a market testing process and, absent receiving additional liquidity of €45m at the time of the enforcement, the Hunkemöller group would have collapsed into insolvency;
- notwithstanding the fact that the claims of the senior secured creditors were “out of the money” and had no value, the super senior creditors’ agreement to cap their recoveries and make funds available to senior secured creditors resulted in a higher return to them than they would have otherwise received in a liquidation. Whilst the claimants received nothing due to the priority given to Redwood’s first-out secured notes, it is asserted that this merely reflects the contractual waterfall; and
- Redwood also suffered very substantial losses in respect of its senior secured claims and in this regard, is in substantially the same position as the claimants.
In response, the claimants deny that the circumstances described above preclude a finding that the abuse principle was breached, because (amongst other things):
- the price paid by Redwood was not the best reasonably obtainable in the prevailing market conditions. No market testing was conducted, and the fact that Redwood paid a premium above the valuation obtained does not, in and of itself, establish that the price paid was the best price obtainable. Even if liquidity was insufficient, this did not justify the Agent’s decision not to pursue market testing as the testing process could have been funded through alternative means, such as the Agent meeting the costs itself and recouping them from the sale proceeds (as it was entitled to do under the ICA), or obtaining an indemnity from the creditors as a precondition to taking enforcement action (again, as it was entitled to do under the ICA);
- in respect of the defendants’ assertion that the Hunkemöller group would have collapsed into insolvency without the additional funding provided by Redwood, the claimants argue that this risk was itself a consequence of the funding arrangements agreed between Hunkemöller and Redwood prior to the enforcement of the share pledge and the subsequent distressed disposal;
- the characterization of the senior secured creditors’ claims as “out of the money” is unsustainable, as it is wholly based on the conclusions in the valuation report. The claimants argue that this report cannot be relied upon because it improperly valued the assets to be transferred to BidCo for several reasons, including the approach taken to the assumptions about the projections, the use of an accelerated M&A valuation, and the application of additional discounts; and
- notwithstanding the super senior creditors agreeing to cap their recoveries, the enforcement did not deliver any real value to senior secured creditors as the amounts made available for the benefit of senior secured creditors were de-minimis;
- the fact that Redwood incurred substantial losses in its capacity as a senior secured creditor as a result of the enforcement action is further evidence that it was not acting in its interests as a senior secured creditor when giving enforcement instructions;
- Redwood is not in “substantially the same position as the claimants” as it has acquired ownership of the Hunkemöller group as a consequence of the enforcement action.
Looking Forward
The English High Court’s determination of these proceedings will be scrutinized by sponsors, creditors and advisers alike. Beyond the transaction-specific facts, the case raises fundamental questions as to the continuing vitality and reach of the abuse principle in the context of modern liability management techniques.
In particular, the Court will be required to grapple with whether the principle is confined to the kind of overtly expropriatory conduct condemned in Assénagon, or whether it extends to enforcement and restructuring strategies which, whilst contractually compliant, have the practical effect of transferring value to a controlling creditor at the expense of a dissenting minority.
The Court’s approach to these issues will be critical in delineating the boundary between legitimate creditor-led restructurings and impermissible exercises of majority power. Its decision is therefore likely to have material implications for the structuring, execution and litigation risk profile of future liability management transactions involving English law-governed debt, and may ultimately shape how far European markets continue to converge with more aggressive U.S. restructuring practices.
Looking Forward
The English High Court’s determination of these proceedings will be scrutinized by sponsors, creditors and advisers alike. Beyond the transaction-specific facts, the case raises fundamental questions as to the continuing vitality and reach of the abuse principle in the context of modern liability management techniques.
In particular, the Court will be required to grapple with whether the principle is confined to the kind of overtly expropriatory conduct condemned in Assénagon, or whether it extends to enforcement and restructuring strategies which, whilst contractually compliant, have the practical effect of transferring value to a controlling creditor at the expense of a dissenting minority.
The Court’s approach to these issues will be critical in delineating the boundary between legitimate creditor-led restructurings and impermissible exercises of majority power. Its decision is therefore likely to have material implications for the structuring, execution and litigation risk profile of future liability management transactions involving English law-governed debt, and may ultimately shape how far European markets continue to converge with more aggressive U.S. restructuring practices.
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