Banking and finance legal update: Q3 2025

Process agent clause deemed unfair under Consumer Rights Act 2015

The Commercial Court has recently set aside default judgments entered against two individual guarantors for failure to file acknowledgements of service or defences. This was decided on the basis that the claimant’s method of serving proceedings was invalid and the relevant clause in the facilities agreement was unfair under the Consumer Rights Act 2015 (CRA).

The claimant lender made a facility available to the borrower, who was an individual. The defendants, who were also individuals, gave personal guarantees for the loan. Following borrower default, the lender commenced proceedings against the guarantors, seeking payment under the personal guarantees.

The key element of the case for lenders focused on the process agent clause in the facility agreement. The facility agreement included a fairly common form of process agent clause. The clause allowed the lender to appoint a new process agent itself, if the original process agent was unable to act and the borrower had not appointed a replacement within five days. The original process agent was dissolved so could no longer act; however, no new agent was appointed by the borrower. The lender therefore appointed a new corporate process agent on behalf of the obligors, which included the guarantors.

The clause did not require the obligors to be notified of the change of process agent. Furthermore, the clause stated that failure by an agent to notify the borrower of proceedings would not invalidate proceedings. It did not refer to failure to notify the guarantors; however it was noted that the facility agreement included an obligors’ agent clause under which the borrower was appointed as agent for the obligors. Notification of the appointment of the new process agent was nevertheless provided to the borrower and the guarantors. Although the guarantors questioned the adequacy of notice provided to them, the adequacy of notice provided to the borrower was not questioned.

The lender purported to serve notice of proceedings on the guarantors by service on the new process agent on 7 August 2024. The process agent purported to accept such notice on behalf of the guarantors. On 2 September 2024, the lender entered a default judgment against each of the guarantors as no acknowledgement of service had been filed and no defence had been served by them. The guarantors received notice of the default judgments on 13 September 2024.

The guarantors sought to set aside the judgments on the grounds that the time limit for filing an acknowledgement of service (CPR rule 13.2) had not expired because the service on the new process agent was not valid. They argued that they had no power of veto over the appointment of the new process agent and that the facility agreement contained no requirement for the lender to inform the guarantors, or the borrower, of the appointment and that the process agent clause was therefore an unfair contract term for the purposes of Part 2, CRA, as it created a significant imbalance between the rights of the parties and was unfair, and therefore unenforceable.

The Court accepted that the guarantors were “consumers”  and the lender a “trader”  for the purposes of the CRA. Under Section 62(1)(4) CRA, a term is unfair if, “contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer”.

The deputy judge expressed “considerable concerns” regarding the fairness of the process agent clause in a consumer contract context. A replacement agent could have been appointed without the guarantors being made aware of such an appointment. If steps were taken to inform the guarantors of the appointment of a replacement agent, the unfairness of the term might be mitigated or circumvented, but that did not mean that the term itself was not unfair.

The specific source of unfairness was that the contractual mechanism for appointing a replacement agent allowed the appointment to operate without requiring any notice to be given to the guarantors. This meant that proceedings could be served, and default judgments entered against the guarantors without them ever being aware of the replacement agent or the service of process.

The fact that the lender, a Luxembourg-based company, was not exposed to the same risks as regards the service of process as the guarantors was found by the deputy judge to create an imbalance in the parties’ legal rights and obligations.

The Court found that the process agent clause was unfair within the meaning of Section 62(1)(4) CRA. As a result, the clause was not binding on the guarantors.

The lender had relied on this contractual term to effect service, and so, as it was non-binding, the service of process was not validly made on the guarantors. Because service was invalid, the requirement of CPR rule 12.3(1) – that the time for filing an acknowledgement of service had expired – was not met. Therefore, the Court concluded that the default judgments were wrongly entered and must be set aside pursuant to CPR rule 13.2.

What are the key takeaway points?

• The process agent clause, in this instance, was in a very common format – closely resembling that in Loan Market Association documentation (although the LMA language is not written with individual obligors in mind).
• The Court noted that such process agent provisions have, in the past, been found to be fair in the context of a contract between commercial parties.
• When contracting with individuals where service of notice by process agent may be required, lenders should remember to consider risks under the CRA. Wherever possible, the process agent clause should not reflect an imbalance – for example, consider including a requirement that notification of change of process agent be served on each individual obligor and, if the individuals are not party to the facilities agreement, ensure a separate process agent provision is included in the personal guarantee (or other contract with the individual). Consider if the clause can appropriately be two-way, although it is noted that the practicality of this would depend very much on the location and size of the lender.

Find out more about the Regera SARL v Cohen and others case.

Payments by company under directors’ loans considered as transactions at an undervalue or preferences

The High Court has considered whether payments made by a company to its former directors in the form of repayment of directors’ loans and payment of management fees were transactions at an undervalue or unlawful preferences.

The case concerned Slaidburn 52 Limited (the Company) which was used as a vehicle to purchase a property with the intention to develop it into two flats. The project was financed through secured loans and a directors’ loan. Following the completion of the project and the sale of the flats, the Company entered into a creditors’ voluntary liquidation.

The liquidators’ assignee (the Applicants) brought claims against the former directors in respect of payments made by the Company to the directors that fell within the two-year period preceding the winding up of the Company. These being:

• The repayment of part of the directors’ loan following the refinancing of an original bank loan via a bridging loan; and
• Payments made out of the sale proceeds of the second flat to repay the balance of the directors’ loans and to pay management fees.

The Applicants argued that these payments amounted to either transactions at an undervalue or preferences and that there had been a breach of directors’ duties. The Court’s findings were as follows.

Repayment of part of the directors’ loan following the refinancing of an original bank loan

Transaction at an undervalue

The judge found that the first repayment of the directors’ loan was not a transaction at an undervalue. Despite the absence of any documentation to record the terms of the loan and discrepancies between the terms of the directors’ loan and the bank loan, the judge accepted the directors’ argument that the consideration for the repayment was their loan to the Company which they had agreed would be on the same terms and for the same period as the original bank loan. The payment was neither a gift nor a transaction at an undervalue and was made to repay sums properly due to the directors for good consideration.

Preference

The judge then considered whether the first repayment was a preference. To establish this, the repayment needed to have been made at a time when the Company was unable to pay its debts within the meaning of section 123 of the Insolvency Act 1986 (or to have caused the Company to become unable to pay its debts within that meaning). The Applicants argued that the Company was balance-sheet insolvent according to accounts filed three months after the repayment. The judge rejected this assertion, taking into account the Supreme Court’s guidance in the Eurosail case, that when considering a balance-sheet test of insolvency there is a need to look beyond snapshot moments captured in a company’s balance sheet and to consider, by reference to the facts of each case, whether on the balance of probabilities, that deficiency may still be cured. The relevant accounts did not include the market value of the property, and also there appeared at the relevant time to have been a real prospect that the project could still be recovered.

The judge, nevertheless, went on to consider whether the other criteria required to demonstrate that the payment was a preference were met. In particular, the judge considered whether the Applicants had proved that in making the payment the Company had been influenced by a desire to put the directors in a better position than they otherwise would have been when the Company went into insolvent liquidation. As the directors were connected to the Company, a presumption of that desire arose. However, the judge found that the presumption had been rebutted here. The judge accepted the directors’ evidence that they only agreed to advance funds to the Company on a short-term basis, that they had previously undertaken similar projects for a similar period with funding from the same bank and been able successfully to recover both principal and interest at the same rate as the bank, and that they had determined that they would recover their money at the same time as the bank and this was essential because they had already committed their money elsewhere.

Directors’ duties

Finally, the judge considered whether the first repayment amounted to a breach of the directors’ duties to act within their powers, to promote the success of the Company (or in some circumstances, for example where insolvency is imminent, to act in the interests of creditors) and to avoid conflicts (including a duty not to make a profit for themselves through the use of their fiduciary position). The Applicants argued that by receiving the repayment of their loan, the directors caused the Company to have to borrow a greater amount and pay higher fees under the bridging facilities. The judge found that the repayment was made within the terms of the loan, and it was not unreasonable for the repayment to be made, nor did it amount to a conflict of interest or any other breach of the directors’ duties.

Payments made out of the sale proceeds of the second flat to repay the balance of the directors’ loans and to pay management fees.

Transaction at an undervalue

When the Court considered the payment of the management fees, the judge found that there was insufficient evidence to show that the directors had entered into any contractual arrangement that would entitle them to such payments. As these payments were made within two years of the Company entering insolvent liquidation and, as payments to connected parties, at a time when the Company was presumed to have been insolvent and with no evidence to rebut that presumption, they amounted to transactions at an undervalue.

Preference

When considering the repayment of the balance of the loan, the judge once again looked to see if this payment was a preference. The Court considered the circumstances of the Company and noted that at the time of the repayment the Company was insolvent or would become insolvent due to the repayment.

The judge noted that the directors must have known or should have known that there would not be enough funds to pay all of the creditors, and that making the directors’ loan repayment would put them in a better position than the other creditors. Their assertion that they believed, without providing any evidence, that the Company had substantial and meritorious claims to pursue against the contractor and architect for the project was not sufficient to rebut the relevant presumption. Therefore, the Court found that the repayment made was a preference.

What are the key takeaway points?

• Directors’ loans and any related remuneration arrangements should be well documented showing any interest owed and dates for payment; otherwise, the payments risk being subjected to challenge in any subsequent insolvency proceedings.

Find out more through this case: Manolete Partners Plc v Whiteley [2025] EWHC 1544.

Upcoming changes to company statutory registers

Companies House has confirmed that key changes under the Economic Crime and Corporate Transparency Act 2023 (ECCTA) relating to statutory registers will take effect from 18 November 2025. From this date, companies will no longer be required to maintain their own versions of the following statutory registers:

• Register of directors
• Register of directors’ residential addresses
• Register of secretaries
• Register of people with significant control (PSCs)

Instead, the obligation will shift to filing this information directly with Companies House, which will then serve as the definitive public record for these registers.

Companies must continue to maintain their register of members internally. Any company that previously held its register of members at Companies House will need to create and maintain a full register of members.

What are the key takeaway points?

• PSC register changes are likely to affect conditions precedent and representations in facility documentation.
• Companies House will become the authoritative source for director and PSC information.
• Due diligence processes may need to be updated to reflect reliance on Companies House records.
• The register of members will continue to be maintained by companies; this is important for shareholding verification, for example when taking security over shares or relying on shareholder resolutions approving guarantees and other finance documents.

Find out more about changes to company registers.

Visit our ECCTA hub page on Company registers and filings.

Identity verification (IDV) requirements implementation

Companies House has confirmed that the implementation date for mandatory identity verification (IDV) under ECCTA is 18 November 2025. From this date, the following requirements will apply:

• New directors must verify their identity before incorporating a company or being appointed to an existing company. A Companies House personal code will be required as part of the process.
• New PSCs must verify their identity and provide their personal code within 14 days of being added to the Companies House register.
• Existing directors must verify their identity at the same time as a company’s first confirmation statement is filed after 18 November, using their personal code.
• Existing PSCs who are also directors must verify their identity and provide their personal code separately for each role. As a PSC, this must be done within 14 days of the next confirmation statement date after 18 November.
• Existing PSCs who are not directors must verify their identity and provide their personal code within 14 days of the first day of their month of birth (as shown on the Companies House register). For example, if the date of birth is shown as March 1991, the 14-day period will start on 1 March 2026.

These requirements are expected to also apply to individual members and PSCs of LLPs. Companies House has stated that IDV requirements for limited partnerships, corporate directors, corporate LLP members, officers of corporate PSCs and filers will be introduced at a later stage.

What are the key takeaway points?

• In acquisition financings, the timetable for the entry into finance documents by target group companies will need to allow for any replacement directors to complete the IDV process prior to appointment.
• Companies whose directors do not verify within the required timescales will be committing an offence and may breach compliance with laws, representations and undertakings in loan and security documents.

Find out more about the Companies House update.

Visit our ECCTA hub page on Identity verification.

Lending Standards Board to close in October 2025

On 25 June 2025, the Lending Standards Board (LSB) announced its intention to commence an orderly and solvent wind-down of its operations, with full closure scheduled for 31 October 2025.

This decision follows a strategic review conducted in January 2025, which identified a significant overlap between the LSB’s personal Standards and the Financial Conduct Authority’s (FCA) Consumer Duty. As a result, the LSB retired its personal Standards on 31 March 2025, and firms registered under those Standards were automatically de-registered.

The LSB will also cease oversight of its remaining business-focused Standards and Codes on 31 October 2025, including:

• The Standards of Lending Practice for Business Customers
• The Standards of Lending Practice for Business Customers – Asset Finance

These Standards have historically provided a best practice framework for lending to small and medium-sized enterprises (SMEs), particularly in areas outside the FCA’s regulatory perimeter. Notably, the FCA does not regulate lending above £25,000 to businesses or lending to limited companies, leaving many SMEs reliant on the LSB’s protections.

However, several major high street banks have opted to apply the FCA’s Consumer Duty principles more broadly across their customer base, leading to voluntary de-registration from the LSB’s business Standards. This trend has accelerated among other firms, ultimately prompting the LSB to conclude that it can no longer sustain its operations.

What are the key takeaway points?

• All remaining LSB standards and codes will cease to apply from 31 October 2025. Lenders may want to update their legal documents and internal policies to remove references to these.
• Lenders should assess whether and how they will continue to apply best practice principles in the absence of LSB oversight.
• Lenders should ensure that SME clients are informed of any changes to protections or standards that may affect them.

Find out more about the LSB update.