1.52 The result of the operating losses was that RAI was unable to meet capital or interest payments on the main loan provided by Bank of Scotland of £8.4 million, which was repayable by 2003. Early in 1997, therefore, RAI undertook a restructuring of its debt, drawing £7.15 million under a subordinated loan facility provided by its shareholders. In July 1998 the Bank of Scotland agreed a further refinancing.
1.53 Security for the original loan of £8.4 million to RAI and for the further refinancings had been provided in part by a fixed charge over the leasehold property, that is the museum building itself. The existence of such a charge gave the Bank the right to take possession of the charged asset and arrange for its disposal in order to secure the repayment of its outstanding loans. However the museum building was not owned outright by RAI but was leased from the Armouries (paragraph 1.16). Consequently the Bank, and any subsequent purchaser of the lease, would be bound by the provisions of this lease, including any restrictive covenants contained in this.
1.54 As part of the 1998 refinancing the Bank of Scotland stated that it would continue to make funds available to RAI on a normal commercial basis until 31 July 1999. However it also stated that it would not be able to provide additional funding beyond this date if a solution to RAI's financial problems had not been found by then. The availability of this funding allowed RAI to continue operating as a going concern but only until 31 July 1999. Withdrawal of the Bank's support on that date would then have resulted in RAI becoming insolvent.