Background

A High Court judgment by Mr. Justice Richards handed down on January 29 has confirmed that a client’s open positions on trades, made with a firm regulated by the UK Financial Services Authority (FSA) that subsequently enters into an administration or liquidation, should be valued by reference to the market value of the trades at the time of the firm’s failure rather than at the date the positions are closed out.

On August 2, the English Court of Appeal handed down its judgment on the client money directions application made in the Administration of Lehman Brothers International (Europe) (LBIE). The Court of Appeal overturned Mr. Justice Briggs’ High Court decision in part, holding unanimously that:

On December 29, the UK Treasury published a summary of responses to its consultation on its proposals to reform Part 7 of the UK Companies Act 1989 and related legislation. Part 7 of the Companies Act 1989 modifies the UK’s general insolvency law to provide systemic protection for recognized investment exchanges and recognized clearinghouses in the event of a default by one of their members  

On June 26, the UK Financial Services Authority (FSA) announced that it obtained a bankruptcy order against Samuel Nathan Kahn who controlled the affairs of Chesteroak Limited (Chesteroak) and Bingen Investments Limited (Bingen). Chesteroak and Bingen were two UK-based companies that helped illegal offshore boiler rooms sell shares to investors.

On September 25, the UK Financial Services Authority (FSA) announced that two UK-based firms have been placed into liquidation by the UK High Court following the FSA’s intervention. The FSA believes that these scams may have fraudulently persuaded up to 800 people into buying worthless shares. Investors are believed to have lost up to £3.5 million ($7.5 million).

Chesteroak Limited and Bingen Investments Limited were shut down following allegations that they were dealing in or arranging deals in shares without proper authorization.

In proceedings commenced by the Financial Services Authority (FSA), the UK High Court ruled in December 2004 that Adrian Sam & Co (ASC) and John Martin, one of ASC’s two partners, were knowingly involved in the UK activities of an illegal overseas investment firm (a boiler room) and they were ordered to pay £360,000 (approximately $700,000) to 63 investors involved in the boiler room scam. A bankruptcy order was granted against John Martin in August 2006.

In a decision handed down on February 23, the High Court granted a winding-up petition brought by the Financial Services Authority under section 367 of the Financial Services and Markets Act 2000 (FSMA).

Key Point

• The UK government's proposals to only partially implement a new UNCITRAL Model Law means that creditors of English law debts who do not consent to a foreign restructuring proceeding will still have recourse to enforcing their rights against the debtor's UK-based assets.

English Law Is Still a Special Situation

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