The recent case of Stephen Petitioner offers some clarification regarding issues relating to the validity of appointment of administrators.

The Facts

The UK Financial Services Authority (“FSA”) confirmed on 31 Oct. 2011 that MF Global UK Limited (“MF Global UK”) will be subject to the new Special Administration Regime (“SAR”).^[1] This is the first time that the new regime, set out in The Investment Bank Special Administration Regulations 2011 (“SAR Regulations”)^[2] has been invoked.

Background

In this DechertOnPoint, we summarise HM Treasury’s work to establish effective resolution arrangements for investment banks and firms, which resulted in the introduction of a special administration regime (“SAR”) earlier this year.

Summary

FSA is consulting on the need for certain financial services firms to prepare and maintain Recovery and Resolution Plans (RRPs) and in addition for some of these firms, and others, to make further preparations for their investment client money and custody assets (CMA) holdings.

Why now?

In 2002 a European subsidiary of Lehman Brothers created a complicated synthetic debt structure called Dante, which was intended to provide credit insurance for another subsidiary, LBSF, against credit events affecting certain reference entities, the obligations of which formed the reference portfolio. A special purpose vehicle issued notes to investors, the proceeds of which were used to purchase collateral which vested in a trust. The issuer entered into a swap with LBSF under which LBSF received the income on the collateral and paid the issuer the amount of interest due to noteholders.

FSA has published a guidance consultation on the prudential treatment of liquidity swaps. According to the FSA, a liquidity swap involves a liquidity transformation. Typically they involve transactions between an insurer and a bank whereby high-credit quality, liquid assets (such as gilts) held by an insurer is exchanged with illiquid or less liquid assets (such as asset-backed securities (ABS)) held by a bank. The proposed guidance will apply to all regulated firms transacting liquidity swaps (not just banks and insurers) and the deadline for responses is 21 September 2011.

 The CBI has responded to CRD4 publication saying it believes the Basel III reforms are "an important piece of the jigsaw to strengthen the global banking system", but that benefits from greater financial stability must be proportionate to the cost businesses will bear. In the CBI's opinion, the new rules:

The case of White v Davenham Trust Ltd, has reaffirmed that a creditor can choose its own method of enforcing a debt which has been guaranteed even where it might hold security for that debt.

The Sinclair v Versailles1 decision has extinguished any prospect that a victim of a fraud has a proprietary claim to a fraudster’s secret profits. It also offers significant comfort to banks, insolvency practitioners and other potential recipients of trust funds by setting a high bar for whether a recipient person is “on notice” of a proprietary claim to those funds.

A recent High Court case involving unlawful loans to directors illustrates the potential pitfalls involved in calculating limitation periods, and the circumstances in which the usual six year statutory limitation period will not apply to a recovery claim against a fiduciary.

Facts

Broadside Colours and Chemicals Ltd was a family firm supplying dyes to the textile trade. The directors were Geoffrey Button, his wife Catherine Button, and their son James Button. Only the father and son were shareholders.