The Supreme Court recently considered the scope of the anti-deprivation principle, in Belmont Park Investments PTY Limited (respondent) v. BNY Corporate Trustee Services Limited and Lehman Brothers Special Financing Inc (appellant) [2011] UKSC 38 (Belmont). Understanding the scope of this principle is important for anyone entering a contract where the parties’ rights and obligations change if one of them enters an insolvency procedure. Robert Spedding explains how the courts applied the principle in Belmont and makes some practical suggestions for avoiding problems.

There has been an upturn in the frequency of trade finance workouts, restructurings and formal insolvencies. Susan Moore and Luci Mitchell-Fry look at some key issues that banks face when trade finance lending passes to "bad bank".

The bank's decisions at every stage of a trade finance transaction are critical: at origination; when following a workout/restructuring; and once a formal insolvency process becomes a reality.

Origination

Treasury is consulting on implementation of the changes to the Settlement Finality Directive (SFD) and the Financial Collateral Directive (FCD) in the UK. The changes to the Directives cover:

There has been an upturn in the frequency of trade finance workouts, restructurings and formal insolvencies. Drew Sainsbury looks at some key issues that banks face when trade finance lending passes to “bad bank”.

The bank’s decisions at every stage of a trade finance transaction are critical: at origination; when following a workout/restructuring; and once a formal insolvency process becomes a reality.

Origination

On March 22, 2010, in a 2-1 decision, the Court of Appeals for the Third Circuit held that a debtor may proceed with an auction sale under a Chapter 11 plan without providing a secured lender the right to credit bid for its collateral.

Courts have broad discretion to grant orders under s. 18.6 of the CCAA in cases where there is no formal Canadian bankruptcy filing.

Magna Entertainment Corp. (“MEC”) is a publicly-traded Delaware corporation with its head office in Ontario. On March 5, 2009, MEC and certain of its U.S. subsidiaries filed for Chapter 11 protection in the United States. Although MEC’s management is based in Canada and MEC has assets in Canada, MEC’s main interests and majority presence are in the U.S.

In Royal Bank of Canada v. Head West Energy Inc., the Court of Appeal considered the priority of two security interest registrations against the same collateral, namely industrial camp trailers, and the obligations, pursuant to the Personal Property Security Act, R.S.A. 2000, c. P-7 (“PPSA”) of a security holder to amend its registration to reflect a name change when the security holder has knowledge of that name change.

The Banking Bill recasts key aspects of bank supervision and insolvency. With such wide-ranging changes to digest, financial institutions and other companies could be forgiven for ignoring the seemingly obscure clauses relating to financial collateral. But these provisions could remove legal uncertainty for those taking collateral particularly in traded markets (like energy trading) where banks are not always the main players.

The treatment of derivatives, or “qualified financial contracts”, under state insurance insolvency laws has received increased attention since the financial crisis. Four states passed laws in 2010 that allow for the exercise of certain netting collateral and termination provisions in an insurance insolvency without regard to the automatic stay mechanism and similar laws are anticipated in other states in 2011. Federal laws provide a level of certainty with respect to the treatment of certain swap agreement provisions in a general corporate bankruptcy. The U.S.

The recent bankruptcy filings by infrastructure companies Connector 2000 Association Inc., South Bay Expressway, L.P., California Transportation Ventures, Inc., and the Las Vegas Monorail Company have tested the structures utilized to implement public-private partnerships (P3s) in the United States in several respects. It is still too early to draw definitive conclusions about the impact of these proceedings on P3 structures going forward, but initial rulings in two of the cases are already focusing the minds of project participants on threshold structuring considerations.