Sale Hearing

On September 20, 2008, the Bankruptcy Court approved the sale of certain assets of Lehman Brothers Holdings Inc. ("LBHI") and Lehman Brothers Inc. ("LBI"),1 including those related to its Canadian Capital Markets and Investment Banking businesses, to Barclays Capital, Inc. ("Barclays"). The sale was approved despite the filing of over 80 objections raising a number of procedural and substantive issues. The Purchase and Sale Agreement was subsequently amended, and a clarifying letter filed, to address a number of the questions and concerns raised.

In the matter of a Representation by Computer Patent Annuities Holdings Limited and in the matter of Part 18A of the Companies (Jersey) Law 1991 [2010]JRC021

Introduction

This case, heard by the Royal Court in Jersey, involved the approval of a scheme of arrangement pursuant to Article 125 of the Companies (Jersey) Law 1991 (the "Companies Law"), together with the confirmation of a reduction of share capital.

Background

The facts are as follows: an insolvency creditor challenged the decision of the administrator in bankruptcy of a company about not recognizing its credit. The credit derived from a guarantee granted to secure a promissory note from a company belonging to the group of the insolvent company.

In our October 2010 edition of Middle East Exchange, we looked at the general duties which directors and managers of UAE companies owe to their companies and their shareholders. In this edition, we consider the position where the company's financial position deteriorates. As directors or managers struggle with the inevitable commercial and operational pressures, what additional legal responsibilities and potential liabilities does UAE law place upon them?

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.

One of the many issues which arose from the collapse of Lehman Brothers was whether “flip provisions”, which reverse a swap counterparty’s priority in the order of payment on insolvency, were invalid on the basis that they contravened the anti-deprivation principle.  This is a long-established common law principle which seeks to prevent an insolvent party from arranging its affairs to frustrate the legitimate claims of creditors.

In its recent decision in Belmont Park Investments PTY Ltd v BNY Corporate trustee Services Ltd and Lehman Brothers Special Financing Inc,[1] the Supreme Court ruled in favour of investors, clarifying the limits of the anti-deprivation rule and holding that a commercially sensible transaction entered into in good faith and without the intention to evade insolvency laws should not infringe the anti-deprivation rule.

Background

Belmont Park Investments Pty Limited v BNY Corporate Trustee Services Limited and another [2011] UKSC 38.

The Supreme Court has clarified the extent to which it is possible for a contract to provide for a company or individual to lose assets on insolvency.  

Summary

Well-established rules are unchanged, so landlords can still forfeit leases on insolvency. In other cases, if a transaction is entered into in good faith and for valid commercial reasons, it is likely to be upheld.

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.

Structured finance transaction documents have typically included subordination provisions in their post-default waterfalls, effectively changing a swap counterparty’s right to get paid from above that of the noteholders to below that of the noteholders.