Introduction

On 29 February 2012, the Supreme Court of the United Kingdom handed down its long-awaited judgment on client money issues in the context of the Lehman's Administration. The judgment has an important bearing on likely recoveries for both segregated and non-segregated clients, the further work to be conducted by the Administrators and timing of distributions.

Summary

The Supreme Court has found that:

In the matter of Lehman Brothers International (Europe) (In Administration) and in the matter of the Insolvency Act 1986 [2012] UKSC 6 On appeal from [2010] EWCA Civ 917  

Summary

The Supreme Court yesterday ruled that client money held in un-segregated accounts should be treated the same as client money held in segregated accounts, enabling un-segregated account holders to share in the client money pool on the insolvency of a firm with whom the account is held.

The Supreme Court handed down its judgment in relation to the client money application in the matter of Lehman Brothers International (Europe) (LBIE). The judgment has a number of implications for firms who hold client money, and for firms who hold money with banks and other firms as clients themselves. The complicated and controversial nature of the appeal is reflected in the sharply opposing opinions of the Lords in relation to two of the three issues considered.

The courts and FOS are now headed down very different paths in their approach to credit crunch losses suffered by clients of regulated firms. While FOS has all but abandoned the general law of causation in its approach to cases of consumer detriment, we have observed how the courts have held again and again that the general law of causation applies to mis-selling claims.

The respected Financial Markets Law Committee sponsored by the Bank of England has published a paper, dated October 2011, containing an analysis of legal uncertainty in the FSA’s Client Assets Sourcebook (CASS) and arising from judicial decisions relating to the administration of Lehman Brothers International (Europe).

This appeal was brought by the insolvency practitioners dealing with the Nortel and Lehman Brothers companies. The Regulator’s Determinations Panel has, in relation to both the Nortel and Lehman Brothers pension schemes, issued warning notices of its intention to issue Financial Support Directions (FSDs) against group companies.

MF Global UK Limited In Special Administration

The Financial Services Authority (“FSA”) has confirmed that MF Global UK Limited (“MF Global UK”) has entered the Special Administration Regime created under the Investment Bank Special Administration Regulations 2011 (“Regulations”).¹ MF Global UK is the first investment bank to enter the Special Administration Regime. The decision to apply for special administration was initiated by the board of MF Global UK.

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.