Legal News

Lexham Securities Ltd and another v Earlsfort Capital Partners Ltd and others [2023] EWHC 909 ( Ch) What are the practical implications of this case? This decision confirms that a mortgagor may still exercise the equity of redemption even after a receiver has concluded a contract on their behalf. Historically, it has been accepted that the equity of redemption is, for a period, put on hold between the making of a sale contract by the mortgagee and the subsequent completion of that contract (see Property and Bloodstock Ltd v Emerton [1968] Ch. 94). The situation is, in practice, different where the sale contract is made by a receiver. Although the receiver is appointed by the mortgagee, the receiver acts as the owner/mortgagor’s agent, not the mortgagee’s. That almost invariably follows from the provisions of the original loan agreement; agreed at the outset, at a time when the...

Re Avanti Communications Ltd [2023] EWHC 940 ( Ch) This marks the first substantial judgment on the divide between fixed and floating charges since the House of Lords’ landmark ruling in Re Spectrum Plus [2005] UKHL 41, which reclassified an apparent fixed charge over book debts as floating because the chargor could freely deploy the charged assets and the security holder therefore lacked the requisite control to constitute a fixed charge. The designation of security as ‘fixed’ or ‘floating’ under English law now carries even greater weight given HMRC (the UK tax authority) ranks as a preferential creditor for certain taxes in insolvency—ie those taxes sit behind fixed charge realisations but ahead of floating charge realisations. That characterisation had a decisive effect on the order of payments in Avanti’s administration: as the charge was properly treated as fixed, the secured creditors recovered in full; had it...

High Court defence In its High Court defence, the insurer maintains it does not owe Aer Cap Ireland Ltd for the value of 141 aircraft and 29 engines leased to Russian airlines and now marooned in the country. Swiss Re International SE has joined peers AIG Europe SA and Lloyd’s Insurance Co. SA in asserting it bears no liability because Aer Cap could, in time, recover the aircraft and parts from the country. They argue their policies respond only to a total physical loss of the planes. Possible retrieval would, they say, fall outside that scope. Another insurer, Fidelis Insurance Ireland DAC, entered the proceedings as a defendant in January 2023. Swiss Re also used its defence, filed on 13 March 2023 and since made public, to set out its position clearly and mark a firm boundary: it would be liable solely to the extent of its...

Re Sova Capital Ltd (company number 04621383) (in special administration) [2023] EWHC 452 ( Ch), [2023] All ER ( D) 24 ( Mar) Background to Sova and the Special Administration Sova, authorised by the Financial Conduct Authority ( FCA), operated as an investment brokerage firm. It acted for institutional counterparties, with its trading largely focused on the Russian market. Following the upheaval in markets triggered by Russia’s invasion of Ukraine, the firm encountered acute liquidity pressures, prompting its directors to seek an English Court order placing it into special administration under the Investment Bank Special Administration Regulations 2011, SI 2011/245 (the IBSA Regulations). The business oversaw assets totalling several billions of pounds sterling across its client assets sourcebook ( CASS) structures—covering client money and custody assets—as well as its own house book. The IBSA Regulations were introduced to tailor the insolvency framework for...

Re Mizen Design/ Build Ltd (in company voluntary arrangement); Newlon Housing Trust v Mizen Design/ Build Ltd [2023] EWHC 127 ( Ch) What are the practical implications of this case? In this matter, two creditors from different classes challenged the CVA, with one objection succeeding and the other failing, and they had adopted contrasting positions at the creditors’ meeting. As such, the decision offers a clear demonstration of how various irregularities are assessed, with particular emphasis on materiality. The proposal’s terms are recorded in significant detail, helping future comparisons on similar facts. In addition, paragraphs [15]–[51] of the judgment set out, in depth, the principles applicable to material irregularity and unfair prejudice. What was the background? This dispute concerned a CVA approved at a creditors’ meeting on 19 May 2022. The proposal indicated that, unless adopted, Mizen was highly likely to enter...

How to witness and attest a deed under the Law of Property ( Miscellaneous Provisions) Act 1989 ( Euro Securities & Finance v Barrett) Euro Securities & Finance Ltd v Barrett and others [2023] EWHC 51 ( Ch) What are the practical implications of this case? The safest route to prevent disputes over a deed’s validity is: all principal signatories execute at the same time and in the same location; any witness should be a non-party to the deed and observe the signatures physically, in person; and each witness should attest, separately, every signature they observed, doing so straightaway while remaining in the signatories’ presence. Each of these points ought to be documented in writing. That said, the judge in Euro Securities considered that the LP( MP) A 1989 may afford parties greater latitude. Although much of the discussion was obiter, in essence the judge...

Market Manipulation Cryptocurrencies have triggered extensive discussion in recent times indeed. Debate has largely centred on their valuation or how these assets should be regulated today. However, scrutiny of market manipulation is essential, especially the behaviour of digital asset trading platforms themselves. FTX’s late-2022 implosion thrust crypto and market abuse squarely into view for the wider public today. At one stage in its three-year life, it stood as the world’s third-largest exchange by trading volume at peak. Today, FTX’s founder and chief executive Sam Bankman- Fried faces charges for conspiracies to commit commodities fraud and securities fraud, plus conspiring to defraud the United States and to violate campaign finance laws. These counts arise from claims he cheated investors of US$1.8bn (£1.5bn) in total. Since last November, FTX has been under Chapter 11 proceedings in the US courts. The sheer scale and profile of FTX’s...

Thomas William Good v HMRC [2023] EWCA Civ 114 The taxpayer took part in a tax avoidance arrangement. Using a mixture of his own funds and borrowed capital from a lender, he acquired film distribution rights and, under a ‘distribution agreement’, assigned them in exchange for a continuing share of the films’ profits together with minimum annual payments ( MAPs) expressly set to enable him to service his loan obligations and liabilities. As security, he transferred the benefit of, and granted a charge over, the MAPs to the lender. The MAPs were to be paid directly to the lender, to be applied to interest and repayment of the borrowing as they fell due each period. It was envisaged that the arrangement would generate a tax loss for sideways relief (although it was ultimately accepted this was unavailable because he was not carrying on a trade) and that...

Leon v Kensington Mortgage Company Ltd [2023] EWHC 121 ( Ch) What are the practical implications of this case? This decision offers reassurance to those who guarantee corporate borrowings. The court held that when an individual acts as surety for a company and elects to discharge the debt, the subsequent dissolution of that company does not bar the surety from stepping into the benefit of any security that was taken for the debt. Had the court ruled the opposite—that dissolution deprives the surety of access to the security—it would have placed sureties in an invidious position: anyone guaranteeing a company’s obligations would run a material risk that, if the company were later dissolved, the surety could be compelled to satisfy the liability yet be unable to recoup their outlay even where the company’s indebtedness had been secured against property. Such a result could have had...

The consultation sets out how the FCA plans to operate a new regulatory gateway that would: place an automatic curb on FCA‑regulated firms that sign off financial promotions created by third parties require any firm wishing to keep approving promotions for others to apply to the FCA to have that approval ban lifted A tightening of the perimeter for financial promotion approvers was explored in July 2020 in a consultation response, where HM Treasury expressed concern that the current approval framework is inadequate, as authorised firms face no dedicated assessment before they may approve the financial promotions of unauthorised firms. The document identified three potential risk areas, including: insufficient expertise within approver firms: because financial promotions span a wide array of products and services, authorised firms can end up approving material beyond their competence, risking content that is...

These additional rules will also sit alongside the usual obligation that promotions are transparent, fair, and not misleading. As the UK government set out its plans to bring crypto activities within the existing financial services regulation, it also said it would exempt crypto businesses, which are not currently authorised in the UK, from needing their adverts to be signed off by an authorised firm. The exemptions were introduced in response to industry concerns about the lack of......

Investigations & Enforcement Trends 2023—a perfect storm for regulatory enforcement Introduction Set against intensifying economic headwinds, geopolitical volatility and a continuing shift to a post-pandemic landscape, 2022 delivered a surge in UK regulatory activity across bodies such as the Financial Conduct Authority ( FCA), Prudential Regulatory Authority ( PRA) and Office of Financial Sanctions Implementation ( OFSI). The FCA handed down 26 fines in 2022 versus 10 in 2021, although the aggregate value declined from £567.7m in 2021 to £215.8m last year. The UK’s appetite to strengthen enforcement shows little sign of easing, with the FCA already issuing two fines this year. The authors accordingly foresee a testing year ahead as regulators further expand the scope and scale of their investigative reach. AML Systems and Controls As expected, robust action persisted in 2022, with the FCA levying its largest penalty of the...

Re Lehman Brothers International ( Europe) (in administration) and other companies [2022] EWHC 2995 ( Ch) What are the practical implications of this case? This ruling offers a concise digest of the statutory framework for seeking extensions under paragraph 76 of Schedule B1 to the Insolvency Act 1986 ( IA 1986), and, drawing on recent leading authorities from the Lehman and Nortel Networks administrations, explains the approach the court ought to take when exercising its discretion on such requests. In short, the court’s discretion is unfettered, yet it must be deployed for the benefit of the company’s creditors as a whole. With eight separate companies before the court—each facing distinct concerns, issues and factual backgrounds—the judgment provides rich insight into the factors that carried weight in granting the extensions. The judge’s assessment of the evidence presented serves as a practical roadmap for lawyers and...

Is your appointor entitled to appoint? The importance of verifying the power to appoint UK administrators ( Borg- Olivier v Knowles & others) Borg- Olivier v Knowles and others [2022] EWHC 2579 ( Ch) The authority to install an administrator is a key tool for debenture holders when moving to realise their security. To use that mechanism, the debenture must constitute a QFC and it must be capable of enforcement. Borg- Olivier underlines how crucial enforceability is, and how a lack of it can undermine the validity of any administrator appointment. Here, the appointees ultimately discovered they were not validly appointed after the Court concluded the QFC was not enforceable on the date of appointment. Facts Administrators were put in place using the out-of-court route by a QFCH. Before the appointment, the QFCH served a formal demand on the company for...

Chopra and others v Katrin Properties Ltd and another company [2022] EWHC 2728 ( Ch), [2022] All ER ( D) 17 ( Nov) What are the practical implications of this case? Although determined on its particular facts, the decision underscores that: where liability under a personal guarantee (or any lending arrangement) is conditional upon a demand, that demand must be properly served if no such demand is served, any statutory demand should be set aside allegations of fraud—even when seeking to set aside a statutory demand—are not automatically accepted and may require supporting evidence What was the background? The applications concerned two lenders— Katrin Properties Ltd ( Katrin) and KSEYE Capital Holdings Ltd ( KSEYE)—and four alleged debtors. The supposed liabilities stemmed from loans to various companies which, on the face of the documentation, appeared to be personally guaranteed by the...

ABT Auto Investments Ltd v Aapico Investment Pte Ltd [2022] EWHC 2839 ( Comm), 14 November 2022 What are the practical implications of this case? The court confirmed that, when a collateral‑taker invokes appropriation, there is no distinct, freestanding duty to act in good faith. The only statutory requirement is that any valuation be carried out in line with the agreed terms and, in any event, in a commercially reasonable manner—no more and no less. That test is objective, operating as an impersonal benchmark rather than a subjective discretion. A collateral‑taker cannot proceed arbitrarily or unreasonably when selecting and applying a valuation methodology; the choice and application must be rational and defensible. What is commercially reasonable will always turn on the facts. Even if a valuation were not undertaken in a commercially reasonable way, the court stated it would not be void from the outset. The...

Heytex Bramsche GMBH v Unity Trade Capital Ltd [2022] EWHC 2488 ( Ch), [2022] All ER ( D) 38 ( Oct) What are the practical implications of this case? Although fact-specific, this ruling will interest insolvency practitioners as a reminder of the bar for avoiding a winding-up order. In this instance, notwithstanding that low bar, the court concluded there was no genuine or substantial dispute. It also carries weight for finance lawyers more broadly, emphasising the need for precisely drafted paperwork—here, letters of credit in the sphere of international trade finance. Core terms—identifying the parties, defining their respective functions and liabilities, stating the proper signatories, and confirming the incorporation of standard (or bespoke) conditions—must be clear and consistent. For letters of credit in particular, any marked shift from their commercial purpose (ie, assuring the buyer of payment against documents and the seller against buyer...

Oceanfill Ltd v Nuffield Health and Cannons Group Ltd [2022] EWHC 2178 ( Ch) What are the practical implications of this case? This decision may offer reassurance to commercial landlords anxious about tenants attempting to cram down landlord claims under the new CA 2006, Pt 26A, especially after the High Court sanctioned the Virgin Active plan. Under Pt 26A—specifically CA 2006, s 901G—the court can approve a plan even where not all creditor classes support it, via a cross-class cram-down, provided at least one class has agreed and that no member would fare worse under the relevant alternative (ie the most likely outcome if the plan were not approved). For landlords holding AGAs—and it is worth reviewing historic title documents, as the AGA here dated back around twenty years—it is reassuring that such guarantees are not automatically stripped of value in exactly the...

Breaches of UK trade and financial sanctions are pursued through criminal or civil action. Since 15 June 2022, civil enforcement of UK financial sanctions operates on a strict liability footing, meaning liability can arise even without knowledge or reasonable suspicion of a breach. Businesses should therefore scrutinise their sanctions compliance frameworks to ensure robust processes and procedures exist to spot and reduce sanctions risk. The move to strict liability reflects a deliberate step by HM Treasury and OFSI to align the UK approach, where appropriate, with the tougher US model. OFSI OFSI may now publish information about financial sanctions breaches even when no monetary penalty is imposed, including naming the persons responsible. This power is used only where a breach is found and there is a significant compliance lesson for industry, with an opportunity to make...

Gama Aviation ( UK) Ltd and Another v MWWMMWM Ltd [2022] EWHC 1191 ( Comm) What are the practical implications of this case? Key takeaways for practitioners include: NOM clauses: A party’s contractual rights and duties can be altered not only by variation but also by novation or termination. Anyone aiming to prevent such informal changes should adopt wording that makes this intention explicitly clear. contractual rights to terminate: Even where a clause grants a unilateral right to terminate by written notice, this may not stop the contract being discharged by an informal novation; whether it does will turn on the clause’s wording and the surrounding context. on covenants: As only reasons that genuinely influenced a party’s mind can justify the reasonableness of a refusal of consent, a party withholding consent should record its reasons at the time. The decision also supports...