Belmont Park Investments Pty Ltd v BNY Corporate Trustee Services Ltd and Another: SC 27 Jul 2011

Complex financial instruments insured the indebtedness of Lehman Brothers. On that company’s insolvency a claim was made. It was said that provisions in the documents offended the rule against the anti-deprivation rule. The courts below had upheld the agreements.
Held: The appeal failed. The agreement was valid and enforceable. The anti-deprivation rule as such was too well-established to be set aside, but it was to be limited to certain contexts, and these should be clarified:- ‘a deliberate intention to evade insolvency laws must be shown, though that intention need not be subjective, and a commercially good faith transaction should not found in breach. It does not apply save in insolvency. The distinction between an interest determinable on bankruptcy, a ‘flawed asset’, which is outside the anti-deprivation rule, and an absolute interest defeasible on bankruptcy by a condition subsequent, which falls foul of the rule, was too well established to be dislodged other than by legislation, though not every proprietary right expressed to determine or change on bankruptcy is valid, still less a deprivation which has been provided for in the transaction from the outset. The source of the assets is an important though not sufficient element in determining whether there had been a fraud on the bankruptcy law.’
Lord Collins said: ‘it is well established that if the deprivation takes place for reasons other than bankruptcy, the anti-deprivation rule does not apply.’
This was a complex commercial transaction entered into in good faith. Although, as a matter of law, the security was provided by the Issuer out of funds raised from the Noteholders, in substance the security was provided by the Noteholders and subject to a potential change in priorities. The security was provided by the Noteholders to secure their own liability, but subject to terms, including the provisions for Noteholder Priority and Swap Counterparty Priority, in a complex commercial transaction entered into in good faith. There has never been any suggestion that those provisions were deliberately intended to evade insolvency law.

Lord Phillips, President, Lord Hope, Deputy President, Lord Walker, Lady Hale, Lord Mance, Lord Collins, Lord Clarke
UKSC 2009/0222, [2011] UKSC 38, [2011] Bus LR 1266, [2011] 3 WLR 521, [2012] 1 All ER 505, [2012] 1 BCLC 163, [2011] BPIR 1223, [2012] 1 AC 383, [2011] BCC 734
Bailii Summary, SC, SC Summary, Bailii
England and Wales
CitedWhitmore v Mason 18-Nov-1861
The exclusion of the lease on bankruptcy of the partner was void. Sir William Page Wood V-C said: ‘the law is too clearly settled to admit of a shadow of doubt that no person possessed of property can reserve that property to himself until he shall . .
CitedHiginbotham v Holme 6-May-1812
A settlement entered into disposing of property into a trust for himself and others when the donor was not endebted, but which provided that on his bankruptcy would pay an annuity to his wife, was void as against creditors on his later bankruptcy. . .
Appeal FromPerpetual Trustee Company Ltd and Another v BNY Corporate Trustee Services Ltd and Others CA 6-Nov-2009
The court considered the extent of the so-called anti-deprivation rule which would avoid a contract designed to deprive creditors of an asset on the insolvency of a party to the contract. The claimant appealed a finding that the rule did not apply . .
At First InstancePerpetual Trustee Co Ltd v BNY Corporate Trustee Services Ltd and Another ChD 28-Jul-2009
The parties had entered into complicated financial arrangements effectively providing credit insurance. On the insolvency of Lehman brothers, a claim was made.
Held: The contractual provisions were effective as a matter of English law and, in . .
CitedRe Garrud, Ex parte Newitt CA 1881
A building contract provided for forfeiture on the tenant’s breach and not on bankruptcy. The bankrupt builder had broken the terms of his agreement with the landowner and it was provided in the agreement that the chattels would be forfeited to the . .
MentionedBritish Eagle International Airlines Ltd v Compagnie National Air France CA 1974
. .
CitedBritish Eagle International Airlines Ltd v Compagnie National Air France HL 1975
British Eagle, which had gone into liquidation. The parties disputed a contract attempting to reset the ranking of debts. The House was asked whether there was a debt due to the insolvent company at the commencement of its winding-up, to which the . .
CitedEx parte Mackay; Ex parte Brown; In re Jeavons 1873
Mr Jeavons sold a patent regarding the manufacture of armour plates to a Brown and Co and Cammell and Co in consideration of the companies paying royalties. There was also a loan from the company to Mr Jeavons secured on the royalties. The parties . .
CitedCarreras Rothmans Ltd v Freeman Mathews Treasure Ltd 1985
Peter Gibson J said: ‘where the effect of a contract is that an asset which is actually owned by a company at the commencement of its liquidation would be dealt with in a way other than in accordance with [the statutory pari passu rule] . . then to . .
CitedAyerst (Inspector of Taxes) v C and K (Construction) Ltd HL 1976
A resolution or order for winding up of a company divests it of the beneficial interest in its assets. They become a fund which the company thereafter holds in trust to discharge its liabilities. Where a company is wound up in this country, its . .
CitedEx parte Jay, in re Harrison CA 26-Feb-1880
A builder agreed with the owner of the land on which he was to build houses that upon his bankruptcy all the building materials on the land should become absolutely forfeited to the owner. The builder than charged the materials, but this was not . .
CitedInternational Air Transport Association v Ansett Australia Holdings Ltd 6-Feb-2008
(High Court of Australia) The rules of the clearing house scheme had been modified following the British Eagle decision so as to exclude any liability or right of action for payment between member airlines.
Held: (by a majority, Kirby J . .
CitedMoney Markets International Stockbrokers Ltd v London Stock Exchange Ltd and Another ChD 10-Jul-2001
MMI were members of the London Stock Exchange, and accordingly held one share in that non-profit making institution. The share was valueless. Anticipating losing their membership and so the share, and also the demutualisation, the share was to be . .
CitedEx parte Barter, Ex parte Black. In re Walker 1884
A prospective buyer of a ship had the right to take possession of the ship and use the shipbuilder’s premises and chattels to complete the building work, in the event of the builder not proceeding with the shipbuilding or going bankrupt. . .
CitedIn re Detmold, Detmold v Detmold 1889
A provision stated that the property in a marriage settlement (originating from the husband) should pass to the wife for life in the event of an alienation by, or the bankruptcy of, the husband.
Held: It was valid against the husband’s trustee . .
CitedBorland’s Trustee v Steel Brothers and Co Ltd 1901
Mr Borland was a shareholder. The company’s articles contained pre-emption rights, such that on a shareholder’s bankruptcy, he had, on receiving a transfer notice from the directors, to transfer his shares to a manager or assistant at a fair value . .
CitedBombay Official Assignee v Shroff PC 1932
The bankrupt had been a member of the Bombay stock exchange. His share had been forfeit. The trustee claimed the share. The official assignee contended that his members card or the value thereof vested in him as the assignee in the insolvency, . .
CitedIn re Johns, Worrell v Johns 1928
A mother and son agreed that the sum repayable by the son in respect of periodic loans made by the mother (which could not exceed andpound;650, and might be as little as andpound;10, in all) was to increase from andpound;650 to andpound;1,650 (plus . .
CitedWilson v Greenwood 17-Jul-1818
Articles of partnership having provided, that on dissolution by death, notice, or misconduct, of a partner, the remaining partners should have the option of taking his share at a valuation, payable by yearly instalments in the course of seven years: . .
CitedIn re Apex Supply Co Ltd 1942
A hire purchase agreement provided that if the hirer should go into liquidation, and the owner should retake possession, the hirer would pay a sum by way of compensation for depreciation.
Held: The provision for the payment of compensation was . .
CitedIn re Stephenson; Ex parte Brown 1897
Where a person settles property in such a way that his interest determines on his bankruptcy ‘that is evidence of an intention to defraud his creditors’. . .
CitedTito v Waddell (No 2); Tito v Attorney General ChD 1977
Equity applies its doctrines to the substance, not the form, of transactions. In respect of the rule against self dealing for trustees ‘But of course equity looks beneath the surface, and applies its doctrines to cases where, although in form a . .
CitedRegina v J HL 14-Oct-2004
The defendant was to have been accused of having unlawful sexual intercourse with a girl under 16. Proceedings could not be brought, because the allegation was more than a year old, and he was instead accused of indecent assault, but on the same . .
CitedFolgate London Market Ltd v Chaucer Insurance Plc CA 31-Mar-2011
The court was asked whether a clause in a settlement agreement relieving the paying party from its obligation to make payment to the receiving party in the event of the latter’s insolvency infringed the so-called anti-deprivation principle that . .
CitedLomas (Administrators of Lehman Brothers International (Europe)) v JFB Firth Rixson Inc and Others ChD 21-Dec-2010
Interest swap counterparties withheld payments due to Lehman Brothers International (Europe) in reliance on a provision of an ISDA Master Agreement that a party’s payment obligations were subject to the condition precedent that there was no . .
CitedLester v Garland 24-Mar-1832
A trader on his marriage received a fortune of andpound;5000 with his wife ; and settled a sum of stock in trust for himself for life, with limitations over for the benefit of his wife and children, in the event of his becoming bankrupt or . .
CitedIn re Maxwell Communications plc ChD 1993
It was argued that the pari passu distribution of assets among unsecured creditors was a general rule of insolvency law from which it was not possible to contract out, even to one’s own disadvantage, particularly by analogy with cases on set-off in . .
CitedMayhew v King and Others ChD 20-May-2010
The court was asked to make a declaration which turned on the interpretation of the ‘anti-deprivation’ rule and its application to a settlement agreement: ‘Milbank is insolvent and has had an administration order made against it. Chaucer seeks an . .
CitedIn re King’s Trust 1892
Lord Porter said it was ‘little short of disgraceful to our jurisprudence’ that in reference to a rule professedly founded on public policy there should be a distinction between a gift of an annuity for life coupled with a proviso for cessation if . .
CitedKitchen v Royal Air Force Association CA 1958
The plaintiff’s husband, a member of the RAF, was electrocuted and killed in the kitchen of his house. A solicitor failed to issue a writ in time and deprived the plaintiff of the opportunity to pursue court proceedings.
Held: Damages were not . .
CitedLehman Brothers Special Financing Inc v Carlton Communications Ltd ChD 28-Mar-2011
Claims under interest rate swap agreements.
Held: The condition precedent in section 2(a)(iii) of the ISDA Master Agreement was valid – ‘to relieve the non-defaulting party from payment obligations for as long as the defaulting party is, by . .
CitedKemble and Another v Kicks and Others; In Re the Trusts of the Scientific Investment Pension Plan ChD 5-Mar-1998
Provision in pension scheme withdrawing benefits to bankrupt beneficiary defeated trustees claim only if determinable or defeasible interest. . .
CitedIn re Sharp’s Settlement Trusts 1972
. .

Cited by:
CitedIn re Kaupthing Singer and Friedlander Ltd SC 19-Oct-2011
The bank had been put into administrative receivership, and the court was now asked as to how distributions were to be made, and in particular as to the application of the equitable rule in Cherry v Boultbee in the rule against double proof as it . .
CitedWright and Another (Liquidators of SHB Realisations Ltd) v The Prudential Assurance Company Ltd ChD 6-Mar-2018
IVA is a special form of contract
Liquidators asked the court whether sums sought by the insolvent company’s landlords were payable and or provable. Under an IVA, the copany had been paying reduced rents, but the arrangement document provided that the full rents would be restored on . .
CitedLB Holdings Intermediate 2 Ltd, The Joint Administrators of v Lehman Brothers International (Europe), The Joint Administrators of and Others SC 17-May-2017
In the course of the insolvent administration of the bank, substantial additional sums were received. Parties appealed against some orders made on the application to court for directions as to what was to be done with the surplus.
Held: The . .

Lists of cited by and citing cases may be incomplete.

Insolvency, Financial Services, Contract

Updated: 09 November 2021; Ref: scu.442223