Banking ...... 8 Cases ...... 8 Notice and valuation issues under Global Master Securities Lending Agreement...... 8 Savings Bank of the Russian Federation v Refco Securities LLC...... 8 Misrepresentation by bank on guarantee...... 9 National Westminster Bank plc v Kotonou...... 9 Misrepresentation against bank dismissed ...... 10 Patricia Mary Wright (as representative & next of kin of Kenneth William Wright; deceased) v HSBC Bank Plc (2006)...... 10 Fraudulent share certificates ...... 11 Cadbury Schweppes Ltd and another v Halifax Share Dealing Ltd...... 11 Implied term re valuation in forward sale agreement ...... 13 Socimer International Bank Ltd (In Liquidation) v Standard Bank London Ltd ...... 13 Recoveries – pending land action...... 15 Godfrey v Torpey & Ors ...... 15 Bank action against negligent environmental assessor ...... 15 Royal Bank of Scotland v Waterman Environmental Ltd...... 15 Court considers whether a guarantee by way of email has been signed ...... 16 J Pereira Fernandes SA v Metha...... 16 Negligent advice on performance bond? ...... 17 Oxus Gold plc (formerly Oxus Mining plc) and another v Templeton Insurance Ltd ...... 17 Enforcement of undertaking as to damages ...... 18 Panos Eliades & Ors v Lennox Lewis...... 18 Preliminary issue in argument over priority of a fixed and a floating charge ...... 19 State Securities plc v Liquidity Ltd ...... 19 Liability for Contaminated Land...... 20 R (on the application of National Grid Gas plc) v Environment Agency...... 20 Conflict of laws ...... 21 Fonu v Demirel and another ...... 21 Taxation of loan notes...... 21 Cadbury Schweppes plc and another v Williams (Inspector of Taxes) ...... 21 Legislation ...... 24 Climate Change ...... 24 Climate Change and Sustainable Energy Bill - Explanatory Notes ...... 24 Consumer Credit...... 24 The Consumer Credit (Exempt Agreements) (Amendment) Order 2006 No 1273 ...... 24 The Credit Unions (Maximum Interest Rate on Loans) Order 2006 No 1276 ...... 24 Corruption ...... 24 Corruption Bill ...... 24 Customer ...... 24 The National Savings Bank (Amendment) Regulations 2006 ...... 24 Land...... 25 The Land Registration Fee Order 2006...... 25 Articles...... 26 Banking...... 26 Understanding debt subordination and the rule in Cherry v Boultbee: Re SSSL Realisations ..... 26 Business Transfers ...... 26 FSMA banking business transfers: choosing the right route ...... 26 Capital markets ...... 26 Covered bonds ...... 26 Block trades: an introduction...... 26

Contract...... 27 Contract...... 27 Corruption ...... 27 Strategic improvements in the fight against corruption in international business transactions.. 27 Customer ...... 27 Financial Ombudsman News...... 27 E-commerce ...... 27 Legal effects of input error in eContracting ...... 27 Europe ...... 28 Current ECJ on the legal effects of cancellation of a loan contract negotiated by way of doorstep selling – a German perspective...... 28 Hedge funds...... 28 Growing hedges...... 28 Hedge funds and systemic risk...... 28 Islamic finance...... 28 The path to ethical returns...... 28 No Debt About It...... 28 Leasing...... 29 New UK tax rules...... 29 Money laundering ...... 29 Criminal property? Prove it ...... 29 Project Finance ...... 29 Cutting time...... 29 Coded message...... 29 Time is running out ...... 29 Next regeneration...... 29 Decade of success ...... 30 Taking the initiative ...... 30 An uneasy partnership...... 30 Going local...... 30 Motorway of the future...... 30 No time to waste...... 30 Property derivatives ...... 30 Applied property derivatives ...... 30 Rating agencies ...... 31 Ratings forecasts ...... 31 Real Property...... 31 REIT up your street ...... 31 Sidestepping transaction costs...... 31 Regulation and Risk...... 31 Organisational systems and controls - common platform for firms...... 31 Bank corporate governance, compliance and reputation risk: a proactive approach for international banks with cross-border operations ...... 31 Securitisation...... 32 Why Hollywood turned to securitisation ...... 32 Behind the scenes...... 32 Middle Eastern promise ...... 32 Russian securitisation takes flight...... 32 Security ...... 32 Company charges and security: an overview of the present position...... 32 Set Off ...... 33 Equitable set-off ...... 33 Structured finance...... 33 Europe’s flexible friend ...... 33 Tax ...... 33 Equity futures and options...... 33 Trusts ...... 33 Based on trusts...... 33 Technical...... 34

Law reform...... 34 European Commission Final Proposal For A Regulation On The Law Applicable To Contractual Obligations (“Rome I”) ...... 34 Money laundering ...... 34 Fighting money laundering and terrorist finance...... 34 Payment systems ...... 34 Commission Consults Industry on Evaluation of Settlement Finality Directive ...... 34 Regulation...... 35 Joint MIFID Implementation Plan ...... 35 MiFID Connect establishes an IT Advisory Committee to address the IT consequences of MiFID35 CEBS publishes final report on supervisory practices regarding large exposures ...... 35 Implementing MiFID’s best execution requirements ...... 35 Risk ...... 36 Joint Forum has issued a paper on funding liquidity risk management...... 36 Regulatory and market differences: issues and observations ...... 36 The management of liquidity risk in financial groups ...... 36 Notices ...... 38 Second Consultation on Proposed Changes to the Financial Services and Markets Act 2000 ... 38 European Community Finances Statement on the 2006 EC Budget and Measures to Counter Fraud and Financial Mismanagement...... 38 The audit of banks and building societies in the United Kingdom (Revised)...... 38 Setting up an expert group on customer mobility in relation to bank accounts ...... 39 Commission Launches Dialogue on Creating an Internal Market for Mortgage Credit ...... 39 Consultation paper on modernising Value Added Tax obligations for financial services and insurances ...... 39 HMRC contacts for s 20 notices on offshore bank accounts ...... 39 Insolvency ...... 40 Cases ...... 40 Application to dismiss petition/issue validation order ...... 40 Re Square 3 Ltd...... 40 Without prejudice rule...... 41 Re Transocean Equipment Manufacturing & Trading Ltd ...... 41 Refusal of administration order on grounds unlikely to achieve purpose of administration...... 42 In the matter of Q3 Media Ltd...... 42 Administrator pays prefs prior to winding-up...... 43 Re Spiralglobe Ltd ...... 43 Limitation on TIB claim and comment on MC Bacon...... 43 Hill (as trustee in bankruptcy of Nurkowski) v Spread Trustee Company Ltd & Anor ...... 43 Discharge of provisional liquidators claim ...... 45 Mishcon De Reya (A Firm) v Paul Barrett ...... 45 Shareholder knowledge at distribution of dividend...... 46 It’s a Wrap (UK) Ltd v Gula and another ...... 46 Similar fact evidence on injunction ...... 47 Abbey National Plc v JSF Finance & Currency Exchange Co Ltd ...... 47 Setting aside of statutory demand reversed ...... 48 Union Bank (UK) plc v Pathak ...... 48 Implementation of creditors’ plan approved by New York in Scheme...... 50 Cambridge Gas Transport Corporation V Official Committee Of Unsecured Creditors Of Navigator Holdings Plc & Ors ...... 50 Was it in public interest for the company to be wound up?...... 51 Re Get Me Tickets Ltd and other companies...... 51 Rates as administration expense ...... 52 Trident Fashions v Bairstow ...... 52 Scotland...... 52 Right to occupy property ...... 52 Aerpac Ltd (in administration) and another v NOI Scotland Ltd ...... 52 Legislation ...... 55

The Insolvency (Amendment) Rules 2006 No 1272 ...... 55 Articles...... 56 Bondholders...... 56 Ignore bondholders at your peril...... 56 Commercial property...... 56 The AGA saga: ten years on ...... 56 Distressed debt...... 56 RBS plans buyout arm...... 56 IWP International completes restructuring ...... 56 Employment...... 56 New TUPE Regulations – impact on distressed business dispositions ...... 56 Expenses ...... 56 The Leyland DAF controversy continues ...... 56 Overseas...... 57 The French Revolution ...... 57 French U-turn on the European Regulation...... 57 How to bring hedge funds into the system? ...... 57 France is the new Germany ...... 57 IMF warns on LBOs...... 57 European integration meets wall of cash ...... 57 Russian receiver of Yukos uses US Chapter 15...... 57 The failed Yukos Chapter 11 ...... 57 Remuneration...... 57 Remuneration, the insolvency practitioner and the courts...... 57 Working with companies in financial difficulties – will you be paid? ...... 58 Security ...... 58 Security over co-owned property and the creditor's paramount status in recovery proceedings 58 Technical...... 59 Insolvency set-off and building societies ...... 59 Company Law Reform Bill: views from the profession compiled by the ABRP General Technical Committee ...... 59

Banking Cases

Notice and valuation issues terminate the agreement, on a given date, under Global Master provided that all loans entered into were Securities Lending duly discharged in accordance with the agreement by that date. Paragraph 8.4 of Agreement the GMSLA provided that on the date and Savings Bank of the Russian time that equivalent securities were Federation v Refco Securities required to be redelivered by the borrower LLC on the termination of the loan the lender [2006] EWHC 857 (QB) Queen’s Bench Division would simultaneously repay to the (Commercial Court) Christopher Clarke J 17 borrower any cash collateral or redeliver March 2006 collateral equivalent to the collateral Contract – Loan agreement – Standard form loan provided. Paragraph 9.2(i) provided that if agreement – Provisions for termination of the lender did not redeliver equivalent agreement – Notice to terminate – Liability under collateral in accordance with para 8.4 then agreement – Whether notice valid. the borrower could by written notice to the lender terminate the loan and the On 17 December 2004, the claimant and parties’ delivery and payment obligations the defendant entered into a standard in respect of that. Further, para 9.2(ii) form Global Master Securities Lending provided that upon service of such a notice Agreement (GMSLA). Under that there would be set off against the market agreement the parties were to enter into value of the equivalent collateral the individual transactions described as ‘loans’ market value of the loaned securities. On whereby one of them acting as lender 17 October 2005, the claimant, as would advance to the other as borrower borrower, terminated the GMSLA under securities or financial instruments against para 17 and called for settlement of the provision of collateral by the borrower mutual obligations by November 8. On 28 of a value equivalent to the securities or October, the claimant requested return of financial instruments advanced. Under the the collateral against payment of the loans the borrower was to transfer to the loans, in accordance with para 8.4 of the lender on a fixed date, or on demand, GMSLA. On 8 November, the defendant securities equivalent to the securities informed the claimant that it was unable transferred by the lender to it, against the to deliver back the collateral. On 2 transfer to the borrower by the lender of December, by letter, the claimant sought assets equivalent to the collateral. to exercise its rights under the GMSLA and Paragraph 17 of the GMSLA provided that claimed over $US120,000,000, each party had the right with notice to

May 2006 8

purportedly pursuant to para 9.2. The (2) In the circumstances, the claimant applied for summary judgment. appropriate date for valuation for the Liability was admitted but there was a purposes of para 9.2(ii), if notice was dispute as to the extent of that liability. given under para 9.2(i), was the date of service of the notice because it was Issues arose, inter alia, as to: upon service of that notice that the (i) whether the letter of 2 December obligations in para 9.2(ii), including the was a notice under para 9.2(i); and obligation to set off the market values (ii) what was the appropriate date for and to account to the borrower for the valuation for the purposes of para shortfall, arose. Accordingly, the 9.2(ii) if notice was given under para appropriate date for valuation was 2 9.2(i). December.

The defendant submitted that the letter Judgment would be entered for the was not a notice under para 9.2(i), claimant for $US120,114,706.03 by way because although it stated that the of principal and $US1,565,465.65 by way claimant was exercising its rights under the of interest. relevant agreements it did not specify Misrepresentation by bank which rights it was exercising and said on guarantee nothing about terminating the loans. The claimant submitted that it was immaterial National Westminster Bank plc that the letter did not use the word v Kotonou ‘terminate’ or ‘termination’; it was [2006] All ER (D) 325 (May) Chancery Division sufficient that the letter made clear that Jules Sher Qc Sitting As A Deputy Judge Of The High Court 22 May 2006 the claimant was requiring payment, terminating the loans and invoking the Misrepresentation – Negligent misrepresentation – procedure under para 9.2. The defendant Misrepresentation inducing contract – Guarantee – further submitted that para 9.2(ii) did not Defendant applying to set aside guarantee – provide for a valuation date and that Whether bank’s failure to correct impressions given therefore it was necessary to determine an to defendant constituting misrepresentation. appropriate date by interpretation or In April 2006, the defendant, the implication and, accordingly, the controlling mind of a group of information appropriate date was 9 November 2005 technology companies, succeeded in because that was the date of breach of the refuting the claimant bank’s claim that a obligation to deliver back the collateral. mortgage over the defendant’s property HELD: secured the bank’s costs and expenses, in proceedings against the defendant, (1) Considering the effect of the 2 pursuant to a personal guarantee, and December letter upon a recipient in the subsequent legal charge in favour of the defendant’s position with knowledge of bank, entered into in respect of security the terms of the GMSLA the claimant for loans granted to certain of the had by their letter given a valid notice defendant’s companies ([2006] All ER (D) under para 9.2(i). 198 (Apr)). Ancillary to those proceedings,

the defendant applied to set aside the their borrowing and, as part of that personal guarantee on the basis that exercise, W took out pension term certain misrepresentations had been made, insurance, a pension plan and cancelled inducing him to sign the guarantee. the joint life insurance. In 2001, W and H claimed that X had insisted on the pension The application would be allowed. On the being set up and they stated that they evidence, in failing to correct certain wished to terminate the plan. The bank impressions given to the defendant when concluded that there had been no mis- he signed the guarantee, there had been a selling of any product but that the pension negligent, but not a fraudulent, material term insurance could have been done misrepresentation by the bank. more cheaply. In October 2001, the bank Misrepresentation against wrote to W, offering to settle the pension bank dismissed term insurance claim at approximately Patricia Mary Wright (as £500. In the same month, H died. In November 2001, W met a further representative & next of kin of representative of the bank (Y) to discuss Kenneth William Wright; her indebtedness. The settlement of the deceased) v HSBC Bank Plc claim against the bank and the possibility (2006) of W selling her property were discussed at QBD (Jack J) 5/5/2006 [2006] EWHC 930 (QB) the meeting. In February 2002, W wrote to AGREEMENTS : BANKS : MISREPRESENTATION : Y, accepting the proposals for the MISSELLING : PENSIONS : SETTLEMENT : UNDUE settlement of her claim conditional upon INFLUENCE : COMPROMISE OF CUSTOMER'S the bank providing a new mortgage in CLAIMS AGAINST BANK : NO MISREPRESENTATION connection with her purchase of a smaller OR UNDUE INFLUENCE property and overdraft facilities. Those facilities were provided and W proceeded The claimant customer had not been induced to to incur more debt. W claimed that she enter into a settlement agreement with the had not been in a fit state to make defendant bank by any misrepresentation or by any decisions at the November 2001 meeting undue influence with the result that she was barred with the result that the settlement from pursuing any claims subject to the agreement. agreement and facilities were not binding The claimant (W) claimed damages against on her. W contended that the defendant bank. In 1997, W and her (1) Y had misrepresented the fact that husband (H) had decided to purchase a by selling her property her debts would property funded by a mortgage provided be cleared and had exerted undue by the bank which was supported by a influence on her to accept the joint life policy. The bank also agreed to settlement; provide overdraft facilities to W and H, which began a series of substantial (2) the bank had failed to give proper increases in borrowing. In 1998, W and H advice in connection with the wished to reduce their outgoings and met cancellation of the joint life insurance; a financial planning manager employed by the bank (X). He suggested restructuring

(3) X had made the pension a (2) Both W and H had known what the condition of the restructuring package. consequences of cancelling the joint life insurance policy would be, namely that HELD: H's life would be uninsured. In the (1) No actionable representations had circumstances, no advice had been been made at the November 2001 required from the bank. meeting. W's decision to move had (3) X had not said anything to the been made independently of anything effect that, unless W took out a said by Y save that he had said that the pension, she would not get the rest of bank would look favourably at the the package. However, X had not been lending necessary to enable the move justified in acting as he had done. W to take place. Nor had Y made any and H had been seeking to reduce their representation that, come what may, W outgoings and, given their shortage of would reduce her monthly outgoings by cash in the bank, it was inadvisable to the move. Y had acted honestly start a pension at that time. X should towards W throughout and there had not have advised W to take out a been no plot to force her to concede pension and was in breach of his duty her claims against the bank. owed to her. Nevertheless, W's claim to Furthermore, the allegations of undue rescind the settlement agreement had influence and duress were without failed and her claim arising from the foundation. The bank had been entitled pension sale was therefore barred. to demand the money owed by W and, had it done so, it would have been Judgment for defendant. within its legal rights. It would have Fraudulent share certificates been possible for the bank to say that, if W wanted its continued support, she Cadbury Schweppes Ltd and had to give up her claim. If W had another v Halifax Share agreed to do so, the law would not Dealing Ltd have intervened. There would have [2006] EWHC 1184 (Ch) Chancery Division been no abuse of influence and no Lindsay J Date: 23 May 2006

illegitimate pressure to found a case of Summary: Company—Shares—Sale—Fraudulent economic duress. The bank had not transfer of shares—Fraudsters successfully contriving made it a condition of continued to sell shares belonging to shareholders of claimant lending that W should give up her companies—Claimants seeking to recover cost of claim. Following the meeting with Y, W recoupment from defendant stockbroker—Whether had decided what she was going to do claimants entitled to indemnity from defendant— herself and the bank's contribution to Whether claimants estopped from denying truth of her decision was that it would look representations in share certificates. favourably at the necessary lending, but The claimant companies were listed at the no more. In the circumstances, the facts London Stock Exchange, which employed were a long way from supporting a a bank (the bank) to provide share finding of undue influence or duress. registration services. The claimants used

the defendant stockbroking company in its HELD: The giving of a share certificate share dealings. Fraudsters caused the bank amounted to a statement by the company, to issue and send duplicate certificates to intended by it to be acted upon by the addresses chosen by the fraudsters. purchasers of shares in the market, that Thereafter, the fraudsters sent the forged the persons certified as the holders were share transfer certificates with the entitled to those shares; and that the duplicate certificates to the bank with a purchasers having acted on the statement request for the transfer of the holdings by the company, the company was into the fraudsters’ names and the issue of estopped from denying its truth and liable fresh certificates into the fraudsters’ to pay as damages the value of the shares. names. Eventually, the fraudsters The defendant had made good the three successfully sold those shares to innocent essential elements of any estoppel by shareholders in the market. Upon learning representation and there was no reason of the frauds, the claimants procured the why it should not be deployed. In the purchase in the market of shares in circumstances, the onus was on the themselves in order to distribute them to claimants to displace the prima facie title the defrauded shareholders. Dividends that which their own share certificates had had been lost to the shareholders by way conferred. However, the claimants, being, of the fraud were also made good to by reason of the estoppel, unable to deny them. The claimants sought to recover the the truth of their own share certificate costs of re-instating the original naming others, the fraudsters, as the shareholders from the defendant. The shareholders at the only time at which the defendant issued a Pt 20 claim against the defendant had done anything of bank. relevance, found themselves unable to The claimants’ case was that it was assert or prove that the persons that they entitled to recover those costs on the basis had reinstated had been, indeed, the true of the principle that there was an implied shareholders. Their claims therefore ended indemnity in favour of a company when up as if they had reinstated strangers, someone lodged for registration with the persons who had no right to be Registrar of Companies, a fraudulently shareholders, a claim against which they executed transfer of shares in the had received no implied indemnity from company, action upon which caused loss the defendant. In those circumstances, the to the company. Although the defendant claimants had no claim against the accepted that it was obliged to indemnify defendant other than by way of the the claimants, it asserted an estoppel on implied indemnity, and that being denied the basis that the claimants could not deny them, their claims against the defendant the truth of the representations made failed. Since there had been no award under seal by their own share certificates against the defendant in the main action, as granted to the fraudsters and as were the defendant’s Pt 20 claim against the handed to, and relied upon to its bank did not arise. detriment, by the defendant. Dugdale v Lovering LR 10 CP 196 and Dixon v Kennaway and Co [1900] 1 Ch 833 considered.

Re Bahia and San Francisco Railway Co Ltd v discretion to sell the assets as and when it Trittin and others (1868) LR 3 QB 584, The Balkis Consolidated Co Ltd v Tomkinson and liked and to use the actual sale proceeds others [1893] AC 396 and Sheffield from sales whenever achieved for the Corporation v Barclay [1905] AC 392 applied. purposes of fixing the account between Implied term re valuation in itself and C as at the termination date. forward sale agreement The judge had held (in Socimer Socimer International Bank Ltd International Bank Ltd v Standard Bank (In Liquidation) v Standard London Ltd (2004) EWHC 1041 (Comm)) Bank London Ltd that D, on the termination date, or as soon as practicable thereafter, had to elect [2006] EWHC 718 (Comm) QBD (Comm) whether to liquidate or retain the (Gloster J) 31/3/2006 designated assets, and was also required Where the termination of a forward sale agreement to arrive at a value for the assets on or as required the seller to bring into account the value of at the termination date, either from an the designated assets and the amount unpaid by the actual sale or from a notional valuation, buyer it was a business necessity to imply a term for the purposes of determining the state requiring the seller to act honestly and reasonably in of the account between C and D. reaching its valuations. The issue for the court now was the The claimant bank (C) claimed the sum of valuation of the assets as at the US$13.3 million from the defendant bank termination date. D submitted among (D) under the accounting provisions of a other things that the court's approach to forward sale agreement concluded on D's valuation should be to decide what D standard form terms and conditions. The would in fact have done and not what the forward sale agreement was an umbrella court thought was objectively reasonable, agreement that governed the making and and that where a party had a contractual performance of individual forward sale discretion, the law made no stipulation, transactions between C as buyer and D as whether by way of implied term or seller of emerging market assets at set principle of construction, that such future dates and set prices. The assets discretion should be exercised reasonably were debt instruments. The individual with regard to the interests of the other transactions were effected orally but party. C submitted among other things evidenced by documentary trade that it was "in the money" at termination, confirmations. meaning that the aggregate values of the The agreement had terminated after C had designated assets exceeded the unpaid defaulted in the payment of sums due amounts. under it. Clause 14 of the agreement HELD: provided for what should happen on the occurrence of an event of default. (1) The court had to decide, in calculating C's compensation, what Following termination D held on to the valuation D would have reached on the assets pending a decision to go into the relevant date if the contract had been market and sell, on the basis that it had a performed, and it followed that the

court was entitled to receive evidence designated assets at their true value as from D as to how it would have gone at the termination date and D could not about performing that valuation and simply value at nil because there did not the criteria it would have adopted, happen to be a purchaser or a quoted Horkulak v Cantor Fitzgerald bid price on that date, Silven Properties International (2004) EWCA Civ 1287 , Ltd v Royal Bank of Scotland Plc (2003) (2004) IRLR 942 and Lion Nathan Ltd v EWCA Civ 1409 , (2004) 1 WLR 997 CC Bottlers Ltd (1996) 1 WLR 1438 applied. considered. (3) The court had to decide as the first (2) In doing its valuation, D was stage of the decision process whether D obliged to act honestly and reasonably would have elected to retain or and to arrive at a value that properly liquidate any particular designated reflected the actual value of the asset. designated assets as at the termination (4) The unpaid amount for the date. As a matter of business necessity, purposes of clause 14 was $US20.382 the terms of the agreement, the nature million as C contended. of the designated assets, the relationship between the parties and (5) C had a claim in damages for the circumstances in which the assets breach of contract, or alternatively for fell to be valued gave rise to the an account, in respect of D's failure to implication of a reasonableness term. retransfer to C certain depositary Horkulak and Gan Insurance Co Ltd v receipts. Had D appreciated at the Tai Ping Insurance Co Ltd (2001) EWCA termination date what its obligations Civ 1047 , (2001) CLC 1103 considered. were under the agreement it would have returned those receipts to C. The Although C had no proprietary interest correct measure of C's loss in the in the designated assets, nonetheless, circumstances was the value of the given its rights to have the designated receipts in C's hands, not an objective assets returned to it to the extent that market value based on what a third the "unpaid amount" owed by C to D party might have paid for the was satisfied out of the liquidated or instruments at that time. retained assets, and D's obligation to fix the deficiency, if any, by reference to its (6) C was entitled to judgment by way valuation of the designated assets, of an account, or damages, from D there was every reason for the under clause 14 of the agreement for implication of a duty closely analogous the value of the depositary receipts and to that of a mortgagee, Meftah v Lloyds the valuations of the other designated TSB Bank Plc (2001) EGCS 44 assets, reduced by the unpaid amount. considered. Judgment for claimant.

The implied term imposed on D a duty, in doing its valuation, to take reasonable precautions to value the

Recoveries – pending land Y what Y would normally be expected to action assert, namely that she was the beneficial owner of a valuable property. C's claim Godfrey v Torpey & Ors related to land or an interest in land. While Ch D (Peter Smith J) 5/5/2006 in most cases a party would be seeking to

Where a claimant had brought proceedings against assert a direct interest it did not follow a party for the recovery of unsecured debts, and that merely because a party was not that party allegedly had a beneficial interest in seeking a direct interest an action could property, those proceedings amounted to a not be brought that affected the title to "pending land action" for the purpose of the Land land that he had an interest in bringing. Registration Act 2002 s.87 and the claimant was C's proceedings amounted to a "pending entitled to register a notice against the property. land action" for the purposes of the 2002 Act. The applicant registered proprietor (X) applied to vacate a unilateral notice Application refused. registered against his property. X was the Bank action against negligent fifth defendant in proceedings in which environmental assessor the claimant (C) asserted that the fourth defendant (Y) had incurred liabilities to Royal Bank of Scotland v him under various actions concerning Waterman Environmental Ltd unsecured debts. In those proceedings C [2006] All ER (D) 275 (Apr) Chancery Division alleged that X's property beneficially Mann J 28 April 2006 belonged to Y, alternatively that it had Disclosure and inspection of documents – been transferred by Y in which case the Production of documents – Action for professional transfer was challengeable under the negligence – Valuation evidence – Defendant Insolvency Act 1986 s.423, and registered seeking disclosure of certain valuations – Effect of a notice against the property. X argued stigma – Whether court should order disclosure. that C's action against Y could not be the The claimant brought an action for subject matter of a "pending land action" professional negligence against the under the Land Registration Act 2002 defendant in respect of certain advice s.87(1) and the notice should be vacated. given by the defendant as to various HELD: Section 87 of the 2002 Act mirrored environmental matters on a property the Land Charges Act 1972 s.17. The purchased by the claimant. The action was purpose of a pending land action notice based on the defendant’s failure to was to put on notice prospective ascertain or report on the presence of purchasers that there was a dispute that asbestos at the property. One of the might effect the land. A party had to show elements of the damages claim related to a genuine interest in the outcome of the loss of value in the property and the litigation to claim a pending land action, stigma the property was said to bear. The Calgary v Dobinson (1974) 1 Ch 103 trial was due to start on 8 May 2006. The considered. In the instant matter, C had a defendant applied for the disclosure of legitimate interest in asserting on behalf of certain monthly valuations and the

instructions given in respect of those of the message or by using a secure valuations. signature verification tool. The only place where his name was to be found was in The defendant contended that the effect the sent email address line at the top of of stigma on the property was of central the email. importance to the valuation exercise. The issues before the court were: HELD: there was no justification for ordering disclosure at the present stage of whether the email was a the proceedings. The documents sought memorandum or note of an agreement did not fall within the test laid down in to guarantee and CPR Pt 31. Moreover, their relevance was whether the email had been signed, so so peripheral that it would be as to satisfy the requirements of s 4 disproportionate to order disclosure. Statute of Frauds. Court considers whether a The purpose of the Statute is to protect guarantee by way of email people from being held liable on oral or has been signed unsigned written communications. Where there is an offer in writing made by the J Pereira Fernandes SA v party to be bound containing the essential Metha terms and the party to be bound accepts [2006] All ER (D) 264 (Apr) [2006] EWHC 813 that his offer has been accepted (even if (Ch) Chancery Division, Manchester Judge Pelling QC Sitting As A Judge Of The High only orally), then a memorandum or note Court 7 April 2006 has been made to satisfy the Statute. This analysis was first published on www.law- The court found that: now.com on 9 May 2006. the email amounted to a The court has recently looked at whether a memorandum or note that would be guarantee by way of email had been enforceable as a guarantee; signed with a view to establishing whether the email had not been signed by the it was enforceable. The court concluded automatic insertion (by the internet the email had not been signed just service provider) of Mr Mehta’s email because the sender’s name and email address. address appeared in the header information. The decision will be of The court considered the email address to interest to creditors who, although they be the equivalent of a fax number and did may have formal procedures in place not consider that to be enough to show an governing the taking of guarantees, may intention to be bound by the terms of the find themselves in the position of being document. offered a guarantee by way of email. In working out whether a document has Mr Mehta sent an email offering a been signed, the court uses a functional personal guarantee of a debt due from his test: asking whether the conduct of the company. He did not sign the email either would-be signatory indicates an intention by typing his name at the end of the body to authenticate the document.

In this case, it would have been sufficient Negligent advice on for the guarantor to have typed his name performance bond? as a sign-off to the main body of the email. Note too, the difference between Oxus Gold plc (formerly Oxus best practice in requiring a guarantee to Mining plc) and another v be by way of deed and the position in law Templeton Insurance Ltd that the guarantee will be effective if it is [2006] All ER (D) 246 (Apr) [2006] EWHC 864 in writing and signed. (Comm) QUEEN’S BENCH DIVISION (COMMERCIAL COURT) COOKE J 27 APRIL The position could be compared to the 2006 case of IRC v Conbeer although the judge in Contract – Bond – Performance bond – Alleged the Mehta case does not refer to it perhaps contract to procure bond – Whether total failure of because Conbeer limited its consideration consideration resulting from defendant’s failure to of the meaning of “signed” in relation to procure bond – Whether defendant giving negligent Part 8 of the Insolvency Rules 1986 only. advice in relation to procurement of bond. In Conbeer, it was decided that a faxed The defendant insurer was part of a loose proxy form was signed if it bore upon it group of companies known as the Knox some distinctive or personal marking D’Arcy Group. It was ultimately owned by which had been placed there by or with the S family trust. S was not a director but the authority of the would-be signatory. was authorised to act for the defendant When the form was faxed it transmitted and the company K Ltd. In disputed two things: the contents of the fax and the circumstances, the defendant sought signature applied to it. What is important unsuccessfully to obtain for the claimants is not the form of the signature itself but the benefit of a financial bond or an intention to authenticate the performance guarantee in respect of a document. contract to extract gold from a mine in The European Commission published a Uzebekistan. The bond was to be given report on 20 March 2006, showing that either by itself, backed by a reciprocal individuals and businesses have been slow bond or guarantee from an AA credit to make use of electronic signature tools, rated insurance company, or by that AA despite the creation of a Community rated company directly. It was hoped that framework to support their legal that credit rating would mean that admissibility. The EC anticipates the secondary finance could be raised by the growing use of electronic ID cards will claimants at economic levels of interest. serve to identify the holder and Secondary finance was necessary because authenticate the signature, as well as the primary finance being sought was enabling the holder to sign electronic insufficient for the work required to documents. excavate the mine and bring it to IRC v Conbeer British Company Cases ChD 189 production. After the attempt failed, the 20 November 1995 claimants issued proceedings, making Caton v Caton (1867) LR 2 HL 127 and Evans v claims in two areas. The first was a claim in Hoare [1892] 1 QB 593 considered. contract where it was alleged that by an agreement known as the ‘August

agreement’, the defendant agreed to (2) On the facts, the claim in procure a financial indemnity bond, in negligence could not succeed. The consideration for which the defendant claimants had not relied on the would be (and was) granted warrants to defendant in the regard alleged, nor subscribe for five million ordinary shares in had the defendant breached any the first claimant. It was contended that relevant duty causing loss. The the agreement rendered the defendant claimants were, however, entitled to under an obligation to provide or procure the return of part of the commitment the bond and that, if it failed to do so, it fee paid to third parties which the would not have earned the consideration, defendant held. namely the warrants, which had been The claim would fail, save to the extent of given in advance. The second area of claim the return of £75,000 of a commitment was made on the basis that the defendant fee. had breached its duty of care in relation to its statements in connection with the Enforcement of undertaking secondary finance. By the time of the trial, as to damages the claim had been changed so as to plead Panos Eliades & Ors v Lennox a variation or substitution of the August Lewis agreement by a November agreement. 20th December 2005, unreported (Nelson J) HELD: Freezing injunctions - enforcement of undertaking - (1) On the facts, the contractual claim exercise of discretion - special circumstances could not succeed. The warrants were The defendant, Lennox Lewis, had issued under seal and there was no obtained a worldwide freezing injunction agreement that their exercise was against his former manager and promoter conditional on obtaining a bond or prior to the hearing of legal proceedings guarantee. They could not be cancelled between the parties in New York. In those as the claimants had purported to do. proceedings the claimants claimed $100 The warrants deed was unimpeachable. million for breach of contract and the In those circumstances, the defendant defendant counterclaimed some $24 did not have to show that it gave good million for breach of fiduciary duty, fraud consideration for the warrants, because and racketeering. At the hearing of the they were contained in a deed. In any claimants’ application to discharge the event, there had been an agreement injunction, an order was made by consent whereby the defendant agreed to that the injunction be discharged, that the embark on the process of seeking a defendant pay the costs of the application bond or guarantee as consideration for on an indemnity basis and that there the issue of the warrants. The should be an enquiry as to damages. defendant had done so and there could be no question of any total failure of In the New York proceedings the consideration. defendant was largely successful and was awarded over $7 million in damages. Following enforcement proceedings in the

United Kingdom, he was given summary restraining defendant from dealing with book debts judgment for the whole sum, save for set pending trial. off of $1 million for the claim and In November 2004, S Ltd and E Ltd, two deduction of $396,082 for the companies working in the plastics industry, racketeering element, as this was granted the claimant company a unenforceable. debenture that included a floating charge In considering whether or not to exercise on book debts and a crystallisation clause the court’s discretion to enforce the that provided for the crystallisation of the defendant’s undertaking as to damages, it floating charge on the occurrence, inter was necessary to determine whether the alia, of a third party taking over security injunction was wrongly granted or not. for the debts. Subsequently, S Ltd entered Nelson J held that this issue was not finally into a factoring agreement with the determined by the discharge of the defendant company that contained an injunction. That decision was not a final assignment of book debts. When the judgment on merits, no final submissions claimant launched an investigation into S had been made and no oral evidence had Ltd’s viability, it contended that it became been heard. Res judicata did not arise. aware of the facility provided by the The court had to exercise the discretion on defendant for the first time. Following the the basis of the facts known at the time it appointment of an administrator, the was to be exercised. On the facts, Nelson claimant became fully aware of the J concluded that the injunction was not relationship between S Ltd and the wrongly granted but was justified on the defendant. The claimant applied for an merits. In any event, there were special injunction restraining the defendant from circumstances which made it inequitable dealing with book debts other than the to enforce the undertaking, including the payment of such funds into a solicitors’ claimants’ fraud and concealment of account. Meanwhile, pursuant to an assets. undertaking, the defendant paid into court Preliminary issue in argument a sum greater than the book debts claimed. over priority of a fixed and a floating charge The claimant contended that its floating charge had priority over the defendant’s State Securities plc v Liquidity fixed charge. The defendant disputed the Ltd claimant’s proposed priority.

[2006] All ER (D) 212 (May) Chancery Division HELD: Considering the factual and legal Mann J 15 May 2006 situation of the instant case, there were Company – Debenture – Priority – Floating charge – serious issues to be tried. The balance of Claimant contending its floating charge having convenience weighed in favour of keeping priority in respect of company’s book debts – an amount in court that satisfied the Defendant entering into factoring agreement with alleged debt, however any additional sum company – Whether claimant entitled to injunction would be paid back to the defendant.

Abbey National Building Society v Cann [1990] the contaminating substances to be in, 1 All ER 1085 and Re Connolly Bros Ltd (No 2) [1911-13] All ER Rep Ext 1207 considered on or under the land; or Liability for Contaminated (ii) whether it had to be construed to Land mean the entity comprising the original undertaking that caused or knowingly R (on the application of permitted the contaminating National Grid Gas plc) v substances to be in, on or under the Environment Agency land and any body that had succeeded [2006] EWHC 1083 (Admin) Queen’s Bench to the liabilities of the original Division (Administrative Court) Forbes J undertaking under the relevant 17 May 2006 statutory scheme.

Environment - Protection - Contamination of land - The application would be dismissed. Contamination by statutory predecessor of company Giving Pt IIA of the 1990 Act a purposive - Environment agency finding company ‘appropriate construction, the provisions of Pt IIA person’ for remediating contamination - Whether imposed a liability for remediating company ‘appropriate person’ - Environmental contamination on a person where Protection Act 1990 , Pt IIA. contaminating substances had been On 13 September 2005, the defendant brought onto land by their statutory environment agency decided that the predecessors. claimant gas company was an ‘appropriate Parliament’s intention was that primary person’ within Pt IIA of the Environmental responsibility for contamination should rest Protection Act 1990 in respect of with the original polluter. In normal cases, contaminated land on which a gas works where the company responsible for the formerly stood on the ground that the contamination had been dissolved and its contamination was caused by one or more assets sold or distributed to other persons, of the claimant’s statutory predecessors the original polluter could not be ‘found’ which had operated at the site until 1965, for the purposes of the 1990 Act. when the site was sold to a company for However, that was not the case where housing development. The effect of that assets, rights and liabilities were decision was that the claimant was liable transferred under a clear chain of statutory for a proportion of the costs of provisions which ensured continuity. remediating the contamination in question. The claimant applied for judicial In the circumstances, the defendant had review of that decision. been entitled to find that the claimant was an ‘appropriate person’ within Pt IIA of the Issues arose, inter alia, as to: 1990 Act. (i) whether ‘person’ within Pt IIA of the A certificate, pursuant to s 12 of the 1990 Act had to be construed to mean, Administration of Justice Act 1969, was and therefore limited to, simply the granted to the effect that a sufficient case body constituting the undertaking that for an appeal to the House of Lords had actually caused or knowingly permitted

been made out to justify an application for The first defendant opposed that leave to bring such an appeal. approach, contending that such an Conflict of laws approach ignored his rights under CPR 11. He argued that he had a right to meet the Fonu v Demirel and another allegations made against him in his witness [2006] All ER (D) 275 (May) Chancery Division statement and there was no need for a full Rimer J 18 May 2006 hearing. His case was that there should be

Conflict of laws - Foreign judgment - Recognition by a hearing on the jurisdiction issue, with a English courts - Claimant seeking to enforce foreign hearing on the merits of the case to judgments made against defendants - First follow, depending on the outcome of the defendant challenging jurisdiction of English courts - jurisdiction issue. The claimant applied for Claimant seeking directions as to how action should directions as to how the action should proceed. proceed.

The claimant sought to enforce in the UK, HELD: In the instant case, the first three final judgments made against the defendant had a right to demonstrate that defendants in Turkey. The first defendant he had a good arguable case. Accordingly, sought an order under CPR Pt 11, he had a right to meet the case against contending that the English courts had no him and to put in evidence in support of jurisdiction to enforce the judgments his jurisdiction challenge. In those against him on the grounds, inter alia, that circumstances, the right course to follow he had no assets in the UK and that the was to allow the first defendant’s claimant was attempting to enforce the jurisdiction challenge to be dealt with at a public laws of Turkey in the UK. The first separate hearing, in advance of the trial on defendant’s application was supported by the merits of the action. a witness statement made by him. Taxation of loan notes However, the first defendant did not limit the witness statement to his challenge of Cadbury Schweppes plc and the English courts jurisdiction, but went on another v Williams (Inspector to discuss the overall merits of the case of Taxes) and to make allegations that the [2006] EWCA Civ 657 Court Of Appeal, Civil judgments in question lacked finality. He Division Sir Andrew Morritt C, Tuckey LJ And Sir Peter Gibson 24 MAY 2006 further adduced expert evidence in respect of the issue of the enforceability of Turkish Tax – Avoidance – Transfer of securities – Accrued public law in the UK. The claimant took interest – Receipts from transfers of loan notes – the view that the first defendant had Whether notes carrying interest at fixed rate which raised issues which went beyond his was same throughout period from issue to jurisdiction challenge and that redemption – Income and Corporation Taxes Act consequently, the claimant should have a 1988, s 717. right to reply and that the matter should Income and Corporation Taxes Act 1988, s be listed for a hearing at which the 717 provides: ‘(1) This section applies to jurisdiction challenge and the substantial securities falling within subsection (2) or merits of the case would be dealt with. (4) below. (2) Securities fall within this

subsection if their terms of issue provide ‘the catch up clause’) for the payment of that throughout the period from issue to the interest at the specified rate in the redemption (whenever redemption might event of early redemption up to the date occur) they are to carry interest at a rate of redemption, allowing for any interest which falls into one, and one only, of the payment or payments which by then had following categories (a) a fixed rate which already been made. By letter dated 24 May is the same throughout the period’. 1995 Lloyds Bank offered to purchase the notes for £26,358.805.76 per note. The The appellant taxpayers, CS and its same day CS offered to transfer the notes subsidiary CSOL, adopted the principles of to CSOL on 30 May 1995 at a price equal a scheme set out in a prospectus which to the net proceeds which CSOL realised they received from a merchant bank. It on resale and CSOL accepted CS’s offer stated that the bank had developed a and the offer to sell to Lloyds Bank. On 30 proprietary inter-company loan instrument May 1995 CS assigned the notes to CSOL with an uneven payment profile. If CS for £157,913,679. By a purchase were to invest a substantial sum in a bond agreement dated 31 May 1995 Lloyds carrying interest at a fixed rate and then to Bank purchased the notes from CSOL for dispose of it after 11 months before the £158,138,679. The inspector of taxes date of the first interest payment which wrote to the taxpayers saying that in his would be in an amount far less than the view the notes were variable rate securities interest which had accrued, it would within s 717 of the Income and realise a capital gain which it could shelter Corporation Taxes Act 1988. The by using capital losses within the group. applicability of that section turned on On 15 September 1994, an associated whether the securities carried interest at a company of CS, in consideration of an variable rate, as the inspector claimed, or advance to it from CS, issued six loan whether they carried interest at a fixed notes to CS. Each note had a value of rate which was the same throughout the £25m. The maturity date for each loan period from issue to redemption, as the was 15 December 1995, but provision was taxpayers claimed. The taxpayers’ appeals made for early redemption. By cl 2(A) of to the Special Commissioners and the High each note the principal was to carry Court were dismissed. The taxpayers interest at the fixed rate of 7.43375% pa, appealed to the Court of Appeal. without compounding, for the period from, and including, the issue date to, but The question to be determined was excluding, the maturity date or the date of whether the notes were securities the earlier redemption. That period was to be terms of issue of which in the context of s calculated on the basis of actual days 717(2)(a) of the Act provided that elapsed and a year of 365 days. Clause throughout the period from issue to 2(B) prescribed how the interest was to be redemption (whenever redemption might paid, namely on 15 June 1995 occur) they were to carry interest at a fixed £152,748.29, on 15 September 1995 rate which was the same throughout the £1,705,689.21, on 15 December 1995 period. £463,336.47, but provision was made (by

HELD: The appeal would be dismissed (Sir Peter Gibson dissenting).

As a matter of construction the notes did not fall within s 717(2)(a) of the Act. The notes fell within the variable interest regime. The existence of the two regimes for the taxation of accrued interest on the transfer of securities and the different way in which they dealt with how to apportion the consideration for the transfer of an accrued right to payment of interest in the future provided the context in which to consider the proper construction of s 717(2) because that subsection and s 717(4) determined to which regime any given security, as defined by s 710(2), was subject. The court was entitled and bound to consider which of the two regimes was the more appropriate for ascertaining the accrued amount on which to assess the transferor to tax. The variable interest regime was the more appropriate in the case of the notes. Under that regime the inspector could, and did, assess the accrued amount on the footing that those notes carried interest at the rate of 7.43375% for the period from issue to redemption. The court did not accept the taxpayers’ submissions that the text of the legislation did not warrant the conclusions to which the Special Commissioners and the judge came, that such conclusions made the legislative scheme unworkable and that such conclusions led to the performance of the wrong exercise in comparing amounts payable with rates of interest.

Decision of Etherton J [2006] STC 210, [2005] All ER (D) 308 (Jul) affirmed.

Legislation

Climate Change The Credit Unions (Maximum Climate Change and Interest Rate on Loans) Order Sustainable Energy Bill - 2006 No 1276 Explanatory Notes This Order increases the limit on the interest which a credit union may charge These explanatory notes relate to the on loans made by it. The maximum rate of Climate Change and Sustainable Energy interest is increased from 1% to 2% per Bill, as brought from the House of month. Commons on 12th May 2006. They have been prepared by the Department of Trade The Order is available at and Industry, with assistance from other Customer Consumer Credit The National Savings Bank The Consumer Credit (Amendment) Regulations (Exempt Agreements) 2006 (Amendment) Order 2006 No No 1066 1273 These Regulations amend the National Savings Bank Regulations 1972, in order to This Order amends the Consumer Credit introduce two changes to the operation of (Exempt Agreements) Order 1989 to certain National Savings and Investments provide that the Consumer Credit Act shall ("NS&I") accounts. not regulate debtor-creditor agreements where the creditor is a credit union and The Regulations are available at the rate of the total charge for credit does http://www.opsi.gov.uk/si/si2006/2006106 not exceed 26.9 per cent. 6.htm

The Order is available at (Date in force, subject to paragraph (3), 6.6.06; Regulations 4, 5, 6, 7 and 8 (limits on cash withdrawals of ordinary and (Date in force, 1.6.06)

investment deposits) and regulations 12 and 13 (transitional provisions) come into force on 1.10.06) Land The Land Registration Fee Order 2006 No 1332 This Order replaces the Land Registration Fee Order 2004 (as amended by the Land Registration Fee (Amendment) Order 2004). It makes changes to land registration fees.

The Order is available at http://www.opsi.gov.uk/si/si2006/2006133 2.htm

(Date in force, 7.8.06)

Articles

Banking taking, the documents needed and the Understanding debt timetable; subordination and the rule in (3) the court procedure; Cherry v Boultbee: Re SSSL (4) the court's role; Realisations (5) the Financial Services Authority's A debt subordination may in general take role in the court procedure; and two forms: contractual subordination and (6) legal and regulatory issues to be turnover subordination. A contractual considered by the parties to a transfer, subordination occurs where, by agreement focusing on capital adequacy, tax and between a debtor and a creditor, debts data protection. owed to the creditor are to rank below Practical Law Companies P.L.C. (2006) other debts of the debtor. A turnover Vol.17 No.4 Pages 37-44 1/5/2006 subordination (which may or may not Barnabas Reynolds and Thomas Donegan involve a trust) requires the junior creditor, on the insolvency of the debtor, to turn Capital markets over to the senior creditor all recoveries Covered bonds received by the junior creditor in respect of the junior debt. Where a trust is utilised, UK covered bonds have received more this technique is also called trust than their fair share of media attention in subordination. the last few months. This is because they have not been treated in the same way as L Chan No: [2006] 5, JIBLR, 266 their EU counterparts in certain respects. (06.19.046) The Financial Services Authority has, Business Transfers however, recently announced that it is FSMA banking business going to start a consultation process that, all being well, will result in a UK regime transfers: choosing the right that complies with the EU regime. route http://www.practicallaw.com/9-202-3076 Looks at the advantages, practicalities and court procedure involved in banking Block trades: an introduction business transfers under the Financial This article considers some of the issues Services and Markets Act 2000. Explores: that can arise when executing block (1) alternative methods for business trades. transfers in the sector before the (N. Holmes & P. Castellon: PLC, 5.06, 19) introduction of the court procedure; 06.21.003

(2) the key conditions to be met before the court procedure, including deposit-

Contract business sector in anti corruption drives Contract and by introducing codes of conduct. Journal of Business Law J.B.L. (2006) June This article looks at CFW Architects (a firm) Pages 375-395 1/7/2006-1/8/2006 Indira v Cowlin Construction Ltd, Technology Carr (University of Middlesex) and Construction Court; His Honour Judge Thornton QC; judgment delivered 23 Customer January 2006 where the main issues are Financial Ombudsman News interpretation of contracts - implied terms - repudiation. This issue contains material on

CILL, 5.06, 2335 06.20.045 cheque clearing problems; Corruption insurance at the click of a button; and Strategic improvements in the future funding of the ombudsman the fight against corruption service. in international business The latest issue is available at transactions http://www.financial- ombudsman.org.uk/publications/ombudsm In the context of the draft Corruption Bill, an-news/53/53.pdf this article evaluates the effectiveness of (Issue 53: Financial Ombudsman Service, initiatives aimed at combating corruption May 2006) in international business practices. Discusses the potential causes of such E-commerce corruption, its various manifestations and Legal effects of input error in key anti corruption strategies involving: eContracting (1) regulatory intervention, including The possibility of data input errors the Convention on Combating Bribery increases in an online environment. This of Foreign Public Officials in commonly occurs where a user engages in International Business Transactions an automated transaction with the other 1997; party’s electronic agent/machine and the (2) the imposition of loan conditions by electronic communication is not subject to international agencies; human review before the parties act on it. (3) media cooperation in publicising An E-tailer or Web merchant may also the effects of corruption; and upload incorrect data onto the Web site and such information is acted upon by the (4) the participation of non user to clinch the deal before the other governmental organisations (NGOs). party discovers the error. The legal effects Considers how the incidence of such of E-contracts formed as a result of such corruption may be reduced by errors are issues of significance in encouraging the participation of the eCommerce.

(T Kah Leng: CLSR, 03/04.06, 158) managers may be pushing the limits of 06.17.085 acceptable market practice. Europe Jonathan Herbst Lawyer, 1 May 2006, 28 Current ECJ on the legal Also see effects of cancellation of a Hedge funds and systemic loan contract negotiated by risk way of doorstep selling – a Remarks by Mr Ben S Bernanke, Chairman German perspective of the Board of Governors of the US Federal Reserve System, at the Federal For several years the doorstep selling of Reserve Bank of AtlantaXXs 2006 Financial consumer loans has been subject to Markets Conference, Sea Island, Georgia, extensive litigation in Germany. For the 16 May 2006. most part, the legal questions that have arisen are of a European law nature, in http://www.bis.org/review/r060522a.pdf particular the revocation right under the (Central Bank Articles and Speeches) Doorstep Selling Directive and its (22.05.2006 13:31) transposition in Germany. Such questions were dealt with in the Heininger judgment Islamic finance of the European Court of Justice (“ECJ”). The path to ethical returns Now, the ECJ has rendered two new Sharia law Islamic property investors have judgments, Schulte and Crailsheimer Volksbank, which concern the legal effect a range of financing vehicles that allow them to compete with investors using of a cancellation under the Doorstep conventional debt structures. The author Selling Directive. The issues involved are of both legal interest and high economic explains. relevance. The following article provides a (R Tan: EG, 22.4.06, 138) 06.21.107 German perspective on the new two No Debt About It decisions and the possible consequences in German law. Discusses the rapid development of the sukuk, or Islamic trust certificate, market. K Felke: [2006] 5, JIBLR, 274 (06.19.045) Reports sharia-compliant sukuks have been Hedge funds attracting notice on the international Growing hedges financial markets. Argues a regulatory framework is essential if they are to realise Discusses the emergence of hedge funds their potential. into the mainstream. Looks at proposed The Lawyer, 15 May 2006, 30 Roger changes by the Financial Services Authority Wedderburn-Day to the Listing Rules that would allow hedge funds to list in the UK for the first time. Explores concerns by a number of commentators that some hedge fund

Leasing Project Finance New UK tax rules Cutting time Discusses the Finance (No.2) Bill 2006 rules The Department of Health intends to slash to reform the capital allowance treatment 40% from the hospital building of leasing. Includes worked examples of programme’s costs. Barts has suffered but long funding finance leases and long survived, batches look finished, and funding operating leases. Considers the greater central control is the name of the definition of a long funding lease and the game. anti avoidance rules. J Moore: Public Private Finance, 5.06, 18, Proposed Legislation: Finance (No.2) Bill 06.20.047 2006, Sch.8 Coded message Tax Journal Tax J. (2006) No.836 Pages 11- The Treasury’s recent report into the 14 8/5/2006 Jonathan Vines and James private finance initiative confirms the Boyd government’s commitment to PFI - but Money laundering suggests it might be used sparingly in a Criminal property? Prove it swathe of sectors, from waste to transport. Although the terrain covered by the three M Kapoor: Pubic Private Finance, 5.06, 16, principal money laundering offences is 06.20.048 extremely wide, for a criminal offence to have been committed in each case the Time is running out prosecution must prove a jury’s satisfaction The use of the private finance initiative in – beyond reasonable doubt – that the waste has failed to live up to expectations. money constituted or represented a Public health fears, market problems and person’s benefit from criminal conduct. lack of capacity have all had an impact. Under section 327 of the Proceeds of With European targets putting central and Crime Act 2002, it is a criminal offence to local government under pressure, public conceal, disguise, convert, transfer or private partnerships are needed more than remove criminal property from the ever, says the author. jurisdiction. Section 328 prohibits a person from facilitating the acquisition, P Twist: Public Private Finance Supp - 10 retention, use or control of criminal Year Review, 5.06, 33, 06.20.049 property and section 329 makes it a Next regeneration criminal offence for a person to acquire, use or possess criminal property. Thus, the Regeneration is a complicated business, notion of criminal property is the central but its joined-up nature would seem to pivot around which each of the principal offer a good fit with public private money laundering offences revolves. partnerships. However, more public sector knowledge of PPP’s key workings is (T Fisher: MLB, 04.06, 7) 06.18.093 needed before the sector fulfils its

potential. In this exclusive interview, the significant source of bank project author discusses the state of play. mandates. But creditworthiness, lack of legislation and experience at local level, K Eddy: Public Private Finance Supp - 19 and the expectation of cheap debt still Year Review, 5.06, 29, 06.20.050 present hurdles. Decade of success M Bensasson: Project Finance, 04.06, 32 The private finance initiative has reached a 06.20.056 new level of maturity over the past 10 Motorway of the future years, reflected in the development of the Local Improvement Finance Trust PFI is back on the road following a two- programme says the authors. year hiatus. The £4.5bn M25 widening scheme is the largest DBFO contract ever R Weston & J Cassidy: Public Private tendered. The author looks at the scheme Finance Supp - 10 Year Review, 5.06, 25, and what bidders need to bring to the 06.20.051 party. Taking the initiative R. Pearman: Contract Journal, 4.5.06, 28, The private finance initiative has gone 06.20.061 through many changes over the past 10 No time to waste years. From its early days of uncertainty to its present position as a standard method A new report suggests a promising future for delivering facilities, PFI has helped for waste PFI after a shaky start. As develop new skills and fundamentally alter nervousness of new technologies is the role business plays in public services. overcome and contracts begin to The author looks back at developments in standardise, there will be rich pickings for the healthcare/hospital sector. UK contractors. P Waterfield: Public Private Finance Supp - H. McCormick: Contract Journal, 4.5.06, 10 Year Review, 5.06, 21, 06.20.052 32, 06.20.062 An uneasy partnership Property derivatives The marriage of public and private sectors Applied property derivatives through PFI has never been the happiest of With new players entering the market unions, and the Treasury’s latest review, bringing a variety of different views on the Stengthening Long Term Partnerships, underlying, the UK property derivatives aimed to placate concerns on both sides. sector is growing. The instrument’s But will it work, asks the author. complementary nature with CMBS and C Millett: Contract Journal, 4.5.06, 20, commercial real estate CDOs means that it 06.20.053 may also have a future role to play in the Going local securitisation market. (C Smith: Int Sec Rep, 4.06, 26) 06.17.043 Europe’s local and regional PPP markets are growing in stature and will be a

Rating agencies Property Investment Certificate (PIC), Ratings forecasts focusing on the PTRS and its advantages and drawbacks. Speculates on the future The recent introduction of Standard & of property derivatives and potential Poor’s CDO Evaluator 3.0 has exemplified obstacles to their increased use. the power that ratings methodologies Property Law Journal P.L.J. (2006) No.169 have on this market. It has also shown Pages 5-7, Felicity Cole (Wragge & Co LLP) how intense competition between rating agencies has become. Does this mean Regulation and Risk more changes in 2006? Organisational systems and (R Horsewood: Int Sec Rep CDO Supp, controls - common platform 4.06, 15) 06.17.045 for firms Real Property Confidence in the UK's financial markets REIT up your street depends on firms organising and controlling their affairs responsibly and Assesses the Real Estate Investment Trusts effectively. This calls for effective (REITs) regime proposed in the Finance Bill management oversight, systems and 2006, which companies can join from controls, including risk management and January 1, 2007. Examines: (1) the organisational requirements. This conditions for a company to elect to be Consultation Paper proposes revised treated as a REIT, including those relating regulatory standards to be expected of to its property business; and (2) the tax firms and of their senior management in implications, including those concerning this area. the tax charge on conversion, the taxation of shareholders' dividends, mandatory The consultation paper is available at dividends, the sale of property-owning http://www.fsa.gov.uk/pubs/cp/cp06_09.p subsidiaries, the sale of shares or df properties to REITs and distributions. (FSA Consultation Paper 06/9, May 2006) New Law Journal N.L.J. (2006) Vol.156 Bank corporate governance, No.7225 Pages 817-818 19/5/2006 : compliance and reputation Adrian Brettell risk: a proactive approach for Sidestepping transaction international banks with costs cross-border operations Looks at how the commercial property There has been a revolution in thinking derivatives market can help investors avoid about corporate governance, compliance the time and cost disadvantages of and reputation risk for international banks completing property transactions. that are complex financial institutions with Examines the two types of commercial cross-border operations. The Sarbanes- property derivative instrument, the Oxley Act (“SOX”) has greatly changed the Property Total Return Swap (PTRS) and the concept of corporate governance and

compliance within the United States. Behind the scenes Similar changes have been taking place The UK credit card sector faces a number internationally; a number of cross-border of regulatory hurdles and a challenging groups, agencies and commissions have consumer environment, but the focused on issues of international bank technology currently being showcased by corporate governance and compliance. master trust issuers has implications for the The Basel Committee on Banking securitisation market as a whole. Supervision (“Basel Committee”) has been the most influential group internationally (M Marray: Int Sec Rep, 4.06, 37) and has issued recent statements on 06.17.041 compliance (April 2005) (“Statement on Middle Eastern promise Compliance”) and bank corporate governance (February 2006) (“Bank The compatibility between securitisation Corporate Governance”). Reputation risk, and Islamic finance is clear, but true-sale or the risk that a failure in a financial technology is yet to bed down in the institution’s corporate culture and value Middle East. With an increasing number system will trigger a crisis affecting the of law firms and investment banks institution’s safety and soundness, has also establishing a presence in the region, is the been a topic of considerable regulatory market about to reach critical mass? attention. While regulators cannot (M Marray: Int Sec Rep, 4.06, 28) “regulate” corporate ethics, they can, in 06.17.042 the words of one regulator, “notice and comment on whether a banking Russian securitisation takes organisation has a corporate flight organisational framework, and policies or Russia has reached its tipping point in practices that support – or undermine – terms of becoming a fully-fledged sound corporate values and an ethical securitisation player: the country’s first climate within an organisation”. consumer loan, diversified payment right CM Friesen: [2006] 5, JIBLR, 238 and leasing transactions were launched in (06.19.050) March – paving the way for further such deals to join the jurisdiction’s burgeoning Securitisation auto loan, credit card and RMBS sectors. Why Hollywood turned to (S Smith: Int Sec Rep, 4.06, 23) 06.17.044 securitisation Security Studios are increasingly using securitisation to help finance film production. The Company charges and author examines the challenges of putting security: an overview of the together a new generation of deals. present position E De Sear: IFLR, 04.06, 50 06.20.040 The issue of company charges must be viewed against the shifting sands of the English law on security in general. This is

largely a common law heritage that Tax periodically throws up new precedents of Equity futures and options interest. These latest authorities are reviewed in this editorial article. Explains the 2005 reforms to the corporation tax treatment of equity futures (D Milman: Company Law Newsletter, and options. Discusses whether proceeds 24.4.06, 1) 06.21.056 and losses from derivatives should be Set Off taxed on an income basis rather than a Equitable set-off capital gains basis. Summarises the anti avoidance provisions on hedging The case discussed is Safeway Stores relationships, the reforms to reflect Limited -v- Project Services Limited, TCC 1 changes in accounting practice, the December 2005. The issue is whether a transitional rules, and reforms concerning contractor can apply a set-off of monies embedded derivatives. owed under the building contract to Tax Journal Tax J. (2006) No.838 Pages 19- defeat a claim under a collateral warranty. 21,23 22/5/2006 David Boneham The implication is that unless collateral warranties are amended to exclude the Trusts defence of set-off, a contractor will Based on trusts generally be entitled to raise such a defence to any claim to the extent that he Discusses the duty of care placed on has not been paid under the building investment trustees by the Trustee Act contract. 2000 and considers the potential liability for breach of trust. Details the steps G Brewer: Contract Journal, 4.5.06, 66, trustees should take to discharge their 06.20.044 duty of care, including seeking advice and Structured finance reviewing an investment's performance. Europe’s flexible friend Notes proposals in the 2006 Budget affecting fiduciary duties. The Channel Islands have long been the Solicitors Journal S.J. (2006) Vol.150 No.19 offshore centre of choice for European Pages 620,622 19/5/2006 Jean-Yves Gilg structured finance business, but increased competition from EU and other offshore jurisdictions means local regulators are remaining on their toes to keep the location at the head of the pack.

(A Mattinson: Int Sec Rep, 4.06, 40) 06.17.040

Technical

Law reform FMLC Issue 121 www.fmlc.org European Commission Final Money laundering Proposal For A Regulation On Fighting money laundering The Law Applicable To and terrorist finance Contractual Obligations Moving forward over the risk-based (“Rome I”) approach Note: the UK decided on 9 May not to adopt This letter sets out the FSA's views on the the proposal for the time being. This does not new Joint Money Laundering Steering mean there will be no impact on UK law and a working group is being set up to consider this. Group (JMLSG) Guidance. The FSA believe Interested parties may apply to the new Guidance and the reform of the [email protected] money laundering material in its The FMLC have published a final legal Handbook are good opportunities for firms assessment of the conversion of the Rome and the regulator to make a difference: to Convention to a Community instrument make life more difficult for criminals, and the provisions of the proposed Rome I whilst minimising the inconvenience and Regulations. cost to firms and law-abiding customers. The letter also contains the FSA’s thoughts In January 2006 the Department for on moving forward and the key Constitutional Affairs (“DCA”) sought the implications of its Handbook reform for views of the FMLC on the European firms, in particular their senior Commission’s Final Proposal for a management and MLROs. Regulation on the law applicable to contractual obligations (known as the The Guidance is available at “Rome I” Regulation) 1 and its impact on http://www.fsa.gov.uk/pubs/other/money_l the wholesale financial markets. This paper aundering/letter_ml.pdf responds to that request and sets out the (FSA, April 2006) FMLC’s analysis of the issues, providing a legal assessment of the provisions of the Payment systems proposed Regulation. Commission Consults In summary, the conclusion of the FMLC is Industry on Evaluation of that the Regulation, as presently drafted, Settlement Finality Directive would be likely to undermine the ability of The European Commission is inviting English law to offer legal certainty in this industry, consumers and other area to contracting parties. The Committee stakeholders to comment on the believes that further study and analysis is evaluation report on the Settlement essential and that significant redrafting Finality Directive, which identified a may be required.

number of areas where the Directive could cost-efficient IT solutions, particularly in possibly be revised. the area of best execution, transaction reporting, customer classification, record- The Commission will also discuss the keeping and pre- and post-trade price report with Member States and the transparency. European Central Bank within the framework of the European Securities (Futures and Options Association, Committee. On the basis of these 03/05/06) consultations, the Commission will assess CEBS publishes final report whether or not the Directive requires revision. The deadline for submission of on supervisory practices comments is 30 June 2006. regarding large exposures

European Commission 16 May 2006 On 3 May 2006, the Committee of European Banking Supervisors (CEBS) Regulation published a final report on supervisory Joint MIFID Implementation practices regarding large exposures (LE). Plan The report provides a survey of Member States' implementation of the LE rules in The FSA and HM Treasury have published the Codified Banking Directive their Joint MIFID Implementation Plan. It (2000/12/EC) and the Capital Adequacy contains information about the Directive (93/6/EEC), which have been implementation timetable at both the EU recast in the Capital Requirements level and the UK level and pointers about Directive (CRD). possible FSA policy concerns. http://fs.practicallaw.com/8-202-3468 www.fsa.gov.uk Implementing MiFID’s best MiFID Connect establishes an execution requirements IT Advisory Committee to address the IT consequences The paper examines the challenges for of MiFID firms of understanding how MiFID's new concepts and terminology will work in Following the establishment of MiFID practice. In particular it examines practical Connect and its constituent practitioner issues around a firm's execution policies; committees at the end of last year, the the methods for achieving best execution participating associations have now set up for different clients and markets; and how a specialist IT Advisory Committee firms will monitor and review these policies comprising association representatives and and arrangements. It also presents, for IT specialists from member firms to further discussion with industry, an interface with the MiFID Connect additional option for providing best practitioner committees. The Committee execution in dealer markets, based on the will help to identify the IT pinch-points in use of benchmarks. This draws on research MIFID implementation, and facilitate the and analysis commissioned from IBM development of business sensitive and Business Services, who are also publishing

their report. The Discussion Paper is convergence in market practice is, or is available at purported by the industry to be, taking where any differences might pose Discussion Paper 06/3: FSA, May 2006 practical challenges for both financial Risk conglomerates and their supervisors with regard to the assessment and Joint Forum has issued a management of risk concentrations and paper on funding liquidity intra-group risk transfers. risk management The main findings of this review are The Joint Forum has released a paper on presented in this paper. The paper is funding liquidity risk management available at practices in use by conglomerates engaged http://www.bis.org/publ/joint15.pdf in banking, securities and insurance (Basel Committee on Banking Supervision, activities. The paper, “The management of May 2006) liquidity risk in financial groups”, is the The management of liquidity result of a comprehensive study of liquidity risk management practices among 40 of risk in financial groups the largest firms in the financial services This paper presents the results of a review industry by the Joint Forum's Working Group on (BIS, 03/05/06) Risk Assessment and Capital (the Working Group) of funding liquidity risk Regulatory and market management practices at conglomerates differences: issues and engaged in banking, securities, and observations insurance activities. Following a roundtable discussion in The review focussed on 40 large, complex November 2003, the Joint Forum created a financial groups with operations spanning working group whose mandate was to national borders, financial sectors, and identify and explain regulatory differences currencies. The majority of the financial in the context of convergence in market institutions represented in the review were practices. Where such differences were involved in at least two of the banking, found to exist, the working group was to securities, or insurance sectors. All consider whether and how they might observations are based on information and affect the supervision of financial opinions provided by the firms through conglomerates and the merits of written responses to a survey, interviews, addressing them further. and presentations to the Working Group. The review was designed to address five The review concentrated on those aspects key questions: of the regulatory response to risk and risk management where: how large, complex banking, securities and insurance groups manage liquidity

risks across jurisdictions, sectors, and subsidiary units, particularly in times of stress; the impact of regulatory and supervisory approaches on liquidity risk management practices and structures; the nature of the products and activities that give rise to significant demands for liquidity; assumptions that firms make regarding available sources of liquidity; and

the scale of liquidity shocks that firms are prepared to address.

The purpose of this paper is to provide summary feedback to the firms that participated in the review, firms' supervisors, and other interested parties.

This paper does not aim to identify best practices and/or to make recommendations for firms or supervisors in any of the three sectors. Any further work on the management and supervision of liquidity risk is left to the consideration of the parent committees (ie Basel Committee on Banking Supervision, International Organization of Securities Commissions, and International Association of Insurance Supervisors).

The paper is available at http://www.bis.org/publ/joint16.pdf

(Basel Committee on Banking Supervision, May 2006)

Notices

Second Consultation on European Community Proposed Changes to the Finances Statement on the Financial Services and 2006 EC Budget and Markets Act 2000 Measures to Counter Fraud Proposed Regulatory Reform Order and Financial This consultation paper sets out the Mismanagement Government’s proposals to amend A UK Command paper has been various provisions in the Financial published. Services and Markets Act 2000 (FSMA). White Paper 25/5/2006 The proposals will be implemented by a Command Number: 6770 Copies Regulatory Reform Order (RRO) made purchasable from: The Stationery Office under the Regulatory Reform Act 2000 Tel: 0870 600 5522 (RRA). The audit of banks and A formal consultation was launched on 5 December 2005 and closed on 5 March building societies in the 2006. Thirty four responses were United Kingdom (Revised) received, including proposals for new The revised version of Financial Reporting deregulatory measures. In light of these Council’s PN 19 has been prepared to: responses HM Treasury now proposes to update the existing guidance to reflect modify some of the proposals, and to the replacement of Statements of make some new proposals. Auditing Standards with ISAs (UK and As a result of the consultation and Ireland), reflect recent changes in further analysis, they have decided not to legislation and regulation, and combine pursue some of the proposals further – the banks and building societies their reasoning for this is set out in text. guidance into a single document in recognition that there is now insufficient This consultation paper has been sent to that is unique to building societies to all thirty four respondents. It covers the merit maintaining a separate Practice new proposals received, and suggested Note. changes to the initial proposals. The consultation document is available at Consultation ends on 21 June 2006. http://www.frc.org.uk/images/uploaded/ HM Treasury 24 May 2006 documents/EDISAPracticeNote19draft5ed 22.51.pdf

(FRC, May 2006)

Setting up an expert group Consultation paper on on customer mobility in modernising Value Added relation to bank accounts Tax obligations for financial This notice from the European services and insurances Commission announces a new expert The Commission invites comments on group on customer mobility in relation to plans to change existing provisions in the bank accounts. Sixth VAT Directive in order to modernise The group will identify any legal, VAT obligations for financial services and administrative or other obstacles that insurances. The proposals aim to: reduce customers encounter when opening, the administrative costs for closing or switching bank accounts at administrations in exercising fiscal both domestic and cross-border level. It supervision and for economic operators will advise the Commission on how those in achieving fiscal compliance; create obstacles can be addressed. budgetary security for Member States and legal certainty for economic This is a follow-up action to the White operators; and address inconsistencies Paper on Financial Services Policy 2005- between the 1977 VAT provisions and 2010 and is part of the Better Regulation more recent regulatory and legal agenda. provisions such as those falling under the The Commission Decision of16 May Financial Services Action Plan. Copies are 2006 is available at available from http://europa.eu.int/eur- European Commission, May 2006 Commission Launches HMRC contacts for s 20 Dialogue on Creating an Internal Market for notices on offshore bank Mortgage Credit accounts Following the two recent decisions of the Announces that the European Special Commissioners involving Barclays Commission has launched a dialogue Bank and section 20 TMA 70 notices in between the EU mortgage lending relation to offshore bank accounts industry and consumer associations with HMRC has set up a single point of a view to creating an integrated EU contact through which they will handle mortgage credit market for the benefit queries. The contact is Tony Preston (an of consumers. The aim of the dialogue is Assistant Director, Compliance). reach a consensus on key consumer Telephone: 07747 461833. protection measures. HMRC 10 May 2006 17 May 2006 European Commission

Insolvency Cases

Application to dismiss validation order was granted the company petition/issue validation order would be able to pay all its creditors and receive payments due to it, which would Re Square 3 Ltd result in it making a small profit. The [2006] All ER (D) 280 (May) CHANCERY DIVISION application for a validation order was RIMER J 19 MAY 2006 supported by the company’s main The court refused to grant the company’s creditors. At the hearing of the application for dismissal of the winding up petition applications, the company further on the basis there was a risk other creditors might requested that the court should make the wish to support or oppose the petition on or before validation order retrospective so that it the return date. The court considered the effect of would apply to previous payments made granting a validation order, and whether it should by the company. be retrospective, in order to allow the company to HELD: The court would not grant the make and receive payments. The court granted the company’s application for dismissal of the validation order but refused to make it retrospective. petition on the basis that there was a risk The company’s creditors presented a that other creditors might wish to give winding up petition against it which was notice of support or opposition for the returnable on 21 June 2006, giving the petition before 21 June 2006. Since the company’s creditors up to 20 June 2006, company’s applications were supported by to give notice of their support or the company’s main creditors, the court opposition to the petition. The petition was only concerned with the effect of the was advertised in the London Gazette, validation order on the other creditors. On with the effect that the company’s bank the evidence, it was clear that there would account was frozen. Prior to the return be no prejudice to those creditors if the date, the petition debt was paid in full by validation order was granted on the basis the company’s parent company. The that they would all be paid. However, the company applied for a dismissal of the validation order would not be made petition. Alternatively, it applied for a retrospectively, since that might create validation order pursuant to s 127 of the future problems for the liquidator if the Insolvency Act 1986, until the petition company subsequently went into hearing date. The witness statement in liquidation. support of the applications showed that the company was insolvent on a balance sheet basis with liabilities over assets. The witness statement further stated that if the

Without prejudice rule such action until he had confirmed the validity of the assignments and the Re Transocean Equipment financial situation of the liquidations. The Manufacturing & Trading Ltd respondents subsequently applied to strike [2006] All ER (D) 350 (May) Chancery Division out the evidence from the liquidator’s Warren J 24 May 2006 witness statement which dealt with the It was well established that, subject to certain meeting on the ground that it had been a exceptions, without prejudice material could not be ‘without prejudice’ meeting. put in evidence. Such material related to without HELD: prejudice material between the parties to the litigation in hand. The policy was to encourage It was well established that, subject to settlement and to prevent a person being deterred certain exceptions, without prejudice from saying things that might later be used against material could not be put in evidence. him. The policy was given sufficient effect by Such material related to without prejudice preventing abuse of that material in subsequent material between the parties to the litigation between the parties. litigation in hand. The policy was to encourage settlement and to prevent a The respondent companies appealed person being deterred from saying things against their unsuccessful attempt to strike which might later be used against him. out proceedings against them brought by The policy was given sufficient effect by the liquidator of two companies pursuant preventing abuse of that material in to s 213 of the Insolvency Act 1986 subsequent litigation between the parties. ([2005] All ER (D) 90 (Nov)) was listed for a hearing in the week commencing 10 July It was clear that the evidence sought to be 2006. Meanwhile negotiations had taken struck out could not be relied on during or place between the liquidator and the in relation to the costs of the s 213 respondents in the course of which a CPR proceedings if they proceeded, or in Pt 36 offer was made by the liquidator to relation to costs on discontinuance. settle the s 213 proceedings. On 27 March However, the conversation could be relied 2006, a meeting took place between the on in relation to the directions hearing, liquidator and the respondents’ where the liquidator would be seeking representative, T, at which the liquidator directions as to how he should treat CNV. repeated the Pt 36 offer, and expressly In the instant case, the without prejudice stated that it was without prejudice, save material could not change as a result of as to costs. T subsequently wrote to the the assignments, and in seeking directions liquidator informing him that the one of the liquidator was entitled to put before the respondents’ subsidiaries, CNV, had the court everything he had been entitled purchased the interests of the to put before the court if the assignments respondents’ creditors in the liquidations. had not been made. At such a directions CNV, as the companies’ sole creditor, hearing, the court was entitled to be demanded that the liquidator file notices informed not only of any negotiations, but of discontinuance in the s 213 also of their contents, so that it would be proceedings. The liquidator refused to take in the best position to decide what was

best. In those circumstances, it would be assigned on behalf of X to Q. W alleged wrong to exclude that evidence in relation that there had been no consideration for to the directions hearing. Whether or not the assignment and that Q was indebted that evidence should be excluded in to X as the third party had paid amounts respect of costs at a future discontinuance to Q that, but for the assignment, would hearing was a matter for the judge dealing have been paid to X. W claimed that X had with that matter. a claim in restitution against Q entitling it Refusal of administration to monies, which, despite a number of requests, Q had failed to pay. W argued order on grounds unlikely to that an administration order would enable achieve purpose of him to investigate the sale of Q's business administration even though there might not be a benefit In the matter of Q3 Media Ltd to Q's creditors as Q's business and assets could be recoverable property. Ch D (Rimer J) 22/5/2006 HELD: The basis of W's claim was that X ADMINISTRATION ORDERS : ADMINISTRATORS : were creditors and their claim was a claim INTERIM RECEIVING ORDERS : PROCEEDS OF CRIME in restitution, not a claim for a debt. : INTERIM RECEIVERS : APPOINTMENT OF Therefore it might be that W's claim was ADMINISTRATOR : PURPOSE OF ADMINISTRATION : on behalf of prospective creditors, not s.246 PROCEEDS OF CRIME ACT 2002 : Sch.B1 creditors, and Q was waiting to see how X para.11(a) INSOLVENCY ACT 1986 would make good their claim. However in In relation to an application by a company's the circumstances the court was satisfied prospective creditors for an administration order that Q was unable to pay its debts as even over the company, although the court was satisfied if the applicants were regarded as that the company was unable to pay its debts, it was prospective creditors, the unexplained not satisfied that an order was likely to achieve the failure to pay justified the inference that it purpose of administration as the company was was unable to pay. There was a good subject to an interim receiving order under the arguable case that all of Q's assets were Proceeds of Crime Act 2002 s.246 and it was likely recoverable property, given the interim that all the company's assets were recoverable receiving order, and that Q was unable to property and not available to creditors. pay its debts so that the Insolvency Act The applicant liquidator (W) applied for the 1986 Sch.B1 para.11(a) had been satisfied. appointment of an administrator over a However the court could not be satisfied company (Q). An interim receiver had been under para.11(b) Sch.1 of the 1986 Act appointed under the Proceeds of Crime that the making of an administration order Act 2002 s.246 for Q's assets and an order would be reasonably likely to achieve the had been granted restraining Q from purpose of administration as if Q's assets dealing with its property. W had been were recoverable property they would not appointed as the liquidator of two be available to meet the creditors' companies (X), both of which had entered demands. An administration order would into a distribution agreement with a third not be granted at this stage. party. That agreement was purportedly Judgment accordingly.

Administrator pays prefs TRANSACTIONS DEFRAUDING CREDITORS : prior to winding-up PROVISIONS AGAINST DEBT AVOIDANCE : ACTIONS ON A SPECIALTY : SUMS RECOVERABLE BY Re Spiralglobe Ltd STATUTE : PUTTING ASSETS BEYOND REACH OF [2006] All ER (D) 276 (Apr) Chancery Division CREDITOR : CONSIDERATION : VICTIM OF Pumfrey J 28 April 2006 TRANSACTION : PREJUDICE : s.423(3) INSOLVENCY Company – Administration order – Administrator – ACT 1986 : s.423 INSOLVENCY ACT 1986 : s.8(1) Powers – Administrator's powers to pay dividend LIMITATION ACT 1980 : s.423(1)(a) INSOLVENCY directly to preferential creditors – Whether ACT 1986 : s.423(5) INSOLVENCY ACT 1986 : administrator's application to make such payments s.9(1) LIMITATION ACT 1980 : s.424(2) prior to compulsory winding up of company should INSOLVENCY ACT 1986 be granted. The limitation period in respect of a claim by a The applicant was one of the company's trustee in bankruptcy under the Insolvency Act 1986 joint administrators. He applied for an s.423 ran from the date of the bankruptcy order. order permitting him to pay the company's The obiter comments made by the judge (Arden) preferential creditors prior to putting the which appear to contradict the case of MC Bacon company into compulsory voluntary are of interest too: at para 138 she suggests that the liquidation. grant of a legal charge might be capable of being a The application would be allowed. Having transaction at an undervalue under s.238 IA 86 on considered the relevant authorities, the the basis that there is a grant of proprietary rights. court would make the order sought. The The appellant trustees (T) appealed against administration order would also be the decision ((2005) EWHC 336 (Ch)) that extended for a brief period so that matters a settlement, of which T were the trustees, could be completed without undue rush. two legal charges and an assignment in Re St Ives (1987) 3 BCC 634, Re their favour of a loan account constituted Powerstore (Trading) Ltd [1998] 1 All ER transactions within the Insolvency Act 121 considered. Re Designer Room Ltd 1986 s.423(3). The settlement had been [2004] 3 All ER 679 not followed. Re UCT created by the owner (N) of two fields, (UK) Ltd [2001] 2 All ER 186 followed. which adjoined a development site, in Limitation on TIB claim and favour of his infant daughter. N had gifted comment on MC Bacon one of the fields into the settlement just before planning permission was given for Hill (as trustee in bankruptcy the adjacent land. A few months later the of Nurkowski) v Spread fields had been sold for £2 million. When Trustee Company Ltd & Anor the field was gifted to the settlement N [2006] EWCA Civ 542 CA (Civ Div) (Waller LJ, had told the Revenue that it was worth Arden LJ, Sir Martin Nourse) 12/5/2006 only £35,000. The Revenue did not accept that valuation and later compromised its BANKRUPTCY : LIMITATION PERIODS : claim against N for £160,000. After SETTLEMENTS : TAX EVASION : TRANSACTIONS AT receiving the sale consideration T had lent AN UNDERVALUE : COMMENCEMENT DATE FOR most of it back to N in return for charges LIMITATION PERIOD : PURPOSE OF TRANSACTION :

in T's favour and the assignment of sums £700,000 for the field before telling the due to N on his loan account with a Revenue it was worth £35,000 and had company. N could not pay the capital been entitled to infer that N had had a gains tax arising on the sale of the land plan to make the gift into settlement and had been made bankrupt on the and hide information from the Revenue Revenue's petition. N's trustee in to evade tax. bankruptcy (H) applied for relief under the (2) The grant of security could Insolvency Act 1986 s.423 in respect of the constitute a transaction at an settlement and the charges and undervalue. Security was not given assignment. The judge found that one of without consideration where it was the purposes in making the settlement had given in exchange for forbearance by been to evade tax by pretending that there the creditor, Re MC Bacon Ltd (1990) was little difference between the original BCC 78 considered. In the instant case cost of the land and its value when gifted T did not give any consideration in the into the settlement. The judge held that form of forbearance in respect of the the claim under s.423 was a specialty later charges and the assignment. subject to a 12 year limitation period under the Limitation Act 1980 s.8(1), that (3) The applicable limitation period, the cause of action did not arise before the whether that was 12 years under s.8(1) bankruptcy order was made and that H's of the 1980 Act or six years under s.9(1) application was not statute-barred. T of that Act, started when the submitted that bankruptcy order was made, Carman v Yates considered. The effect of s.424(2) (1) the judge had been wrong to find of the 1986 Act was not that there on the facts that one of N's purposes in could be only a single cause of action in making the settlement had been to respect of one transaction. There was cause the Revenue to value the land at no inherent objection to the notion that less than its true value at the date of there might be separate limitation the settlement; periods for different applicants under (2) the judge had not been entitled to s.423. It was not until a bankruptcy conclude that the later charges had order was made that the trustee was been given for no consideration within identified as the person entitled to sue. s.423(1)(a); (4) The judge had found that inducing (3) H's application was statute-barred; the Revenue to make a wrong assessment of the capital gains was (4) N's intention as found by the judge something that N positively intended did not amount to a purpose within and that was enough to show that N s.423(3 and the Revenue was not a acted with that "purpose" within victim within s.423(5). s.423(3). For a person to be a "victim" HELD: of the transaction there was no need to (1) The judge had been entitled to find show that the person who effected the that N had received an offer of transaction intended to put assets

beyond his reach or prejudice his and records of the companies. No cross- interests. A person might be a victim undertaking in damages was given on even though he had not been within behalf of the secretary of state. On the purpose of the person entering into discovery of the orders, B instructed M, a the transaction. The court had firm specialising in insolvency. M asked for jurisdiction to make an order under copies of the winding up petitions from s.423 even where there was no victim the Treasury Solicitor, but failed to request under s.423(5). All that had to be the skeleton argument or note from the shown was that the person was making hearing until six days later, after seeking or might make a claim. advice from counsel. M entered discussions with the receivers to try to Appeal dismissed. persuade them to opt for administration Discharge of provisional orders rather than receivership and liquidators claim investigated ways to dismiss the petitions, Mishcon De Reya (A Firm) v but no application to discharge the orders was made. The companies were soon after Paul Barrett wound up by compulsory order. M claimed Ch D (Kitchin J) [2006] EWHC 952 their legal fees and B counterclaimed on The defendant's re-amended defence and the basis of negligence and breach of the counterclaim that his solicitors should have applied implied term to act with reasonable care in to discharge orders appointing provisional accordance with the retainer. It was B's liquidators over the assets of companies owned by case that M was in breach of its implied him had a real prospect of succeeding at trial. duty to act with reasonable care, which meant that he had lost the opportunity to The claimant solicitors (M) appealed apply to discharge the orders and to claim against a decision to allow the defendant damages from the secretary of state. M's (B) to serve a draft re-amended defence application for summary judgment was and counterclaim. B owned a group of refused and B was permitted to submit a companies that had run into financial re-amended defence and counterclaim. B difficulties. Many of the companies had submitted that become insolvent. The secretary of state applied without notice for the (1) M had failed to act with the appointment of provisional liquidators over necessary urgency, given that the the assets of the companies pursuant to companies were finding it increasingly the Insolvency Act 1986 s.135 and orders difficult to continue trading, and should were made. At the same time he have promptly requested the skeleton presented petitions for the companies to argument and note of the hearing; be wound up. The circumstances were (2) M should have applied to discharge unusual because some of the companies the orders and should have offered were still trading viably, but the secretary undertakings to allay the secretary of of state felt that the orders were state's concerns regarding B's necessary, given evidence of B's dishonesty impropriety; and impropriety, to safeguard the assets

(3) the application would have been (4) The discharge of the orders could successful as B had an arguable case have prompted the receivers to retract, based on the fact that (a) the "Etherton but that issue could not be determined Protocol" laid down by Etherton, J. in In summarily, City Vintners considered. the matter of City Vintners Ltd was not Appeal dismissed. complied with, (b) no cross-undertaking in damages was given, and (c) the Shareholder knowledge at secretary of state's application should distribution of dividend not have been made without notice; It’s a Wrap (UK) Ltd v Gula and (4) if the orders had been discharged, another the receivers would have been [2006] All ER (D) 161 (May) [2006] EWCA Civ removed. 544 Court Of Appeal, Civil Division Chadwick, Sedley And Arden LJJ 11 May 2006 HELD: if a company brought a claim against a shareholder (1) B had a real prospect of under s 277(1), was the actual or constructive establishing at trial that had M insisted knowledge that the section required actual or on the prompt supply of the skeleton constructive knowledge of (i) the relevant facts argument and the note of the hearing, constituting the contravention; or (ii) those facts and they would have had extra time to in addition the fact that Act had been contravened? prepare an application to discharge the This case on appeal has come to a sensible orders. interpretation of the law. It is now enough if the (2) M should have prepared an defendant knows the facts. He does not also have to application to discharge the orders and know they amount to a contravention of the Act. entered into negotiations with the Section 277(1) of the Companies Act 1985 Treasury Solicitor, as there was a real provides: ‘Where a distribution, or part of possibility that, had undertakings been one, made by a company to one of its offered that adequately protected the members is made in contravention of this group from interference by B, the Part and, at the time of the distribution, he secretary of state would have knows or has reasonable grounds for considered discharging the orders. believing that it is so made, he is liable to (3) Many of B's lines of argument were repay it (or that part of it, as the case may unconvincing: (a) the Etherton Protocol be) to the company or (in the case of a argument would have been likely to fail distribution made otherwise than in cash) because the protocol was simply a to pay the company a sum equal to the matter of good practice; (b) there was value of the distribution (or part) at that no requirement on behalf of the time.’ secretary of state to give a cross- The defendants were directors and undertaking; (c) a without notice shareholders of the claimant company. application was necessary because Notwithstanding that there were no there was a genuine risk of the retained realised profits for the years 2001 companies' assets being removed or and 2002, in which the claimant had made dissipated.

trading losses, the defendants caused the (EEC) 77/91 (the Second Directive), which company to pay them dividends in respect it was designed to implement. Article 16 of those years. The company was placed had to be read in the context of the rules into creditors’ voluntary liquidation in on distributions in art 15 of the Second January 2004. The claimant (acing by its Directive and the general principles of liquidator) brought proceedings for the Community law. The provisions of ss 263 return of those dividends, relying on s to 276 of the Act were designed to 277(1) of the Companies Act 1985. The implement art 15. On its true judge held that the words ‘is so made’ in s interpretation, art 16 meant that a 277(1) meant ‘made in contravention of shareholder was liable to return a this Part’, and so required the defendants distribution if he knew or could not have to know or have reasonable grounds to been unaware that it had been paid in believe not just the facts giving rise to the circumstances which amounted to a contravention but also the legal result of contravention of the restrictions on that contravention. As he had found that distributions in the Second Directive, the defendants did not have that whether or not he knew of those knowledge, he held that there was no restrictions. liability to repay the dividends. The Decision of Nicholas Davidson QC [2006] 1 company appealed. BCLC 143, [2005] All ER (D) 94 (Sep) The issue on the appeal was whether, if a reversed. company brought a claim against a Similar fact evidence on shareholder under s 277(1), the actual or constructive knowledge that the section injunction required was actual or constructive Abbey National Plc v JSF knowledge of (i) the relevant facts Finance & Currency Exchange constituting the contravention; or (ii) those Co Ltd facts and in addition the fact that Act had 31st March 2006, unreported (CA) been contravened. Injunction to restrain winding up petition HELD The appeal would be allowed. cheques - debt disputed on grounds of Section 277(1) had to be interpreted as knowledge of fraud - similar fact evidence meaning that the shareholder could not The appellant bank successfully appealed claim that he was not liable to return a against a decision dismissing its application distribution because he did not know of for an injunction to restrain the the restrictions in the Act on the making of respondent, a currency exchange bureau, distributions. He would be liable if he from presenting a winding up petition knew or ought reasonably to have known against it on the basis of an unpaid debt. of the facts which meant that the The respondent’s managing director had distribution contravened the requirements exchanged 40,700 Euros for a counter of the Act. cheque issued by the appellant bank and Section 277(1) had to be interpreted in payable to the respondent for £30,000. conformity with art 16 of Council Directive The appellant refused to pay the cheque

on presentation, claiming that the Setting aside of statutory individual who procured the counter demand reversed cheque was an imposter. Union Bank (UK) plc v Pathak The appellant’s application for a without CHANCERY DIVISION 15 MAY 2006 notice injunction restraining the respondent from presenting a winding up The registrar had erred in accepting that a debtor's petition was initially granted. However, two defences to a statutory demand under the application for a final injunction was Insolvency Rules 1986 r.6.5(4)(a) and (b) had given dismissed at first instance on the basis that rise to genuine triable issues sufficient to warrant although the debt was disputed bona fide, the setting aside of the demand. In particular, the the appellant had not demonstrated that defence that the creditor bank had committed a this was on substantial grounds. The breach of duty of care to the debtor by failing to appellant had failed to identify any single reduce the outstanding debt through competent fact in relation to the transaction that realisation of an assigned letter of credit should have should have put the respondent on notice been rejected, as there was no material sufficient to of fraud. disclose a genuine triable issue.

The Court of Appeal held that the judge The respondent was the director and chief should have taken into account the wider executive of RTC (a company involved in circumstances in which the transaction had the international trade of goods which taken place. These included numerous funded its transactions by the use of transactions over a period of two years, documentary letters of credit). RTC was a each of which had involved the sale of a customer of UBN, a bank. RTC wished to large quantity of Euros in cash which arrange for the purchase and export of proved to have been financed with funds motor-cycles from China for import and obtained by fraud. There was enough sale in Nigeria and for that purpose to evidence to make it arguable that the obtain a letter of credit as the means of respondent must have known that all (but payment to its Chinese supplier. It sought one) of these cases involved a fraud. such a letter of credit from UBN, which was granted on condition that the The appellant was entitled to rely on respondent, as guarantor, sign a written similar fact evidence if it could prove the guarantee with UBN and assign to UBN facts on which it relied and demonstrated the proceeds of a letter of credit issued by that they were indeed similar to those of FBN. In September 2004, a court order the transaction in question. The degree of was made, sanctioning the transfer of particularity required to support an substantially the whole of the business of allegation of fraud was more than that UBN (to the extent carried on in the UK) to needed to demonstrate substantial UBUK, the appellant bank. That transfer grounds for disputing liability such as to included all UBN’s rights in connection make the winding up procedure with the FBN letter of credit and the inappropriate. Accordingly the appeal was guarantee given by the respondent. UBUK, allowed and the injunction was granted. having paid the Chinese supplier under the first letter of credit, demanded payment

from FBN under the FBN letter of credit for take legal proceedings against FBN. the full sum. FBN refused to pay the full Further, the registrar’s recognition that sum relying upon a right to set off, which there were aspects of the facts relevant it claimed it enjoyed against RTC. UBUK to the alleged breach of duty which had then proceeded against the respondent on not been before the court had led him the guarantee, serving a statutory into an error of principle when treating demand. The respondent applied to set that as justifying the setting aside of the aside the statutory demand arguing, inter statutory demand. The missing facts, alia, that: in seeking to enforce the FBN would not, on an analysis of the letter of credit, UBUK was in substance materials that were before him, have realising a security for the debt guaranteed given rise to an arguable case or triable by him and therefore owed a duty of care issue as to the commission of the to RTC as principal debtor and the alleged breach of duty. In those respondent as guarantor to reduce the circumstances, the registrar had been debt as much as reasonably possible by wrong to treat the duty defence as enforcing the security and UBUK had enabling or requiring the setting aside committed a breach of that duty by of the statutory demand under para (a) forbearing to sue FBN; (ii) the description or (b) of r 6.5(4) of the Rules. of the principal debtor in the guarantee (2) There had clearly been purported was insufficient identification of RTC. The identification of the principal debtor in chief registrar set aside the statutory the guarantee. Whether ambiguous or demand under r 6.5(4)(a)(b) and (d) of the not, the phrase that had been used was Insolvency Rules 1986 SI 1986/1925. UBUK amenable to construction by reference appealed against that order. to extrinsic evidence. Further, there was The appeal would be allowed. evidence of an understanding, as between the respondent and UBN, that (1) In the instant case, the security had the words used in the guarantee neither been surrendered nor lost nor alluded to RTC. There had therefore imperfect nor altered in condition by been no misnomer in the guarantee. what had been done by UBUK. Had the There had been before the registrar the evidence been that UBUK had settled necessary documentary extrinsic for payment of the reduced sum in evidence to put the question of discharge of FBN’s obligations under construction as the meaning of the the FBN letter of credit, the position phrase used in the guarantee beyond would have been otherwise. There had any possible doubt. Thus, it had been been no material before the court from wrong to conclude that the Statute of which it could be concluded, Frauds defence gave rise to a genuine consistently with legal principle, that a triable issue sufficient to warrant the trial of UBUK’s claim against the setting aside of the statutory demand. respondent could have any reasonable prospect of leading to a conclusion that Accordingly, the statutory demand would UBUK had committed a breach of the be reinstated. alleged duty of care, in forbearing to

Standard Chartered Bank v Walker [1982] 3 All would take over X's assets. The New York ER 938 considered court sent a letter of request to the High Implementation of creditors’ Court of Justice of the Isle of Man asking for assistance in giving effect to the plan approved by New York creditors' plan. The respondent committee in Scheme of creditors then petitioned the High Court Cambridge Gas Transport for an order vesting N's shares in their Corporation V Official representative, whereupon C filed a cross Committee Of Unsecured petition asking the court not to recognise Creditors Of Navigator or enforce the terms of the plan on the Holdings Plc & Ors basis that it had never submitted to the jurisdiction of the New York court. C PC (IoM) (Lord Bingham of Cornhill, Lord Hoffmann, Lord Hutton, Lord Rodger of succeeded in the High Court. However, Earlsferry, Lord Carswell) 16/5/2006 the Court of Appeal reversed that decision, holding that the order of the New York CORPORATE INSOLVENCY : ISLE OF MAN : LETTERS court was a judgment in personam in OF REQUEST : NEW YORK : SCHEMES OF proceedings in which N had submitted to ARRANGEMENT : SHAREHOLDERS : CREDITORS' the jurisdiction of the New York court. PLAN APPROVED BY NEW YORK COURT : ASSISTANCE OF MANX COURT SOUGHT : C argued that OPPOSITION BY SHAREHOLDER -(1) the Court of Appeal, having found The Court of Appeal had been right to that the order of the New York court order the implementation of a creditors' was in personam, had proceeded to plan relating to an insolvent company that enforce it against the wrong persona. C had been approved by a New York was the relevant persona, as the order bankruptcy court. purported to deprive it of its property. Given that it had not submitted to the The appellant shareholder (C) appealed jurisdiction of the New York court, against a decision of the Court of Appeal there was no basis on which the order to order the implementation of a creditors' of that court could bind it; plan relating to an insolvent company. A shipping business (X) had become heavily -(2) the Court of Appeal had been insolvent. The individual ships had been wrong to give effect to a plan which owned and managed by a group of Isle of transferred the shares in N. Such shares Man companies. The shares in the relevant were not the same thing as the assets management company had been held by a of N, they were separate items of holding company (N). C, a Cayman property belonging to a person who company, owned 70 per cent of the issued had not been party to the bankruptcy share capital of N. The Federal Bankruptcy proceedings. Court for the Southern District of New HELD: York rejected a plan put forward by X for the sale of its assets and approved a plan Judgments in rem and in personam put forward by X's creditors whereby they were judicial determinations of the existence of rights. However, the

purpose of bankruptcy proceedings was be unfair for the plan to be carried into not to determine or establish the effect, and the Court of Appeal had existence of rights but to provide a been right to order its implementation. mechanism of collective execution Appeal dismissed. against the property of the debtor by creditors whose rights were admitted or Was it in public interest for established. The principles that applied the company to be wound to insolvency proceedings were up? sufficient to confer on the Manx court jurisdiction to assist the committee of Re Get Me Tickets Ltd and creditors, as appointed representatives other companies under the order of the New York court, [2006] All ER (D) 263 (May) [2006] EWHC 1058 (Ch) Chancery Division (Companies Court) to give effect to the plan. As to the Robert Englehart QC Sitting As A Deputy Judge limits of that assistance, it was doubtful Of The High Court 18 May 2006 whether, at common law, it could take The cumulative effect of all the matters of which the form of applying provisions of the complaint was made by the Secretary of State for foreign insolvency law which formed no Trade and Industry was such that there was no part of the domestic system. But the doubt that it was in the public interest that the domestic court had at least to be able company, whose business was that of a secondary to provide assistance by doing whatever ticket agent, and two associated companies should it could have done in the case of a be wound up. domestic insolvency. The purpose of recognition was to enable the foreign The business of the company was that of a office holder or the creditors to avoid secondary ticket agent. A secondary ticket having to start parallel insolvency agent sold tickets to the public for events, proceedings and to give them the mainly in the present instance rock and remedies to which they would have pop concerts and festivals, at various been entitled if the equivalent venues despite not being authorised by proceedings had taken place in the event promoters to do so. A secondary domestic forum. ticket agent was not an authorised agent of the venue itself but, rather, had to (2) C's second submission was based acquire tickets for resale from sources on a misunderstanding of the nature of other than the venue itself. The cost of the shares in a company. As a shareholder, ticket was likely to be vastly in excess of C was bound by the transactions into the face value of the ticket. Virtually all the which N had entered, including a plan company’s sales were credit or debit card under the US Bankruptcy Code Chapter sales with sales being effected over the 11. Although C had not technically internet or on the telephone. Following a submitted to the jurisdiction in New considerable amount of complaints from York, it had no economic interest in the the public, which related either to the proceedings and had had ample failure to deliver tickets which had been opportunity to participate if it had purchased or to the late delivery of wished to do so. It would therefore not purchased tickets, the Secretary of State

for Trade and Industry presented petitions tax deductions which it had been making under s 124A of the Insolvency Act 1986 over the years. The cumulative effect of all seeking the winding up in the public the matters of which complaint was made interest of the company and two by the Secretary of State was such that associated companies. The Secretary of there was no doubt that it was in the State’s principal complaints were that public interest that the company, and the members of the public were misled into two associated companies, should be believing that, if they booked and paid for wound up. tickets, such a booking was a firm Rates as administration booking. It was said that orders were taken and payments received merely in the expense hope that the company would then be Trident Fashions v Bairstow able to acquire the tickets to fulfil the Information on this subject is pretty vague orders. The Secretary of State complained but in this Exeter City Council case there is that the company had failed to comply an argument over whether rates count as with the statutory requirements in respect an administration expense. It was thought of its accounting records and that the there was to be a case management borderline between expenditure of the conference (or a directions hearing) directors on their personal affairs and Thursday 25 May in the Leeds District expenditure by them on company business Registry. The former administrators were was blurred. Moreover, the company had not proposing to attend due to lack of failed to cooperate with the investigation funds and so it is possible that the court into the company’s affairs. may give summary judgment in favour of HELD :The evidence in relation to the the local authority. We do not know what principal complaints disclosed a most arguments were put forward by the local unsatisfactory state of affairs with authority as to why the rates should have members of the public being misled and been paid as an administration expense let down, large amounts of money being but we understand that the rates are likely generated from the public without any real to be in respect of occupied properties. safeguards by way of financial record keeping and the indiscriminate intermingling of company and personal Scotland money. There was a marked and wilful failure to co-operate with the investigator Right to occupy property appointed by the Secretary of State; the evident aim was to conceal as much as Aerpac Ltd (in administration) possible from him. There had to be serious and another v NOI Scotland reservations over the company’s solvency Ltd as at the presentation of the petition with BLD 1705061565; [2006] CSIH 20 Judge: Lord its failure to account for VAT on two President (Hamilton), Lord Kingarth and Lord Penrose 5 April 2006 occasions and considerable uncertainty, at the lowest, over the validity of VAT input

Summary: Contract—Construction—'Right to (which included rights of ownership). If a occupy'—Prospective purchaser entering into period of one year expired from the missives for purchase of premises—Missives completion date without the purchaser containing licence to occupy premises for one becoming so entitled or entering into an year—Purchaser occupying premises after expiry of agreement in respect of such occupation, licence but without paying purchase price—Sellers then cl 5.5 applied (cl 5.4, second taking no steps to remove them—Whether sentence). Clause 5.5 allowed the purchasers having right to occupy. defenders to make a declaration that they had not got obtained the rights referred to In this action the pursuers were a company in cl 5.4, whereupon they were entitled to and its administrator. The administrator the return of the deferred consideration, decided to sell the company as a going unless the administrator knew this to be concern and entered into missives ('the untrue. In the event the defenders did business missives') for the sale of the make such a declaration. The pursuers company's assets to the defenders. The disputed the validity of the declaration and company did not, however, own the in this action sought an order requiring the premises it occupied. The sale of the defenders to instruct their solicitors to business was, therefore, made subject to a consent to the release of the deferred suspensive condition that the landlords of payment to the administrator. It was not the premises would enter into missives for disputed that the defenders had occupied the sale of the premises to the defenders the premises until the date of entry in ('property missives'). The property missives terms of the licence contained in the were to contain a licence permitting the property missives and that thereafter they defenders to occupy the property until the had continued to occupy the property with date of entry. Property missives were duly the knowledge and acquiescence of the entered into and specified a date of entry landlords. The pursuers' main argument of 27 July 2001. The consideration for the was that the defenders' continued sale of the business was stated in cl 5 of occupation of the property must have the business missives. This provided that been referable to the right to occupy half of the consideration was to be paid on conferred by the property missives the completion date (7 June 2001). The following the date of entry (and that this remainder ('the deferred consideration') satisfied the declaration in cl 2). On this was placed in a joint account and was to basis the cl 5 declaration by the defenders become payable to the administrator when was false. The defenders argued that the the defenders became entitled as pursuers' averment were irrelevant. They 'heritable proprietor or tenant or in such argued, inter alia, that the first sentence of other capacity' as was specified in a cl 5.4 contained no reference to an declaration set out in cl 2 to occupy the agreement and the pursuers were not property (cl 5.4, first sentence). Clause 2 entitled to found on any agreement in referred to a 'right to occupy the Property respect of occupation of the premises. … as tenant under a lease or otherwise'. It After debate, the Lord Ordinary decided also referred to an 'agreement … to that the sum should be so released, and obtain … rights referred to in [the clause]'

ordained the defenders to instruct its solicitors to consent to its release by the bank. The defenders reclaimed against the interlocutor. The defenders’ primary submission was that the reclaiming motion should be allowed, and the action dismissed, because the pursuers had not made any relevant averment of the occurrence of occupation in a stated capacity.

The reclaiming motion would be refused.

Whatever the defenders, their associates, the owner and its associates, the heritable creditor and others may have contrived in the way of variations from the sequence of events envisaged in the original contract documents, and absent notice of rescission by the seller, on 27 July 2001 the defenders became entitled to a personal right to continue in occupation of the property in terms of the property missives, with vacant possession. On that ground the reclaiming motion would be refused.

Legislation

The Insolvency (Amendment) Rules 2006 No 1272 These Rules make an amendment to Rule 13.12 of the Insolvency Rules 1986 (S.I. 1986/1925).

This extends the interpretation of “debt“ within Rule 13.12 to include claims founded in tort where all of the elements required to bring an action against the company exist at the time the company goes into liquidation or enters administration, except that the claimant has not yet suffered any damage and does not therefore, at that time, have a cause of action against the company The Rules are available at (Date in force, 1.6.06)

Articles

Bondholders Employment Ignore bondholders at your New TUPE Regulations – peril impact on distressed business How to manage bondholders in a dispositions successful restructuring. The government announced, in 2003, that E Wilson & C Dunton: IFLR, 04.06, 39, forthcoming changes to the TUPE 06.20.041 Regulations would ‘help promote the rescue culture and save business and jobs Commercial property that would otherwise be lost.’ The actual The AGA saga: ten years on revisions, despite concerns raised during the consultation process, will achieve these The author considers three aspects of laudible objectives only to a relatively small authorised guarantee agreements. extent. Further, the Regulations’ attempt (J Crookes: PLJ, 2.4.06) 06.18.121 to distinguish between types, or the nature Distressed debt of types, of insolvency proceedings will prove challenging for the Employment RBS plans buyout arm Tribunals and for the courts to interpret, in The Royal Bank of Scotland is in the terms of both natural meaning and policy. advanced stages of planning a buyout arm J Goldring & S Spooner; [2006] 22(2) IL+P, which will acquire distressed loans from 70. other UK banks and restructure them. Is Expenses also spear-heading debt for equity swaps through its Strategic Investment Group The Leyland DAF controversy (SIG). continues Global Turnaround May 2006 page 2 Reproduces, in response to the Financial IWP International completes Law Committee of the City of London Law restructuring Society's letter to The Insolvency Service arguing against the proposed reversal of A cosmetics and personal care company the House of Lords decision in Buchler v with 1,600 employees and operations in Talbot, also known as Leyland DAF, through five countries has been saved through an the Company Law Reform Bill 2005 cl.868: innovative debt for equity swap driven by (1) a reply by Stephen Leinster, Director distressed investors. of Policy at The Insolvency Service; Global Turnaround May 2006 page 3 (2) a memorandum from the Insolvency Law Committee of the City

of London Law Society arguing for the IMF warns on LBOs reversal; and Insolvency and restructuring practitioners (3) a letter from HM Revenue & in France who anticipated a spate of Customs to R3 setting out their Leveraged Buyout group failures got expectation of how the House of Lords backing from the latest IMF Report of 11 judgments in Leyland DAF and Re March. Spectrum Plus Ltd (In Liquidation) will be Global Turnaround May 2006 page 8 applied in practice.

Insolvency Law & Practice I.L. & P. (2006) European integration meets Vol.22 No.2 Pages 43-49 wall of cash Overseas Comment that the main reasons for change in France are not so much changes The French Revolution in mentality or the identity of the players A look at the French restructuring market but rather legal and economic. Daisytek, place. bonds and the Regulation. Global Turnaround May 2006 page 4 Global Turnaround May 2006 page 9 French U-turn on the Russian receiver of Yukos European Regulation uses US Chapter 15 Comment on Emtec (Nanterre, February), The US Chapter 15 procedure has been the first insolvency to be anchored in used by the Russian receiver of oil giant France and having control over main Yukos to block the company’s embattled proceedings in other EU countries. management from selling assets.

Global Turnaround May 2006 page 5 Global Turnaround May 2006 page 1 How to bring hedge funds The failed Yukos Chapter 11 into the system? A short note on the dismissal on the Comment on hedge funds in France and ground the company did not have implications for the European Insolvency sufficient presence in the US to justify Regulation. jurisdiction.

Global Turnaround May 2006 page 6 Global Turnaround May 2006 page 2 France is the new Germany Remuneration A style of distressed investing that was Remuneration, the insolvency invented in the US and has become practitioner and the courts familiar in Germany has cropped up in Discusses the controversy over the France. remuneration of insolvency practitioners Global Turnaround May 2006 page 7 over recent years and the extent to which they have been resolved.

Examines: director; and the specialist insolvency practitioner who acts as an adviser to the (1) the office-holder's remuneration as company. a fiduciary; (S. Fennell & S. Dingley: Insol Int, 04.06, (2) the Ferris Report on the 18) 06.19.032 remuneration of office-holders and court practice following its issue; Security (3) the present position on Security over co-owned remuneration set out in Statement of property and the creditor's Insolvency Practice 9, the Fixing and paramount status in recovery Approval of the Remuneration of Appointees, signed on July 15, 2004, proceedings including the "guiding principles" laid Discusses the extent to which interests of down; secured creditors in debt recovery (4) the criticism of the Practice proceedings receive priority over the Statement, focusing on the concept of interests of the co-owners of property value; and upon which loans have been secured. Reviews the methods by which co-owners (5) present and future problems, may resist recovery at the pre insolvency including time cost and market rates. stage and following the initiation of Insolvency Law & Practice I.L. & P. (2006) bankruptcy proceedings, highlighting the Vol.22 No.2 Pages 50-54, Stephen Baister factors displacing a creditor's recovery (Chief Registrar, High Court of Justice) rights under the Trusts of Land and Working with companies in Appointment of Trustees Act 1996, the "fresh start" opportunities for bankrupts financial difficulties – will you and the rules applicable to vulnerable be paid? transactions. Examines the arguments for The management of a company in reform and the benefits of New Zealand's financial difficulty should always take exemption for property held for specialist advice. By definition, the matrimonial occupation and rules based company will have difficulty in paying for upon the nature of the relationship such advice in addition to its other between the joint owners. liabilities. This article examines the issue of Conveyancer and Property Lawyer Conv. when and how such advice should be paid (2006) March/April Pages 157-178 for, and how professionals working with 1/3/2006-1/4/2006 Paul Omar companies in difficulty can best protect their right to be paid for the work they do. It considers these questions for two different types of professional: the turnaround professional, who typically gets very involved in the running of the company, and will often be appointed as a

Technical

Insolvency set-off and building societies The FMLC have written to the Insolvency Service regarding the lack of a statutory insolvency set-off rule for building societies. This was brought to FMLC's attention by financial market participants who are concerned by the legal uncertainty that this creates as they attempt to analyse their credit risk when dealing with building society counter- parties. FMLC asks the Insolvency Service to consider how this should be addressed. http://www.fmlc.org/papers/Insolvency118 .pdf Company Law Reform Bill: views from the profession compiled by the ABRP General Technical Committee Looks at the Company Law Reform Bill 2005, under consideration by the Grand Committee of the House of Lords, focusing on its implications for corporate insolvency and restructuring. Outlines the areas addressed by the Bill, the intended mitigation of the effects of the House of Lords decision in Buchler v Talbot and the provisions regarding company loans to directors, directors' duties, company formation, shareholders' rights, auditors' liability and financial assistance.

Insolvency Law & Practice I.L. & P. (2006) Vol.22 No.2 Pages 88-90, Lorinda Peasland

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