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Belmont: Will the "Flip" Flop under Scots Law?
The Supreme Court has handed down its decision on the validity and enforceability of "flip" clauses in connection with English bankruptcy law but how will the decision in Belmont Park Investments Pty Limited v BNY Corporate Trustee Services Limited and Lehman Brothers Special Financing Inc translate under Scots law?
Structured finance and securitisation transactions will often feature flip clauses having the effect of reversing (or flipping) a party's priority in the payment waterfall below the payment obligations owing to other creditors should certain events occur. In Belmont, following the occurrence of a default, the application of this clause meant that the priority of payments "flipped" to the disadvantage of the swap counterparty who then claimed that the flip clause should be set aside on the basis that it offended the "anti-deprivation" principle under English bankruptcy law by arguing that the flip clause unlawfully deprived it of property to which it was entitled on bankruptcy due to the reversal of the payment priorities.
The Supreme Court focused on two key elements in assessing if the anti-deprivation principle were to apply: there must be a deliberate intention to evade the insolvency laws, and the deprivation must take place as a result of bankruptcy. Applying these principles to the Belmont facts the Supreme Court upheld the validity of the flip provisions. There was no evidence that the flip provisions deliberately intended to evade insolvency laws and the flip clause could have applied upon the occurrence of various other non-bankruptcy related events of default and made logical commercial sense in the context of the transaction.
The application of the anti-deprivation principle in Scotland has been unclear due to lack of judicial precedent. However, where similar questions have arisen the Scottish courts have approached the issues in much the same manner as Belmont, highlighting that there must be an attempt to evade insolvency laws and that the provisions of complicated commercial transactions should be upheld where there is a real good faith commercial basis for the structure. Whilst an English law decision, we are of the view that the findings in Belmont are consistent with the general approach of the Scottish courts to like-minded issues and is likely to be followed. For more information please contact Stuart Fitzsimmons or .
Proceeds of Insolvency: The Pensions Regulator Jumps the Queue
The Court of Appeal has agreed with the English High Court decision in Bloom & Ors v the Pensions Regulator, that the cost of compliance with a financial support direction (FSD) or a contribution notice (CN) issued by the Pensions Regulator against a company which is already subject to an insolvency process will (subject to certain limited exceptions) be regarded as an expense of the administration/liquidation and consequently rank in priority to preferential debts, floating charges and unsecured creditors. If pension liabilities are significant this can often mean creditors ranking behind them receive nothing. The upshot is that secured lenders who hold fixed charges will still have priority but those with unsecured debts or seeking to rely on floating charges, will rank behind payments made in respect of a FSD or CN. This has broad implications for lenders in structuring transactions and associated security packages but also around their decision making in enforcement scenarios. For more information please contact Chris Dun or Susan Kelly.
2011 Transaction Highlights
In 2011 our Banking & Finance team in Scotland acted on many of the largest and most high profile transactions in the market, spanning a wide variety of sectors and the full range of banking and finance work. Some of these transactions included:
PLC/Major Corporates
- Acting for Robert Wiseman Dairies plc in connection with its banking facilities.
- Acting for Aberdeen Asset Management plc in connection with £100m revolving credit facilities provided by Barclays Bank plc and Lloyds Banking Group plc as a banking club.
- Acting for Devro plc in connection with the refinancing of its banking facilities with a club of lenders.
- Acting for British Polythene Industries plc in refinancing its banking facilities with a club of lenders.
- Acting for The Edrington Group in connection with a US$300m Private Placement.
- Acting for The Edinburgh Woollen Mill Group in refinancing c£60m of banking facilities with Barclays Bank plc and Santander UK plc.
- Acting for Burn Stewart Distillers Limited in refinancing its asset-finance facilities with PNC Financial Services UK Limited.
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Acquisition Finance
- Acting for a club of banks comprising Barclays Bank plc, Bank of Scotland plc, Clydesdale Bank plc, HSBC Bank plc, Lloyds TSB Bank plc and The Royal Bank of Scotland plc in connection with the c£600m acquisition by John Wood Group plc of Production Services Network Limited and the subsequent US$2.7bn disposal of Production Services Network Limited's Well Support Division, a transaction which was Deal of the Year at the Scottish Deal and Dealmakers Awards 2011.
- Acting for DnB Nor Bank ASA in providing debt funding for the acquisition by Reef Subsea of the subsea division of Rotech Group.
- Acting for The Edinburgh Woollen Mill Group in connection with the acquisition of 33 Jane Norman stores from administrators, arising from one of the most high profile insolvencies in the UK retail market in 2011.
- Acting for Barclays Bank plc in connection with the sale of its private equity division to management, one of the largest MBOs of 2011.
- Acting for Composite Energy Limited in connection with the sale of the company to Dart Energy Limited.
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Oil & Gas (and Related Services)
- Acting for Standard Chartered Bank and the other members of the syndicate on a US$900m financing for Cairn Energy.
- Acting for Morgan Stanley advising on the Scottish aspects of a cUS$1bn refinance of a global helicopter operator.
- Acting for AGR Group ASA on an ongoing basis in connection with the Scottish aspects of its banking arrangements.
- Acting for various banks during the year funding transactions in the oil and gas services sector in an aggregate amount in excess of £125m.
- Acting for DVB Bank SE in connection with a vessel related financing.
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Technology/International/Growth Finance
- Acting for Clydesdale Bank plc in providing £6m banking facilities to FNZ Group, an international technology company with operations in the UK, Australia, New Zealand, Cayman Islands and Czech Republic.
- Acting for Silicon Valley Bank in providing banking facilities to Weeworld Limited an online social media group.
- Acting for Clydesdale Bank plc in providing £2.5m growth finance facilities to Touch Bionics, a prosthetics technology company with operations in the UK and USA.
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Real Estate Investment Finance
- Acting for Aviva Commercial Finance Limited in providing £205m banking facilities to refinance a portfolio of properties owned by The Peel Group.
- Acting for Aviva Commercial Finance Limited in providing £120m banking facilities to Longmartin Properties Limited (a joint venture between Shaftesbury plc and the Mercers' charity) secured over St Martin's Courtyard shopping complex in Covent Garden.
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Development Finance
- Acting for Bank of Scotland plc in connection with its continuing provision of £44m development facilities to RMH (Guildford) LLP in connection with the development of a hotel in Surrey.
- Acting for Ardmuir Developments Limited in connection with £39m facilities made available by The Royal Bank of Scotland plc to fund the development of student accommodation projects.
- Acting for The Royal Bank of Scotland plc in the provision of development finance for residential developments in England and Scotland.
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Housing Finance
- Acting for The Royal Bank of Scotland plc on the financing of various housing associations during 2011 including Melville HA, Hillcrest HA, Tollcross HA, Maryhill HA, Thenue HA, Sadeh Loks HA and Perthshire HA.
- Acting for Clydesdale Bank plc in providing facilities to North Glasgow HA, Calvay HA, Milnbank HA and Whiteinch & Scotstoun HA, together relating to financing of over 4000 homes.
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Project Finance/Renewables
- Acting for The Combination of Rothes Distillers Limited on the banking aspects of its joint venture with Helius Energy plc in connection with a £50m renewable energy scheme comprising a whisky distillery by-product processing plant and a biomass combined heat and power plant.
- Acting for Aviva Commercial Finance Limited in connection with its funding of the Sheffield BSF transaction.
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Education Finance
- Acting for Santander UK plc in financing a college redevelopment project for Dundee College.
- Acting for Clydesdale Bank plc in financing a substantial student accommodation project for Heriot Watt University.
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Insolvency/Restructuring
- Acting for Bank of Scotland plc, Deutsche Hypo and Grant Thornton on the appointment of UK administrators to the Isle of Man based Alderley Group and subsequent disposals.
- Acting for a property group in connection with the restructuring of its debt facilities including a debt for equity swap.
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Capital Markets/Securitisation
- Acting as Scots law counsel to HSBC Bank plc in connection with issuances under its US$10bn Medium Term Note Credit Card Receivables Securitisation Programme.
- Acting as Scots law counsel to Barclays Bank plc in connection with the issuances pursuant to its Global Covered Bonds Programme.
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Contact Us
For further information, please contact:
Chris Dun
Partner
0141 303 2439
chris.dun@mms.co.uk
Susan Kelly
Partner
0131 228 7079
susan.kelly@mms.co.uk
Stuart Fitzsimmons
Associate
0141 271 5630
stuart.fitzsimmons@mms.co.uk
Click here to view contact details for other members of our Banking & Finance team.
This briefing is written as a general guide only. It is not intended to contain definitive legal advice which should be sought as appropriate in relation to any particular matter.
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