The Anti-Deprivation Rule Flashcards

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1
Q

Money Markets International Ltd v London Stock Exchange Ltd [2002] 1 WLR 1150

A

Facts: Just at the moment when the LSE demutualised and membership of the LSE became worth £2.8m, one member (MMI) went into liquidation and under the rules of the Exchange ceased to be a member and forfeited its share in Stock Exchange Ltd. The liquidator argued that the forfeiture on a member’s liquidation was a “fraud on the bankruptcy laws” and void.

Decision: As at the time of insolvency, the share had no value, there was no infringement of the anti-deprivation principle (see proposition 8) [OR this is a reflection of the property principle as at the time of insolvency there was no loss to the estate)

Rule: Neuberger’s 10 Propositions

  1. A person cannot validly arrange his affairs so his own property is taken away at bankruptcy (Higenbotham v Holme)
  2. Subject to the previous proposition, transfer on insolvency (or some other event) is effective (Dommett v Bedford)
  3. The transfer of an asset on the condition that it will revert in on insolvency is generally void
  4. Forfeiture re-entry promise on lease is enforceable where the lessee is insolvent (Hunter v Gallions)
  5. Effect not intention of provision (British Eagle)
  6. intention to evade bankruptcy may invalidate an otherwise valid disposition (Borland’s Trust v Steel)
  7. Scrutinise with care where looking for effect (British Eagle)
  8. Where provision relates to “no value” asset then validly enforceable
  9. ?
  10. Valid, if not, then invalid…
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2
Q

Fraser v Oystertec plc [2004] BCC 233 Peter Prescott QC

A

Case: Contract selling patent has cause providing that the agreement will terminate on insolvency

Decision: Agreement deprived E of the patent on insolvency as

Rule: Licence to patent is akin to a lease, but a transfer of ownership means that it must form part of the estate

N.B. Overruled in Butters v BBC Worldwide (Patten LH at 124) that deprivation principle operated outside formal insolvency proceedings

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3
Q

Butters v BBC Worldwide Ltd [2010] Ch 347 (CA)

A

Case: Licence clause that terminated on act of insolvency valid as only a limited interest, however clause requiring sale of shares on insolvency would fail foul but for the important feature of sale at market value on insolvency (Borland’s Trustee v Steel Bros & Co Ltd). In this case the shares where ‘b’ shares so market value was, in fact, a better deal than that in Borland’s Trustee.

Rules:

(a) Anti-deprivation principle only applies in formal winding up proceedings
(b) Restates rule in Borland’s Trustee that sale at market value of shares is not deprivation
(c) Neuberger’s 5 Propositions
1. Cannot contract out of the insolvency legislation (British Eagle)
2. Uses Ansett Australia to explain property and distribution principles
3. “Effect” (British Eagle)
4. Courts should not extend
5. Courts should give effect to terms of contract wherever possible

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4
Q

Whoitmore v Mason (1861) 70 ER 1031

A

Case: Where agreement stated debtor to be deprived of partnership share “in event of bankruptcy or insolvency”

Lord Neuberger did no expressly overrule, but seemed to effectively

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5
Q

Mayhew v King [2010] 2 BCLC 440 (Sir Edward Evans-Lombe); [2012] 1 BCLC 550 (CA)

A

Case: Insurance broker, Towergate, entered into settlement with Milbank after they had failed to broker insurance policy covering claims such as tort claim of Mayhew. The settlement agreement provided that Towergate would indemnify Milbank in respect of Milbank’s liability to Mayhew. Clause 11 stated Milbank’s right to indemnity ceased if it became insolvent.
When Milbank entered into administration, the administrator assigned all of Milbank’s rights under settlement agreement to Chaucer. Chaucer commenced proceedings against Towergate to enforce the settlement agreement and, in particular, the provisions indemnifying Milbank against Mayhew’s claim. Towergate argued that clause 11 released it from any liability to indemnify Milbank, in response to which Chaucer relied on the anti-deprivation principle.

Decision: Anti-deprivation principle was in operation, rendering the clause void. Sir Edward Evans-Lombe considered that the clause was not analogous to a simple time period.

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6
Q

Re Detmold (1889) 40 Ch D

A

Case: Husband, in marriage settlement, settled is own property on trust to pay income to himself until it ceased to belong ‘absolutely to him’ when the trust would vest in his wife

Decision: At act of bankruptcy, he had no title to the property so it could not vest in the trustee

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7
Q

Re Halstead [1917] 1 KB 695 (CA)

A

Case: Debtor defaulted as member of LSE and all property passed to LSE

Decision: This was not a deprivation of the property principle as the effect was not to take property on bankruptcy but on inability to fulfil contractual engagements that might or might not involve bankruptcy

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8
Q

Lester v Garland (1832) 5 Sim 205

A

Rule: Husband cannot settle own estates to make life interest invalid on bankruptcy (Lockyer v Savage) but his wife’s contribution to the estate can be so settled

(See Mackintosh v Pogose which is effectively same but post-nuptial settlement)

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9
Q

Belmont Park Investments Pty Ltd v BNKY Corporate Trustee Services Ltd [2012] 1 BCLC 163 (SC)

A

Case: LBSF to rank in priority to the claimants unless it committed an event of default of insolvency in which the claimants would rank in priority to LBSF; LBSF committed an event of default when it filed for protection from its creditors under Chap 11 of US Bankruptcy Code; LBSF argued that being deprived of its priority contravened the anti-deprivation rule

Decision: As securities where purchased with money provided by the note holders, the anti-deprivation rule had no application on these facts (similar to Wife’s property being protected but Husband’s note principle!)

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