Re Lehman Brothers International
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A word about credit risk mitigation
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Re Lehman Brothers International [2012] EWHC 2997[1] - also known as the extended liens application.
- It is as I have said common ground that, if the security rights are charges at all, they are floating charges. No one has advanced the argument that they merely create flawed assets in the hands of LBF as their primary case. It is advanced mainly as a fallback riposte to LBF’s case that the purported grant of a security right to a grantee other than the grantor’s creditor is conceptually incapable of being a charge, unless supported by a fiduciary obligation of the grantee to exercise it for the creditor’s benefit. — Briggs J
A case on the practical limitations of spraying the expression "fixed charge", or even floating charge, for that matter — over all your documents.
If you de-pomposify the language of the introduction [2] the issue is this:
- Two unusual features lie at the heart of the issues.
The first is that the documents describe the security as a “general lien” with rights of retention, sale and the application of proceeds, whereas the vast bulk of the property held by LBIE, consisted of de-materialised securities and money.
The second is that, the same provisions purported also to secure debts owed by LBF to a broadly defined class of LBIE’s affiliates without creating any agency or trust regulating the circumstances in which LBIE might realise the security for the benefit of its affiliates, or the priority in the application of any proceeds of such realisation.
This application has come to be known as the Extended Liens application.
Does the chargee have to be the creditor, or a fiduciary of the creditor?
No.
- I can see no good reason why A should not confer a specifically enforceable right on B to have A’s property appropriated towards the discharge of a debt which A (or someone else) owes C, without any requirement that B be C’s trustee or fiduciary. B may have good business or personal reasons to wish to ensure that A pays his debt to C, and I cannot see why the law should prevent B taking an enforceable (and therefore proprietary) interest in A’s property so as to give himself the power to achieve that objective, without making himself a trustee or fiduciary for C. — Para 44.
Financial Collateral
There is a looooong discussion about the FCARs. Best if you read it.
Trivia
The expression common ground appears in the judgment eighteen times.
See also
- Fixed charge
- Re Spectrum Plus, whose findings on the need for control to make a fixed charge this case endorsed.
- cave verba magicae
References
- ↑ Let me Google that for you
- ↑ the expurgated words being: “appearing in both the documents most, but by no means all, of which I am invited to decide, in each case, purport to thereby created attendant in fact, as the parties would have known when the documents were created, of LBF to which the security related,from time to time intangibles, mainly in addition to purporting to create security for payment of debts owed by LBF to LBIE, constitute security in respect of (if arguably imprecisely) within the Lehman Brothers group , at least in express terms, but relationship between LBIE and its affiliates be obliged to as between LBIE and its affiliates”