Re Sigma Finance Corp
The security trust deed of a structured investment vehicle had to be construed as a whole, so that its assets were to be distributed among all creditors at the end of the realisation period, not paid first to creditors whose debts fell due early.
Facts
Sigma Finance was a structured investment vehicle, which raised money by issuing short and long term debt and invested it in asset backed securities. It collapsed during the financial crisis of 2008. Its security trust deed provided that, on an enforcement event, there would be a realisation period of 60 days, during which the trustee was to use the assets to pay short term liabilities falling due in that period. The question was whether creditors whose debts fell due during the realisation period were entitled to be paid in full first, which would exhaust the assets, or whether all creditors should share equally.
Legal principle
The Supreme Court held, by a majority, that all the secured creditors should share in the assets at the end of the realisation period, and that creditors whose debts happened to fall due during the period were not entitled to be paid in full first. Lord Mance said that the deed should be construed as a whole, in the light of its commercial purpose, which was to provide for the pari passu treatment of all secured creditors on an enforcement event. A literal reading of one clause, which would give priority to short term creditors, was inconsistent with that purpose. Lord Collins said that the court should not attach too much weight to the precise wording of a lengthy and complex document drafted by many hands.
Related cases on insolvency of financial institutions and client assets
- Re Bank of Credit and Commerce International SA (No 8) [1998] AC 214
- Belmont Park Investments Pty Ltd v BNY Corporate Trustee Services Ltd [2011] UKSC 38, [2012] 1 AC 383
- BNY Corporate Trustee Services Ltd v Eurosail-UK 2007-3BL plc [2013] UKSC 28, [2013] 1 WLR 1408
- Re Goldcorp Exchange Ltd [1995] 1 AC 74
- Re Kayford Ltd [1975] 1 WLR 279
- Re Lehman Brothers International (Europe) (In Administration) (Client Money) [2012] UKSC 6
- Re Lehman Brothers International (Europe) (In Administration) (Waterfall I) [2017] UKSC 38, [2018] AC 465
- Lomas v JFB Firth Rixson Inc [2012] EWCA Civ 419
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