Anti-Deprivation Principle of English Insolvency LawAdmin
The structure was widely used in the financial markets, so the case was considered an important implication. The Supreme Court held that the anti-deprivation rule did not apply to the invalidity of the relevant provisions, but for very different reasons from those indicated by the lower courts. These differences reflect the way the anti-deprivation rule was formulated by Lord Collins (who delivered the main judgment at the Belmont Supreme Court) and the decision to limit the scope of the rule not primarily on the basis of considerations of the form of the contract, but on the basis of the intention of the parties. The United Kingdom Supreme Court`s approach to the anti-deprivation rule contrasts sharply with that adopted by the Supreme Court of Canada in Chandos. In contrast, in Mayhew v. King  1 BCLC 550, the Court of Appeal held that a clause in a settlement agreement between an insurance broker and an insured person that provided for the payment of various amounts to the insured in order to terminate the contract in the event that the insured entered the administration violated the principle of discrimination. Rimer LJ said of the corresponding clause in this case as follows in : “What was the commercial purpose of cl.11? . It seems to me that this was apparently a blatant attempt to provide that, although Milbank`s right to payment and Folgate`s payment obligation would remain in force as long as the payment accrued exclusively to Mr Mayhew, they would lapse if that payment were instead generally available to Milbank`s creditors in the event of insolvency. It is not so much a commercial purpose as a title to avoid the consequences of insolvency law. This practice note provides a basic overview of the anti-deprivation principle (ADP) and the difference between the anti-deprivation principle and the pari-passu principle (the PPP) (pari passu is a Latin expression that, when translated literally, means “with the same step” or “equal”).
In the landmark case of British Eagle International Limited v. Compagnie Nationale Air France (1975), the House of Lords ruled that the process of distribution to certain creditors under the International Air Transport Association (“IATA”) clearing house system violated the pari-passu principle, as IATA creditors had to receive more than their proportionate share of the company`s assets. A contract that elevates one creditor or group of creditors above others in insolvency is therefore not permitted. However, creditors may place their own interests among others without infringing the principle of disadvantage, for example by entering into subordination agreements that prevent one creditor or creditor from proving until the others have been paid in full. This sub-rule has been described by Cotton LJ as meaning that “there can be no valid contract for a man`s property to remain his property until his bankruptcy, and after the occurrence of that event, pass to someone else and be withdrawn from his creditors.”  This is considered a true anti-deprivation rule, and several problems arise from it: Belmont was consistent with the trend adopted at the time by the House of Lords and later by the Supreme Court (e.g. Chartbrook Ltd v Persimmon Homes Ltd  UKHL 38) was adopted to interpret contracts in a targeted manner9 in order to maintain as much as possible the intentions of the parties.8 Subsequently, this trend was moved away from reaffirming certain traditional orthodoxies of previous cases, including the primacy of language in the interpretation of contracts. In any event, recent case law suggests that it is unlikely that the anti-deprivation rule in England will be re-examined (at least in the short term).10 In an 8-1 majority decision, the Supreme Court of Canada found that the anti-deprivation rule in Canadian common law existed before federal bankruptcy legislation and had not been eliminated by a court decision or by law. However, it rejected the English Supreme Court`s approach in Belmont and instead introduced a two-part “effect-based” test for the application of the anti-deprivation rule. First, that the clause in question is triggered by an insolvency or bankruptcy event. Second, the effect of this clause is to deprive the debtor`s insolvency estate of a value. It follows from the general principle (known in property law as the “divestment rule”) that a grantor cannot deviate from its own concession by granting an absolute interest in an asset and then providing that in declared cases, including (but not limited to) bankruptcy and liquidation, it will be recovered by any means other than fair value.  It is considered that these are several branches: this case rarely occurs, but he did so in particular in British Eagle International Air Lines Ltd v.
Compaigne Nationale Air France.  This gives rise to several principles: The anti-deprivation rule has existed for at least two hundred years. The rule is a common law rule designed to attempt to withdraw an asset in the event of bankruptcy, liquidation or administration, thereby reducing the value of the insolvency estate to the detriment of creditors.1 In this article, we look at two opposing approaches that have been taken as a rule. The main English case concerning the application of the anti-deprivation rule is Belmont. Before the Supreme Court of the United Kingdom in Belmont, the question was whether the lower courts had correctly concluded that the anti-deprivation rule was not intended to invalidate certain provisions of the English legal agreements on the issuance of credit-related bonds in the context of a synthetic securitisation programme set up by an entity of Lehman Brothers. In particular, the Supreme Court of the United Kingdom has held that the anti-deprivation rule must be applied in an economically sensitive manner in order to maintain bona fide business transactions whose predominant purpose or one of its main objectives is not the withdrawal of the assets of one of the parties in the event of bankruptcy or liquidation. Lord Collins explained the types of factors that the court should consider when deciding whether or not to apply the principle, as follows in  to : “ As has been demonstrated, commercial meaning and lack of intent to evade insolvency law were very relevant factors in the application of the anti-deprivation rule. Despite legal advances, party autonomy is at the heart of English business law.
Clearly, there are limits to party autonomy in the area where this vocation is at stake, not least because the interests of third-party creditors will be affected. But (…) it is desirable that the courts implement, as far as possible, the contractual clauses agreed by the parties.