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On appeal from: [2009] EWCA Civ 1160

The appeal concerned the application of the anti-deprivation rule, a principle of insolvency law that contractual terms purporting to dispose of property on bankruptcy may be invalid as being in fraud or an evasion of the bankruptcy law. Lehman Brothers Special Finance Inc. sought to challenge the validity of losing their priority claim to collateral in a contractual agreement on the basis that it breached the anti-deprivation principle. The Supreme Court unanimously dismissed LBSF’s appeal and upheld the validity of contractual provisions. The majority decision by the Court concluded that commercial sense and absence of intention to evade insolvency laws are highly relevant factors in the application of the anti-deprivation rule and that the rule does not apply to bona fide commercial transactions which do not have as their predominant purpose the deprivation of the property of one of the parties on bankruptcy. Since the contractual provisions challenged in the present appeal were part of a complex commercial transaction entered into in good faith, the collateral was in substance provided by the noteholders and there was no suggestion that the flip provisions were deliberately intended to evade insolvency law, they did not offend the anti-deprivation rule.

For judgment, please download: [2011] UKSC 38
For the Court’s press summary, please download: Press Summary
For a non-PDF version of the judgment, please visit: BAILII