Perpetuating Uncertainty: The Anti-Deprivation Principle and Contractual Rights in the Post-Lehman World

Abstract

This article considers the anti-deprivation principle under English insolvency law, an issue which has received significant attention in the courts over the past couple of years, culminating most recently in the Supreme Court decision in Belmont Park Investments Pty Limited v BNY Corporate Trustee Services Limited [2011] UKSC 38. The article begins by observing that the evolution of the anti-deprivation principle has resulted in the precise nature and scope of the rule becoming confused, particularly when applied to property comprising contractual rights. In response to this confusion, the article outlines a three-pronged framework for the anti-deprivation principle, derived from an empirical study of the case law up to and including Belmont. First, it is necessary to identify the asset that is being deprived. This involves two subsidiary questions, namely the extent to which individual contractual rights may constitute property capable of being deprived and determining whether specific contractual provisions either define the scope of the right or constitute dealing with the right. The second element involves determining whether there has been a deprivation. In the context of contractual rights, this includes any action that results in the insolvent company being deprived of the benefit of the right, whether that is by way of transfer, extinguishment or modification of the right. Finally, consideration must be given to whether there are any defences which apply to validate that deprivation. Four such defences are postulated — where the insolvent company receives fair value for the deprivation; where the deprivation is an unavoidable consequence of some other valid action; where the asset deprived is the quid pro quo for some other unperformed obligation of the insolvent company; and where the arrangements were entered into in good faith for a bona fide commercial purpose and without any intention to avoid the insolvency law. Copyright © 2011 John Wiley & Sons, Ltd.