Finance Update March 2009 - Olswang

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Olswang © 2008 | www.olswang.com 

Finance Update 

March 2009

General Finance 

General Finance News 

Association of Corporate Treasurers (ACT) 

The ACT has published a report entitled 'Credit crisis and corporates – funding and beyond'. This 

report looks at the impact of the credit crisis on the treasury plans of the top 350 quoted businesses, after 

conducting a series of interviews with members of the ACT. It considers the current conditions in the 

market, the views of these companies on the availability of credit, feedback on banks and the derivatives 

market and some views on what the next few years are likely to hold. 

Banking Act 2009 

The Banking Act 2009 came into force on 21 February 2009. This Act is divided into a several sections: 

• Part 1 – special resolution regime to deal with banks facing financial problems which replaces the 

temporary powers under the Banking (Special Provisions) Act 2008; 

• Parts 2 and 3 – new bank insolvency and bank administration procedure, both of which are largely 

based on the existing procedures set out in the Insolvency Act 1986 (as amended by the 

Enterprise Act 2002); 

• Part 4 – framework for changing the Financial Services Compensation Scheme; 

• Part 5 – inter-bank payment systems; 

• Part 6 – issues relating to bank notes in Scotland and Northern Ireland; and 

• Part 7 – miscellaneous issues, including the governance of the Bank of England and an index of 

terms defined in the Act. 

Companies Act 2006 

The following legislation has been published in relation to the Companies Act 2006: 

• the draft Companies Act 2006 (Accounts, Reports and Audit) Regulations 2009 were 

published on 6 February 2009. These need to be approved by both Houses of Parliament; 

• the Companies Act (Disclosure of Address) Regulations 2009, together with an explanatory 

memorandum, were published on 16 February. These specify the conditions for disclosure of the 

directors' residential addresses to public authorities and credit ratings agencies. These regulations 

will come into force on 1 October 2009; 

Olswang © 2008 | www.olswang.com 1


• the Companies Act (Trading Disclosures) (Amendment) Regulations 2009, together with an 

explanatory memorandum, were published on 16 February 2009. These deal with the trading 

disclosures to be made by a company and provide further exceptions from the obligation on a 

company to display its registered name at business premises. These regulations will come into 

force on 1 October 2009; and 

• the Department for Business, Enterprise and Regulatory Reform has updated its Companies Act 

2006 frequently asked questions. 

Compound Interest Corporate governance review of the UK banking 

industry 

On 9 February, HM Treasury announced that the government had commissioned a review of corporate 

governance in the UK banking industry. The review will be chaired by Sir David Walker and will look at a 

variety of issues, including the skill levels and experience of those on the boards of UK banking institutions, 

the role played by institutional shareholders and how national and international best practice can be 

achieved (see here for more information). 

European Private Company Statute 

The government published its response to last October's consultation on the EU proposal for a European 

private company. This response will form the basis of negotiations in relation to the revised text issued by 

the EU in December 2008. 

Financial Services Authority (FSA) 

The FSA has recently published, amongst other things, the following: 

• a consultation paper on strengthening liquidity standards in December 2008. The measures 

proposed in the consultation paper aim to enhance firms’ liquidity risk management practices. 

However, they are wide-ranging and would impose significant additional burdens on banks and 

financial institutions; 

• a business plan for 2009/10 setting out its programme of work for the year ahead, outlining its 

specific priorities and initiatives in light of the current economic climate; and 

• a draft code of practice on remuneration policies on 26 February 2009. This was published in 

conjunction with the Government's announcement about its Asset Protection Scheme. This code of 

practice will form part of the eligibility criteria for participating this Scheme. The draft code will be 

the subject of a formal consultation process during March 2009. 



Law Commission 

At the end of 2008, the Law Commission published its final report on reforming the law on bribery and 

corruption. At present there are several overlapping, but distinct, corruption offences under a variety of 

statutes dating from the 19th Century onwards, as well as an older common law offence of bribery. The 

Commission proposes that the existing offences be replaced by two general offences of bribery: one 

concerned with giving bribes, the other with taking them. Two new specific offences are also proposed: an 

offence of bribing a foreign public official and a corporate offence of negligently failing to prevent bribery by 

an employee or agent. The Commission also recommends that the law of bribery be extended to cover 

foreign nationals who reside in the UK and conduct their business here. The same set of provisions would 

cover both the private and public sectors. (Click here for the report and a six-page summary of the 

proposed offences.) 

Loan Market Association (LMA) 

On 29 September the LMA published an amended version of the leveraged facilities agreement containing 

The LMA Intercreditor Agreement has been released and is now available on the LMA website, along with 

a Users' Guide. The LMA Intercreditor Agreement is designed for use with the LMA Leveraged Facility 

Agreement. In addition, it aims to deal with derivatives in complex transactions, such as those where 

multiple hedge counterparties are involved. 

The LMA have also posted on their website the following documents: 

• LMA Mandate Letter - Joint Arrangers – Underwritten; 

• LMA Mandate Letter - Joint Arrangers - Best Efforts; 

• LMA Syndicate Member Commitment Letter For Primary Syndication - for final commitment with 

approval of documentation; 

• LMA Syndicate Member Commitment Letter For Primary Syndication - for initial commitment 

without approval of documentation; 

• LMA Confidentiality and Front Running Letter of Undertaking; 

• LMA Front Running Letter of Undertaking; 

• LMA Front Running Letter of Undertaking Users' Guide; 

• Syndication Closing Timeline; 

• Syndication Decision Chart - Unsuccessful Syndication; 



• Syndication Decision Chart - Successful Syndication; and 

• Explanatory Memo Relating to Mandate Letters, Commitment Letters, Front Running Letters, 

Syndication Closing Timeline and Syndication Decision Charts. 

Payment Services Regulations 2009 

The Payment Services Regulations were published on 13 February 2009 in order to implement a 

European Directive (DIR 2007/64/EC). These regulations, amongst other things, establish an authorisation 

regime for providers of payment services and set out the activities which authorised payment institutions 

are allowed to engage in. It came into partial effect on 2 March, with further provisions coming into effect 

on 1 May 2009 and full implementation occurring on 1 November 2009. 

Interest Rates 

On 5 February, the Bank of England Monetary Policy Committee announced a further interest rate cut of 

0.5% to 1.0% (this was agreed by 8 members of the committee, with the one dissenting voter voting for a 

1% rate cut). On 5 March the Bank of England announced a further reduction of 0.5% to 0.5%, along with 

a programme of asset purchases of £75 billion financed by the issuance of central bank reserves (see 

here for more information on how the asset purchase programme will work). 

On 5 March, the European Central Bank cut interest rates by 0.5% to 1.5% across the euro-zone. This is 

reduction of 2.75% since 8 October 2008. 

World Markets 

The National Institute of Economic and Social Research predicted that consumer spending is set to fall by 

3.8% this year, double the largest previous drop of 1.6% in 1991. It also predicted that the UK economy is 

likely to shrink by 2.5% this year and that any recovery is not expected until the end of the year at the 

earliest. According to the CBI, 59% of companies surveyed expect access to credit to deteriorate over the 

course of the next three months and retailers are finding it harder to get trade credit insurance to insure 

against business partners going bust. The CBI has also predicted that unemployment in the UK will reach 

2.9 million by the end of this year. 

Over the weekend of the 14/15 February the Finance Ministers and Central Bank Governors of the G7 

countries met in Rome to discuss measures to stabilise the global economy. They acknowledged that the 

downturn is likely to persist through most of 2009, that more capital would be needed to restart global 

credit markets and that it is important for countries to avoid protectionist measures. 

During the course of February the former bosses of RBS and HBoS apologised for their banks' failures. 

However, there has been an on-going debate over payment of discretionary bonuses to bankers at certain 

banks, including RBS. On 13 February the newly formed Lloyds Banking Group announced expected 

losses of £10billion at HBoS's mortgage unit. Following this, at the start of March, the government 



increased its stake in the Lloyds Banking Group to 75% ownership after converting preferred shares into 

ordinary stock. In return for its controlling share, government funds will be used to insure £260bn pounds 

of the company's assets. 

Towards the end of February, financial markets around the world fell as concerns about the recession 

increased, the FTSE 100 fell to below 4,000 on 20 February, down 7.1% in one week and the Dow Jones 

fell to a twelve year low, finally settling at a six year low by the end of the week. Stock markets around the 

world fell again at the start of March, as AIG announced losses of £44bn, the largest quarterly loss in 

corporate history. 



General Finance Cases 

Bank charges 

The case of Abbey National plc & 7 Ors v Office of Fair Trading [2009] EWCA Civ 116 followed the cases 

decided last year and earlier this year between these parties (summaries of these decisions can be found 

in the May 2008 Finance Update, the October 2008 Finance Update and the February 2009 Finance 

Update). 

Facts: The banks appealed against the decision that the Office of Fair Trading (OFT) was entitled to 

assess the fairness of certain bank charges (see the May 2008 Finance Update). 

Decision: It was held that the relevant terms were not protected from the assessment of fairness under the 

Unfair Terms in Consumer Contracts Regulations 1999, Regulation 6(2)(b). Therefore the appeal was 

dismissed. 

Comment: The banks may still apply for permission to appeal this decision to the House of Lords. If not, 

this decision means that the OFT could rule that the charges are unfair once it has had time to examine the 

relevant terms and conditions in detail. It is expected to reach a final decision in relation to this later this 

year. 

Shareholder Compensation 

In the case of R (on the application of (1) SRM Global Master Fund LP (2) RAB Special Situations (Master) 

Fund Ltd (3) Dennis Grainger & Ors) (Claimants) v Treasury Commissioners (Defendant) & Legal & 

General Investment Management Ltd (Interested Party) [2009] EWHC 227 it was held that the legislation in 

relation to the amount of compensation to be paid to the former shareholders of Northern Rock, on its 

nationalisation last year, did not contravene the European Convention on Human Rights. Therefore, the 

application would be dismissed. 


Real Estate Finance 

Real Estate Finance News 

Mortgage Rescue Scheme and Homeowners' Mortgage Support Scheme 

The government has announced further details of the Homeowners' Mortgage Support Scheme, which will 

allow borrowers with mortgages of up to £400,000 to take a payment holiday if they suffer an income 

reduction, either through losing their job or having their hours cut (for more information see here). 

The Law Society has updated its practice note on mortgage repossessions to include information on 

the Mortgage Rescue Scheme (for more information on this Scheme see here). 

Land Registry 

From 28 February 2009 the Land Registry began destroying paper documents, where a scanned image 

exists on the Land Registry database. Requests for return of paper documents can still be made after this 

date but they may be too late. 

Real Estate Finance Market 

Data from the Council of Mortgage Lenders (CML) published on 12 February shows that mortgage lending 

has fallen to a 34 year low, falling to 516,000 mortgages in 2008, down 49% from 2007. According to 

Nationwide, house prices fell by 1.8% in February and have fallen 17.6% since the same time last year, 

this is despite interest rate cuts and reports of rising enquiries from prospective buyers. This fall in 

property prices has brought house prices back down to levels seen in 2004, with some of this being 

blamed on the lack of mortgages available on the market. According to Jones Lang LaSalle's latest 

Residential Market Forecast, house prices are set to fall further with an annual drop of 13-15% expected 

during 2009. House sales are at their slowest in 30 years, with three properties being sold per estate 

agent on average in January, according to the Royal Institution of Chartered Surveyors. According to 

CML, the number of repossessions rose significantly in 2008 to a 12 year high, although the figures were 

11% lower than was forecast. 

According to the latest data from the Bank of England, in net terms the total bank lending in the 4th quarter 

of 2008 for commercial property was negative at -£5.3bn (this figure has not been negative since the end 

of 2004). At the same time UK commercial property prices have continued to fall and according to the IPD 

UK annual index they fell 26.3% in 2008 (this is faster than during the 1930s). The number of property 

sector insolvencies also rose in the 4th quarter of 2008 to 1,935, a 176% increase according to Experian. 

House building levels have fallen to the lowest level on record according to figures released by the 

Department for Communities and Local Government. 


Restructuring and 

Insolvency 

Restructuring and Insolvency News 

Pre-Packs 

The Insolvency Service has published information on its website entitled 'How to complain about the 

misuse of the pre-pack administration process (or any other corporate insolvency process)'. This 

has been produced in response to the criticism pre-packs have recently received as a method of allowing 

businesses to walk away from their debts. 

Restructuring and insolvency market 

According to Experian, business failures rose by 78% in January. This follows a 30% rise during 2008 with 

an average of 65 firms becoming insolvent every day. It is expected that at least 30,000 firms will become 

insolvent during the course of 2009. 

The Ministry of Justice published 'Company winding up and bankruptcy petition court statistics – 

fourth quarter 2008'. According to this report, in the fourth quarter of 2008, the following petitions were 

issued: 

• 3,382 company winding up petitions – an increase of 3% on the same period in 2007 and a 6% 

increase on the previous quarter; 

• 4,722 creditors' petitions – an increase of 3% on the same quarter in 2007 and a 15% decrease on 

the previous quarter; and 

• 15,358 debtors' petitions – an increase of 32% on the same quarter in 2007 and a 12% increase 

on the previous quarter. 



Insolvency 

Restructuring and Insolvency Cases 

Liquidators 

In the case of Managa Properties Ltd v Louise Brittain [2009] EWHC 157 (Ch) it was held that a court 

would not direct a company in compulsory liquidation to convene a creditors' meeting to consider the 

replacement of the liquidator, unless doing so would be in the best interests of the liquidation. 

Facts: The applicant (M) was dissatisfied that the liquidator (L) had neither accepted nor rejected the proof 

of debt submitted. M served a notice on L requiring L to summon a creditors' meeting for the purpose of 

removing L as liquidator. L rejected this request. M then applied to court for an order under s172(3) 

Insolvency Act 1986 that L convene a creditors' meeting. This was dismissed and M appealed this 

decision and the rejection of the proof of debt it had by that stage received from L. 

Decision: It was held that the court had complete discretion on matters of this kind and it was necessary for 

M to satisfy the court that it was in the best interests of the liquidation for the creditors' meeting to be 

convened. As there was no justifiable criticism of L's general conduct of the liquidation, the appeal was 

dismissed. However, M was given leave to appeal the proof of debt. 

Prescribed part 

In the matter of International Sections Limited (in creditors' voluntary liquidation) [2009] EWHC 137 (Ch) an 

application was considered to disapply the prescribed part under s176A(5) Insolvency Act 1986. 

Facts: The liquidators applied to court to disapply the prescribed part, on the basis that the cost of making 

the distributions to the unsecured creditors would be disproportionate to the benefits, as even the largest 

unsecured creditors would receive less than £1000. 

Decision: The application was refused as small dividends would often result from a distribution of the 

prescribed part and as a significant sum remained for distribution it was not reasonable to deprive the 

unsecured creditors of whatever sum they might receive. 

(See also In the matter of Hydroserve Ltd [2007] EWHC 3026 (Ch) and In the matter of Courts plc (in 

liquidation) [2008] EWHC 2339 (Ch).) 



Insolvency 

Priority between creditors 

In the matter of Golden Key Ltd (In Receivership) [2009] EWHC 148 (Ch) it was held that distribution of the 

assets of an SIV should be made on a 'pay-as-you-go' basis rather than pari passu. 

Facts: The SIV confirmed the occurrence of a 'wind down event' on 23 August 2007 and could no longer 

pay out on matured commercial paper. The breaches triggered a mandatory acceleration event on 24 

August meaning that any paper not yet matured would do so on 23 September, the acceleration 

redemption date. The court was asked under s35 Insolvency Act 1986 for directions as to the correct 

method of application of the funds held by the SIV. 

Decision: The creditors had agreed various contractual provisions to over-rule the general insolvency rules, 

therefore it could not be assumed that it was intended that their rights would be governed by concepts 

such as pari passu, unless expressly stated. The priorities which applied before the acceleration 

redemption date meant that the funds should be paid out in redemption of commercial paper which 

reached its maturity date before the acceleration redemption date on a pay-as-you-go basis and any 

provisions which applied after this date were not intended to apply to any commercial paper which had 

already reached its maturity date. 

(See also In the matter of Whistlejacket Capital Ltd [2008] EWCA Civ 575 and In the matter of Sigma 

Finance Corporation [2008] EWCA Civ 1303.) 


The information in this update is intended as a general overview only of the subjects covered. 

Detailed specialist advice should always be taken before taking or refraining from taking any 

action. For more guidance on the changes and their application, please get in touch with your 

usual Olswang contact. 


About Olswang 

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Founded in 1981, our Firm has grown to a team of over 600, including 90 partners, across four European 

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Finance Update March 2009 - Olswang

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