In an application brought by the administrators of Lehman Brothers International (Europe) (LBIE), the High Court held that events of default will cease on termination of the Lehman Brothers administration and amounts owed to them would be due and become payable.(1) The circumstances in which events of default are "continuing", or should be treated as "continuing", are not expressly defined or addressed by the International Swaps and Derivatives Association (ISDA) master agreements. This decision is the first occasion in which detailed consideration of the meaning of the word "continuing" in the context of the ISDA master agreement has occurred.


This was an application for directions made by the joint administrators (administrators) of LBIE. It concerned the construction and effect of various standard form events of default provisions in the 1992 and 2002 ISDA master agreements (the ISDAs).

LBIE was party to two separate interest rate swap transactions each incorporating the terms of an ISDA. It was common ground that, under the transactions, LBIE was owed £8 million by the first respondent, FR Acquisitions Corporation (FRAC), and $52 million by the second respondent, JFB Firth Rixon (JFB) (together, the respondents). However, since the inception of the administration of LBIE in 2008, the respondents had relied on a provision in the ISDAs to suspend their payments to LBIE. Section 2(a)(iii) makes any payment obligation arising under the agreements subject to the condition that "no Event of Default or Potential Event of Default with respect to the other party has occurred and is continuing". The respondents elected not to rely on the termination provisions, which the Court noted was an unusual choice.

The administrators are now working towards bringing LBIE's administration to an end by termination of their appointments and returning LBIE to the control of its directors. The administrators claimed that, if and when their appointments terminated, no event of default would be "continuing" with respect to LBIE under the ISDAs. The respondents disagreed, arguing that due to the various events during LBIE's administration, including both the scheme of arrangement (the scheme) proposed by the administrators and sanctioned by the Court on 18 June 2018 and an order made for its recognition and enforcement in the United States of America under the US Bankruptcy Code (Chapter 15 order), free standing events of default had arisen, both separate from and in addition to the original event of default triggered by LBIE's entry into administration.

The respondents argued that the mere termination of the administrators' appointment and the other proposed relevant steps(2) by the administrators would not undo or "cure" the effects of those events over the last 10 years or mean that the relevant events of default had been cured such that they were no longer "continuing".

The administrators submitted that the legal analysis is the same for each event of default, in that the Court must seek to identify the relevant process or state of affairs that constituted the event of default and ask whether that process or state of affairs remains in existence.(3) The respondents disagreed and argued the test is whether the effects of the event of default are continuing. In that regard, Dicker Queen's Counsel for the respondents said that "[w]hether it's continuing or not depends on whether the state of affairs, the effects of the event of default, are continuing".(4)


Undisputed events of default
It was commonly held that the collapse of LBIE had caused a number of events of default to occur. The key question in relation to the undisputed events of default was whether they would be "continuing" once LBIE exited administration. In this case, the Court held that exiting the administration would cure the undisputed events of default, such that they would no longer be continuing. The proper enquiry was not as to the effect of the relevant event of default, but as to whether the event or state of affairs that triggered the event of default still subsists.(5)

It was common ground that any event of default that related to LBIE's solvency or its ability to pay had ceased to be "continuing". However, the final part of section 5(a)(vii)(2) applied in circumstances where a party "admits in writing its inability generally to pay its debts as they become due". The respondents asserted that, to cure an event of default arising out of a written admission, it was necessary for LBIE to withdraw that admission. The Court held that, as a practical matter, the general perception would be that that admission had now been superseded and that creditors would no longer have any regard for the original notice. In any event, the administrators agreed that they would publish a notice to the effect that LBIE had a surplus of assets over liabilities and was now able to pay its debts.

Finally, there were payment defaults by LBIE. The Court found that these ceased to be continuing on 2 December 2009 as a result of the operation of the insolvency set off provisions in rule 14.24 of the Insolvency (England and Wales) Rules 2016.

Disputed events of default
As to the remaining events of default, the Court considered whether:

  • the event was properly characterised as an event of default; and
  • if so, whether the event of default would be continuing after the termination of the administrators' appointment.

The respondents alleged that the scheme was an "arrangement" pursuant to section 5(a)(vii)(3), which applied if a party "makes a general assignment, arrangement or composition with or for the benefit of its creditors". The Court found that this only applied to an arrangement triggered by financial distress, or which involved a fundamental change in the status of the relevant entity (such as dissolution or winding up) that materially affects the counter-party's credit risk. In this case, the scheme's purpose and effect related only to surplus. The word should be confined to arrangements having a like or similar premise or trigger as the other events identified. The Court added, however, that if it was wrong and the scheme was an event of default, then the state of affairs brought about by the scheme has continued and will continue for so long as it has effect, irrespective of the continuation or cessation of the administration. This is because if the scheme triggered an event of default, it would be because it introduced an "arrangement", and that arrangement would continue to subsist even when all steps necessary to accomplish it had been taken.(6)

There was a dispute as to whether the Chapter 15 order triggered an event of default. The respondents relied on sections 5(a)(iii)(4) and (8), sub-section 4 being where a party had "instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditor's rights". The Court held that the Chapter 15 order was not a separate event of default and section 5(a)(vii)(4) should be read as being restricted to proceedings in respect of companies in financial distress. The Court acknowledged that Chapter 15 is part of the US Federal Bankruptcy Code, but its provisions can extend to arrangements that do not connote bankruptcy.(7)

Finally, the respondents argued that the orders made in France and Spain in 2008 and 2009 recognising that the English administration order also gave rise to events of default under section 5(a)(vii)(4). The Court found these did not constitute additional free-standing events of default. The relevant section did not extend to a proceeding simply recognising and giving effect to an earlier proceeding that itself was an event of default.(8)


The result in this case means that payments suspended more than 14 years ago as a result of LBIE's collapse will now be due. This case highlights the risk of relying on section 2(a)(iii), although what transpired was difficult to foresee. The Court noted that the respondents probably expected that the administration would end in LBIE's dissolution, rather than exit from administration as a solvent company. The case has provided clarification on provisions of the ISDAs and, particularly, provides guidance for the first time in identifying when events of default are "continuing".

For further information on this topic please contact Sinead Westaway or Daniel Hemming at RPC by telephone (+44 20 3060 6000) or email ([email protected] or [email protected]). The RPC website can be accessed at


(1) Grant & Ors v FR Acquisitions Corporation (Europe) Ltd & Anor (Re Lehman Brothers International (Europe)) [2022] EWHC 2532.

(2) The relevant steps being:

  • the discharge of LBIE's administration and the termination of the administration following an application pursuant to paragraph 79 of Schedule B1 to the 1986 Act;
  • the publication by the administrators and/or LBIE of a notice stating that LBIE has a surplus of assets over liabilities and is able to pay its debts as they become due; and
  • any further steps directed by the Court.

(3) At [77(3)].

(4) At [85] – [86].

(5) At [147].

(6) At [143] and [148] – [149].

(7) At [159].

(8) At [162] – [167].