In the matter of Olympia Securities Commercial Plc (in administration) – Grant (and others) v. (1) WDW 3 Investments Limited and (2) Arazim (Gibraltar) Limited [2017] EWHC 2807 (Ch)

This claim was brought by the joint administrators of Olympia Securities Commercial Plc (the Company), a property developer. The dispute, however, was in reality between the two defendants. The second defendant (Arazim) was the ultimate beneficial owner of the Company and one of its unsecured creditors. The first defendant (WDW) was a secured creditor of the Company.

The dispute related to finance agreements entered into by the Company and (formerly) Anglo Irish Bank Corporation Limited, which is now Irish Bank Resolution Corporation Limited (IBRC). The relevant agreements were a floating rate facility agreement (the Facility Agreement), three interest rate swaps concluded under an ISDA Master Agreement (the Swaps) and a debenture securing amounts due under both the Facility Agreement and the Swaps (the Debenture).

Various assignments of these agreements took place as part of the restructuring and eventual liquidation of IBRC, the details of which are not necessary for present purposes save as set out below. The assignments gave rise, however, to various arguments on the part of Arazim.

First, it argued that the Facility Agreement could not have been validly assigned to WDW (as it purportedly had been) because WDW was not a "financial institution" as the Facility Agreement required. Arazim argued that, in order to be a financial institution, an entity would need to operate on its own behalf in the field of regulated finance. The judge rejected this argument. He referred to an earlier authority, and said that an assignee would need to have "a legally recognised form or being, which carries on its business in accordance with the laws of its place of creation and whose business concerns commercial finance". The judge held that this definition was wide enough to include WDW. He also rejected Arazim's specific criticisms that: WDW was not trading at the time of the assignment; it had a share capital of only £1; and it should be viewed as a "vulture fund", on the basis that it had taken assignment of the debt at a discount to its face value. Finally, the judge emphasised the fact that, where money is due under a loan, it is due, and it should not matter overly to the borrower to whom.

The second argument advanced by Arazim related to the terms of the ISDA Master Agreement governing the Swaps. The Swaps were terminated by IBRC on 30 June 2014 because the Company did not repay the Facility Agreement. Arazim argued that it was not open to IBRC to do that, because it had itself suffered a bankruptcy event of default on 7 February 2013, and could therefore not be a "non-defaulting party". The judge, unsurprisingly, rejected this argument in short order. He held that the Company could have terminated the Swaps for IBRC's bankruptcy event of default, but had chosen not to do so. It was entirely possible, in those circumstances, for a non-defaulting party itself to go on to commit an event of default which gave rise to a right of termination by the other party. The judge noted, however, the significance of IBRC having terminated because of cross-default provisions, rather than for non-payment of the Swaps (the payment obligation having been suspended upon IBRC's bankruptcy).

There was a further issue as to whether the amount due on Early Termination (within the meaning of the ISDA Master Agreement) was secured by the Debenture. While this was an issue of considerable importance to the parties, it is specific to the terms of the Debenture, and to the particular series of assignments in this case, so we do not consider it here.

The judge's conclusions on each of the points before him are unsurprising, particularly, perhaps, because the issues raised essentially went to the design of the liquidation of Anglo Irish. The judgment reiterates, however, some useful points of construction in relation to fairly standard terms.