On 16 September 2010 the UK Treasury published a consultation paper seeking views on its proposals for a new Special Administration Regime (SAR) for investment firms. The Consultation included draft regulations that will implement the SAR (the Draft Regulations).

The Consultation was prompted by the failure of Lehman Brothers in 2008 which posed (and continues to pose) serious challenges for insolvency regimes around the world.

The UK Government’s view is that there is a strong case for introducing the SAR to ensure minimum disruption to financial markets as a result of their failure.

Key elements are:

  • the SAR would be a modified version of the conventional administration procedure set out in Schedule B1 of the UK Insolvency Act 1986;
  • three Special Administration Objectives (SAOs) would apply instead of those in a conventional administration;
  • new modified Insolvency Rules would be introduced in relation to the SAR;
  • it would be possible in some cases to combine a SAR with the existing Bank Insolvency and Bank Administration procedures (applicable to deposit-taking banks) contained in Parts II and III of the UK Banking Act 2009; and
  • the SAR would allow clients (persons for whom an investment firm has undertaken to hold client assets) to approve the SAR administrator’s proposals to achieve SAOs.  

The Consultation closed on 16 November 2010.

Please see our client briefing, available on our website http://www.herbertsmith.com/NR/rdonlyres/37B79D00- DE2E-4160-8C9F-9E7351379D0E/0/Treasuryconsultation onaspecialadministrationregimeforinvestmentfirms 111010.html.