The Fons Decision: Regulatory Implications For Parties To Loan Agreements

In Fons Hf v. Corporal Ltd & Anor (Fons), the Court of Appeal held, in the context of a specific agreement, that "debentures" included loan agreements, on the basis that a loan agreement "creates or acknowledges a debt". Although the Court of Appeal did not consider the regulatory impact of this conclusion, the decision nevertheless creates the unlikely possibility that loan agreements could be "specified investments" under Article 77 of the FSMA (Regulated Activities) Order 2001 (as amended) (the RAO). Rosali Pretorius explains why this is causing such concern to those involved in UK loan market activity.

Why is this potentially a problem?

Article 77 RAO states that, subject to various exclusions not relevant for these purposes, "specified investments" for the purposes of FSMA include "any .... instrument creating or acknowledging indebtedness".

Any person who enters into an agreement which is a specified investment, makes arrangements for others to do so, advises on it, or...