Deprived Or Deserved? The Supreme Court Clarifies Its Interpretation Of The Anti-Deprivation Rule

In its recent decision in Belmont Park Investments PTY Ltd v BNY Corporate trustee Services Ltd and Lehman Brothers Special Financing Inc,1 the Supreme Court ruled in favour of investors, clarifying the limits of the anti-deprivation rule and holding that a commercially sensible transaction entered into in good faith and without the intention to evade insolvency laws should not infringe the anti-deprivation rule.

Background

The anti-deprivation rule derives from common law and has existed for nearly 200 years. In essence, the rule states that no party can reserve property to itself until it becomes insolvent, and then provide that, in the event of it becoming insolvent, the property shall pass to another party and not its creditors.

Any contract or arrangement that intentionally removes an asset from the common pool of assets available to creditors is often considered void as it has effectively deprived the creditors of a further asset which could increase the recovery for creditors. However, there are particular circumstances where such an agreement will be upheld and the anti-deprivation rule will not apply.

The application of this rule was recently considered by the Supreme Court.

Facts

Lehman Brothers Special Financing Incorporated (the Issuer) set up a number of special purpose vehicles (SPVs) through which they issued a series of loan notes to a number of investors including Belmont Park Investments PTY Ltd (Belmont). The monies invested were...