Sigma Finance & Pari Passu Wins The Day

Introduction The Supreme Court has not allowed a clause in a Security Trust Deed dealing with the distribution of assets in Sigma Finance Corporation (Sigma) between "experienced commercial operators advised by expert lawyers" to permit the preferential distribution of certain assets.

Facts Sigma was a structured investment vehicle that raised funds primarily by issuing or guaranteeing medium term notes. The funds so raised were invested in acquiring amongst other things, asset-backed securities. Like many of its peers, Sigma was a victim of the current financial crisis.

Some of Sigma's liabilities were secured pursuant to a Security Trust Deed which provided, upon the occurrence of an enforcement event, a 60-day "realisation period" during which time the Security Trustee was obliged to organise Sigma's assets into a "short-term pool" to cover short-term liabilities and "long-term pools" to cover long-term liabilities. However, a clause in the Security Trust Deed provided that during the 60-day "realisation period" the Security Trustee was to "so far as possible discharge on the due dates therefor any Short Term Liabilities falling due for...