The Wealth Finance Brief July 2016
In this quarter's edition of the Wealth Finance Brief we have taken the opportunity to consider a variety of legal issues and recent developments which we hope will be of interest to lenders in the private wealth sector. We refrain from providing direct commentary on Brexit issues and will refer all interested parties to our recently published paper on Brexit Q & A's for finance and financial services.
We begin with a summary of the current law regarding the continuing effect of a guarantee or a third party security where concessions, waivers or other indulgencies are granted under the underlying facility. We hope this will serve as a useful reminder particularly in the context of margin lending given the recent market volatility and drops in share prices following the Brexit vote which may lead to margin call events being triggered.
Next, we consider the question of validity of arrangements under which third parties provide funding for litigation. Historically English law refused to recognise such arrangements as 'maintenance' and 'champerty'. However, recent legislative changes and more modern authorities have changed the position considerably paving the way for development of litigation funding.
We also look in some detail at the much awaited reform of the legislation governing UK limited partnerships which have developed to become the standard vehicle for establishing private equity and venture capital funds in the UK.
We consider a recent case dealing with liability for significant hedging break costs which serves as a useful reminder that a traditional relationship of banker and customer does not give rise to a duty to provide advice on the terms of a product offered by a bank which would be contrary to the commercial interests of the bank.
Finally, we offer a brief summary of a recent decision of the High Court on how the diminution in value of shares should be assessed upon the restoration of the shares to the bankrupt's estate.
Aleksandra Cison, Acting Editor
Guarantor or security provider consent to changes, consents or waivers
With the market volatility across Europe following the Brexit vote and recent drops in share prices triggering margin call events in margin facilities, we consider it timely to consider whether guarantors and/or third party security providers under a margin facility should be asked to consent to any concessions, waivers or other indulgences granted to borrowers.
Funding Litigation - the good, the bad and the ugly
Following developments in the law surrounding the funding of litigation, litigation funding has started to emerge as a new asset class. However the centuries-old disapproval of the concept of making a market in litigation still resonates and care must be taken in structuring and managing such arrangements to avoid risks of unenforceable security or of becoming responsible for the costs of an opposing party.
Limited Partnerships set to become a little less Limited
The societates publicanorum which arose in Rome in the third century BC is arguably the earliest form of limited partnership and the legislation governing UK limited partnerships is almost as ancient. Enacted in 1907 the Limited Partnerships Act has remained largely unchanged whilst in the 1980s LPs have developed as the standard vehicle for establishing private equity and venture capital funds exploiting their tax transparent status. The UK private equity and venture capital industry continues to be the largest in Europe with around 35% of all assets managed in Europe managed out of the UK.
No duty to advise on onerous terms of a loan
Lloyds Bank Plc has recently been successful in securing a judgement in its favour in a dispute* concerning liability for hedging break costs. The case is important as it demonstrates the view of the English courts that a "conventional relationship of banker and customer" will not normally give rise to a duty to provide advice which would be at odds with the commercial interests of a bank.
Restoring shares to the bankrupt's estate
In a recent case the High Court had to deal with how the diminution in value of shares should be assessed on the restoration of the shares to the bankrupt's estate.