Heis & Ors (Administrators of MF Global UK Ltd.) v MF Global Inc

Whether an insolvency office-holder is analogous to a liquidator under a contractual event-of-default clause depends on the legal characteristics and purpose of the relevant proceedings. The essential characteristic of liquidation is the realisation of the company’s assets and their distribution among creditors, with the company’s business generally ceasing. An insolvency procedure which may rescue the company as a going concern is not analogous to liquidation merely because winding-up is an alternative objective, the procedure is likely to end in winding-up, or the office-holder has a power to disclaim contracts. The same contextual approach applies to proceedings analogous to a winding-up petition.

The joint administrators of MF Global UK Limited sought directions concerning repurchase transactions governed by a Global Master Repurchase Agreement with MF Global Inc. The agreement made specified insolvency events automatic events of default, but required notice for other events. The question was whether the appointment of investment bank special administrators under the Investment Bank Special Administration Regulations 2011, or the directors’ application for their appointment, was analogous respectively to the appointment of a liquidator or the presentation of a winding-up petition.

1. Construction of the GMRA. The question whether proceedings or an office-holder are analogous to liquidation must be answered in the context and for the purpose of the GMRA. The agreement seeks certainty about whether an automatic event of default has occurred. The enquiry therefore focuses on the legal characteristics and incidents of the relevant proceedings, rather than on predictions about their likely practical outcome.
2. Meaning of liquidation. The essential characteristic of liquidation is that its sole purpose is to realise the company’s assets and distribute them among creditors. The company’s business ordinarily ceases on the appointment of a liquidator, subject only to continuation necessary for a beneficial winding-up. This distinguishes liquidation from administration and other procedures which include rescue as an objective.
3. Special administration. Under regulations 3 and 10 of the Investment Bank Special Administration Regulations 2011, the administrator must pursue client-asset return, engagement with market infrastructure bodies and the alternative objectives of rescuing the investment bank or winding it up in creditors’ best interests. The procedure confers broad administrative powers and permits the business to be carried on. Its objectives and powers substantially parallel administration under Schedule B1 to the Insolvency Act 1986. It was therefore not analogous to liquidation.
4. Disclaimer power. The inclusion of a liquidator’s disclaimer power in the special-administration regime did not alter the conclusion. A power to disclaim is not uniquely associated with liquidation and may exist in rescue proceedings. The GMRA’s single-agreement provision also provided protection against selective enforcement.
5. Winding-up petition. An application for a special administration order was not analogous to a winding-up petition. The automatic consequence of presenting a winding-up petition is materially connected with the risk that later dispositions may be avoided under section 127 of the Insolvency Act 1986; that feature was absent from the special-administration application.
6. The appointment of the administrators on 31 October 2011 therefore did not constitute an event of default under the GMRA.