In the matter of Olympia Securities Commercial v (1) WDW 3 Investments Ltd (2) Arazim (Gibraltar) Ltd (2017)


Where a party to a swap agreement had gone bankrupt and the bankruptcy was a default event but the other party had chosen not to serve an early termination notice, the agreement had continued in full force and effect. Consequently, when the other party later committed a default event, the bankrupt party was entitled to serve notice and the other party was liable to pay the early termination payment.


The applicant administrators of a company applied for directions as to whether the first respondent's status as a secured creditor and the sum allegedly due to it from the company were valid.

The company had entered into a facility agreement and swap agreements with a bank. The loan facility was due for repayment in June 2014, and both the loan and any sum due to the bank under the swap agreements were secured by a debenture that the company had granted to the bank. In 2013 the bank went into liquidation. Its bankruptcy was a default event under the swap agreements that entitled the company to terminate them but the company did not do so. The facility agreement allowed the bank to assign the loan to any bank or other financial institution, and in May 2014 it was assigned to the first respondent, which had just been incorporated with a share capital of £1. The bank also assigned the debenture to the first respondent, which held it on trust. In June 2014 the company failed to repay the loan facility, which was a default event under not only the facility agreement but also the swap agreements. Consequently, the bank's liquidators terminated the swaps and served an early termination payment notice on the company.

The issues were whether (1) the first respondent was a financial institution for the purposes of the facility agreement and had been validly assigned the loan; (2) the early termination payment notice was valid given that the bank's bankruptcy was already a default event (3) the early termination payment remained secured by the debenture despite the assignment of the latter.


Was the first respondent a "financial institution"? - Yes. The case was only slightly different from Argo Fund Ltd v Essar Steel Ltd [2006] EWCA Civ 241, which had defined "financial institution" broadly. Argo concerned the ability of a primary lender to assign or novate its interest under a syndicated loan agreement with a commercial borrower; the instant case concerned the ability of a primary lender to assign its interest under a commercial loan agreement with a commercial borrower. There was no distinction of substance between the two situations that meant the meaning of financial institution should be wider in one case than the other. Accordingly, applying Argo, financial institution in the facility agreement meant that the entity concerned had to be a legally recognised form or being that carried on its business in accordance with the laws of its place of creation and whose business concerned commercial finance. The first respondent met those requirements, Argo followed. It did not matter that it was a non-trading "£1" company. There was no minimum capitalisation requirement in the concept's formulation, and it was wide enough to include corporate entities incorporated by institutions to carry into effect their commercial activity (see paras 18-24 of judgment).

Was the company liable for the swaps' early termination payment notwithstanding the bank was bankrupt when the notice was served? - Yes. The first default event under the swap agreements was the bank's bankruptcy, at which point the company could have served its own early termination notice, but it had not done so. Consequently, the swaps contract had continued in full force and effect. The company's subsequent failure to meet its repayment obligation under the facility agreement was a second default event under the swap agreements that had fully entitled the bank's liquidators to serve the early termination notice as long as the company had not itself served a notice relating to the first default event. By definition, the first in time to serve the notice was the party that brought about early termination (paras 33-40).

Was the early termination payment secured by the debenture notwithstanding the debenture had been assigned to the first respondent? - Yes. The liabilities secured by the debenture included the liability to pay the early termination payment subject to the qualification that the obligation had to be owed to the "lender and/or the hedging counterparty". "Hedging counterparty" was capable of applying to any party to the swaps, which constituted a hedging arrangement, as defined by the facility agreement. Consequently, the debenture secured all payments due under the swap agreements whoever the hedging party might be or become. That conclusion made commercial sense when judged at the date the relevant agreements were made and was supported by the text of the debenture when read as a whole, which specifically contemplated that the lender might want to assign its rights. The effect was that the assignment of the debenture had conferred on the first respondent a specifically enforceable right to have the company's property appropriated to the payment of the early termination payment even though it had no right itself to receive the payment given that the debenture was held on trust, Lehman Brothers International (Europe) (In Administration), Re [2012] EWHC 2997 (Ch) applied (paras 45-52).