Administration – disclosure – jurisdiction – s.236 , s.237 Insolvency Act 1986 – Regulation 1206/2001
MF Global UK Ltd (“MFG”) was a broker-dealer in financial markets. The French and English incorporated respondents (“LCH France” and “LCH UK”) operated financial clearing houses administered according to rules which allowed them to close out open positions of defaulting members and use netting procedures to set-off any amounts due.
Upon MFG entering administration, LCH France closed out a number of large open positions involving European sovereign debt resulting in losses of €422m which were deducted from margins held by LCH France. Concerned as to the scale of losses, MFG’s administrators applied under section 236 of the Insolvency Act 1986 for documents and information about LCH France’s close-outs so it could consider if any claims existed. Alternatively, they sought an order under section 237(3) for a request to be made to the French court under the Evidence Regulation (1206/2001) for an examination of an LCH France officer.
The Judge refused to make an order under section 236 against LCH France, holding that the decision in Re Tucker [1980] Ch 148, and the wording of section 237(3), meant that section 236 did not have extraterritorial effect. This is despite noting that there would be “a good deal to be said” for reaching the opposite conclusion.
The Judge also dismissed the application for a request pursuant to the Evidence Regulation, holding that it was a pre-requisite of a request that the evidence sought be intended for use in contemplated or commenced proceedings (see article 1.2 of the Regulation). Here this requirement was not satisfied, the administrators only wishing to consider whether any claims existed.
An order against LCH UK under section 236 was also refused because the basis of the administrators’ concern (a discrepancy in bond dealing prices) was insufficient to satisfy the Court that there was something which required investigation.
The decision settles any uncertainty about whether section 236 has extraterritorial effect, at least whilst Re Tucker remains good law. It also affirms the proper scope of seeking a request under the Evidence Regulation.
