Restructuring and Insolvency Bulletin: Issue 4 - May 2018: UK High Court Confirms Broad Definition of a “Financial Institution” – (Re Olympia Securities Commercial Plc (in administration) [2017] EWHC 2807 (Ch))

by Dechert LLP

Dechert LLP

The High Court has confirmed it will adopt a broad definition of a “financial institution” for the purposes of the transferability provisions in a loan agreement including: (i) a newly incorporated company with a share capital of £1, (ii) an entity that has not traded and (iii) a special purpose vehicle established for the purpose of acquiring debt.


Olympia Securities Commercial Plc (“Olympia”) entered into a loan facility with Anglo Irish Bank Corporation Limited (now Irish Bank Resolution Corporation Limited (“IBRC”)) in 2005. After IBRC was placed into special liquidation during the global financial crisis, the loan to Olympia was transferred to LSREF III Wight Limited (“LSREF”) as part of a portfolio sale. Accordingly, on 16 May 2014, IBRC assigned its rights under the loan to WDW3 Investments Limited (“WDW”) (acting as nominee for LSREF). WDW was incorporated on 2 May 2014 and, at the time of the assignment, had a share capital of £1 and had not traded.

The transferability provision in Olympia’s loan stated “the lender may… at any time transfer, assign or novate all or any part of the Lender’s rights, benefits or obligations under this agreement to any one or more banks or other financial institutions”.

Olympia failed to repay the loan when it fell due on 30 June 2014, triggering an event of default and leading to Olympia being placed into administration. 

One of Olympia’s unsecured creditors, Arazim (Gibraltar) Limited (“Arazim”), subsequently challenged the validity of the assignment of the loan arguing that WDW was not a financial institution for the purposes of the transferability provisions in the loan. WDW argued that the assignment was valid and, in order to resolve the dispute, Olympia’s administrators sought directions from the court under paragraph 63 of Schedule B1 of the Insolvency Act 1986. 


In its judgment, the High Court discussed the relevant test for a financial institution as set out in Argo Fund Limited v Essar Steel Limited (“Argo”). In Argo, a financial institution was defined as:

“a legally recognised form or being, which carries on its business in accordance with the laws of its place of creation”; and

- “whose business concerns commercial finance", regardless of whether it is a primary or secondary lender of money and even though it does not operate “on its own behalf in the field of regulated finance”.

The High Court affirmed the test in Argo and stated that it was deliberately wide and intended to cover primary and secondary lenders, their agents, trustees and fiduciaries including (i) a newly incorporated company with a share capital of £1, (ii) an entity that has not traded and (iii) a special purpose vehicle established for the purpose of acquiring debt. WDW therefore qualified as a financial institution.

Arazim’s challenge was dismissed on the basis that:

- there is no requirement for an entity to have a minimum share capital in order to be considered a financial institution. Here, the Court noted that (i) there is no correlation between an entity’s capitalisation and its trading volume or commercial reputation and (ii) when entering into the loan, Olympia and IBRC had had the opportunity to limit the scope of financial institution to entities with a specified share capital but had chosen not do so; and

- there is no need for an entity to have traded in order to be considered a financial institution. In this regard, the Court noted that, if trading were a requirement, a wholly owned subsidiary of a heavily capitalised, multi-national commercial bank would not be considered a financial institution until it made its first transaction, whether nominal or significant.


This decision provides comfort to entities seeking to acquire debt in the secondary market who can be confident that special purpose vehicles incorporated to acquire loans will qualify as financial institutions for the purposes of the loan agreement’s assignment provisions. By contrast, borrowers seeking to prevent their loans from being sold in the secondary market will need to ensure that specific wording to this effect is included in their loan documentation from the outset.

The decision also reflects the significance of secondary trading in the modern debt market and is in line with the positions of industry bodies such as the Loan Market Association (the “LMA”). Since 2001, the assignment provision in LMA standard form facilities agreements has permitted transfers to entities other than banks or financial institutions – the current standard form provision permits transfers to “a trust, fund or entity which is regularly engaged in or established for the purpose of making, purchasing or investing in loans, securities or other financial assets”.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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