“Land Banks” and Collective Investment Schemes: Supreme Court on s.235, FSMA

Asset Land Investment Plc & Anor v The Financial Conduct Authority [2016] UKSC 17 (20 April 2016)

The Financial Conduct Authority is in the news a lot these days. Andrew Bailey has been handpicked to head the agency but the chancellor George Osborne has come under fire for making the appointment without conducting a formal interview, thereby sidestepping the two candidates (Tracey McDermott and Greg Medcraft from Down Under) formally on the shortlist. However, the beleaguered FCA chairman John Griffith-Jones agreed with outgoing chief executive McDermott and both of them were “happy” with the chancellor’s appointment of Bailey – a beefy looking BoE insider who impressively holds a doctorate in economic history. As seen in the last post, Panama has been in the news a lot. The FCA had originally given 20 banks until 15 April 2016 to report on the extent, if any, of their involvement and links with Mossack Fonseca or firms serviced by them. But now it warns that prosecutions over the Panama Papers are not clear-cut. According to Mark Steward, head of enforcement, the media frenzy is “quite different from prosecutions – the two don’t necessarily go together”. This case involved a Panamanian corporation called Asset LI Inc trading as Asset Land Investment plc against which the FCA brought proceedings for carrying on “regulated activities” without authorisation contrary to the general prohibition in section 19 of the Financial Services and Markets Act 2000. Schemes for investing in land with development potential are commonly known as “land banks” and the operation of such initiatives first came into the regulatory perimeter under section 11 of the PERG Manual of the FCA Handbook.  

In Financial Services Authority v Fradley [2005] EWCA Civ 1183, the Court of Appeal had described the drafting of section 235 (collective investment schemes) of FSMA as “open-textured” by virtue of which words such as “arrangements” and “property of any description” are to be given “a wide meaning”. Arden LJ found in Fradley that section 235 must not be construed so as to include matters which are not fairly within it because contravening section 19 may result in the commission of criminal offences, subject to section 23(3) of FSMA. Lord Carnwath of Notting Hill found her Ladyship’s approach to be “helpful guidance”. On the other hand, he remained cautious of drawing analogies from comparative Commonwealth legislation presented to the court – such as the Australian Corporations Act 2001 – on the ground that differences in drafting warranted keeping the discussion strictly within the boundaries of UK statutes and authorities. Like the first instance judge, the Supreme Court referred to the English and the Panamanian company indiscriminately as “Asset Land”.

Rubin and New Cap: Massive UK Supreme Court Ruling on International Insolvency, Enforcement and Jurisdiction

Rubin & Anor (Joint Receivers and Managers of the Consumers Trust) v Eurofinance SA & Ors [2010] EWCA Civ 895 and New Cap Reinsurance Corporation Ltd & Anor v Grant & Ors [2011] EWCA Civ 971 were interesting cases and threw up important issues in international insolvency law. The UK Supreme Court has decided these cases as Rubin & Anor v Eurofinance SA & Ors [2012] UKSC 46. Broadly, the court’s judgment shed much needed light whether a foreign court’s order or judgment to set aside anterior transactions such as preferences or transactions at an undervalue (or avoidance proceedings) were (1) recognisable and enforceable in England and Wales and (2) enforceable through the international assistance provision of the UN Convention on International Trade Law (“UNCITRAL”) Model Law – which is implemented through the generally applicable Cross-Border Insolvency Regulations 2006 (“CBIR”) – or the assistance provisions of section 426 of the Insolvency Act 1986 (“IA86”) which applied to a limited number of countries including Australia. The Supreme Court held that the Dicey Rule, set out below at the end of this post, which arises from the operation of common law and  Foreign Judgments (Reciprocal Enforcement) Act 1933  (“the 1933 Act”), applied to foreign judgments in avoidance proceedings in insolvency.

Background in the Court of Appeal

I. Rubin & Anor (Joint Receivers and Managers of the Consumers Trust) v Eurofinance SA & Ors [2010] EWCA Civ 895

Rubin and others, the appellants (A), were receivers who appealed against Nicholas Strauss QC’s [2009] EWHC 2129 (Ch) decision to dismiss their application for enforcement of a New York judgment against Eurofinance and others, the respondents (R) who cross-appealed against the recognition of the New York proceedings as foreign main proceedings and the recognition of the appointment therein of A as foreign representatives. R had created a trust, operating under English law, and conducted a sales promotion scheme in Canada and the US. Money from the scheme received by the trust was distributed to R and others.