Anti-deprivation rule


The anti-deprivation rule operates to prevent a person’s property being transferred and taken away from his creditors on bankruptcy or winding up.

In Perpetual Trustee Co Limited and others v BNY Corporate Trustee Services Limited and others and Butters and others v BBC Worldwide and others [2009] EWCA Civ 1160 the Court of Appeal had to consider two cases where the rule was said to apply.

The first case involved loan notes which had been issued to investors by a special purpose vehicle which had entered into a swap agreement with Lehman Brothers. On its insolvency, an investor gave notice of an event of default and required the trustee of the notes to enforce. The relevant agreement contained provisions which, in the event of an insolvency, switched the priority over the assets in the special purpose vehicle between Lehman Brothers and the noteholders, and changed the allocation of certain costs in favour of the noteholders.

The Court of Appeal held that the anti-deprivation rule did not prevent the provisions taking effect as it did not divest Lehman Brothers of any property. It was merely a change in the order of priorities in which the rights were to be exercised in relation to the proceeds of sale of the collateral in the event of default.

There was previous authority that suggested that such provisions would be allowed in favour of someone who could show that the asset in question had been acquired with his money. The rule also did not apply where someone was able to terminate a limited interest, such as a lease or a licence, which he had granted over or in respect of his own property in the event of the lessee’s or licensee’s bankruptcy.

The second case concerned a joint venture between a Woolworths subsidiary and a BBC subsidiary. When Woolworths went into administration, the BBC gave notice in accordance with the terms of the joint venture requiring Woolworths to sell its shares in the joint venture company to the BBC and thereby terminating a licence agreement.

The Court of Appeal held that the anti-deprivation rule did not apply in that case. The price payable for the shares was market value and could not be objectionable. In any event, the rule would not have applied because the notice was triggered by the insolvency of the Woolworths parent company which pre-dated the subsidiary’s own administration.

Paul Howcroft, Partner, Fladgate LLP (

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