The UK Privy Council has this week issued a decision which is likely to be welcomed by major lenders around the world by enhancing their ability to 'fast track' enforcements of certain types of security speedily and with minimal formality. The news comes as the latest development in a long-running court battle between Alfa Telecom Turkey (ATT) and Cukurova, the Turkish industrial group.
In 2005, ATT loaned over US$1.35 billion to Cukurova and took security over Cukurova's indirect holdings in Turkcell, Turkey's largest mobile phone operator. After a series of defaults by Cukurova, ATT called the loan due in April 2007 and took steps to enforce its security rights. During the battle that has ensued, the value of the disputed stake has fluctuated significantly, reaching a high point of some US$3 billion.
It is expected that the legal proceedings, which have taken place in both the UK and BVI, will ultimately help determine control over the largest mobile phone telephone operator in Turkey. From a broader commercial and legal perspective, however, it is also believed that this week's decision has provided greater clarity on the balance struck between the rights of secured and unsecured creditors in relation to the scope and application of the Financial Collateral Arrangements Regulations and, in particular, the new remedy of 'appropriation' which they confer.
Geoffrey Yeowart, a Partner in the Banking practice at Lovells, which has been advising ATT in the dispute, says:
"The right of appropriation was introduced by the FCA Regulations as a new means of realising collateral in an event of default speedily and without the need for a court order or other significant formalities. Essentially it gives lenders a right of "self help" to take assets in place of the debt in the event of default.
Crucially, given current market conditions, the Regulations also disapply various normal insolvency rules to the benefit of the lender. Since the Regulations were enacted, the right of appropriation has been routinely incorporated in security documents (governed by English law) prepared by major corporates and financial institutions across the globe. As such, the recent proceedings are expected to provide a key point of reference as defaults occur in the aftermath of the credit crunch.
The Privy Council's decision removes a potential uncertainty from the law and ensures that financiers will continue to be able lending on the basis that they retain their rights to this 'fast track' method of recovering collateral. In a time of ongoing financial uncertainty, this decision will be welcomed by lenders who may need to enforce their security quickly and without formality."
About Lovells
With over 3,000 people operating from 26 offices in Asia, Europe and the United States, Lovells is one of the world's leading international law firms. We advise many of the world's largest corporations, financial institutions and governmental organisations. We regularly act on complex, multi jurisdictional transactions as well as some of the most high profile commercial disputes. Lovells (the "firm") is an international legal practice comprising Lovells LLP and its affiliated businesses. Lovells LLP is a limited liability partnership registered in England and Wales with registered number OC323639. Registered office and principal place of business: Atlantic House, Holborn Viaduct, London EC1A 2FG.
The word "partner" is used to refer to a member of Lovells LLP, or an employee or consultant with equivalent standing and qualifications, and to a partner, member, employee or consultant in any of its affiliated businesses who has equivalent standing.
www.lovells.com