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ARTICLE · 19 JANUARY 2006

Validity of non-compete clauses upheld

CMS Cameron McKenna Nabarro Olswang
Explore more from CMS Cameron McKenna Nabarro Olswang

In a unanimous judgment handed down today, 18 January 2006, the Court of Appeal have upheld the first instance decision on all points of the Liquidators of SSSL Realisations (2002) Ltd v AIG and the Liquidators of Save Group Plc v AIG (27 July 2004; [2004] EWHC Ch 1760; [2005] 1 BCLC 1).

United KingdomInsolvency/Bankruptcy/Re-Structuring
Rita Lowe
Rita Lowe
Peter Fidler
Peter Fidler
Ruth Pedley
Ruth Pedley

In a unanimous judgment handed down today, 18 January 2006, the Court of Appeal have upheld the first instance decision on all points of the Liquidators of SSSL Realisations (2002) Ltd v AIG and the Liquidators of Save Group Plc v AIG (27 July 2004; [2004] EWHC Ch 1760; [2005] 1 BCLC 1).

At first instance, the validity of a subordination or "non-compete" clause in favour of AIG was confirmed. The clause was challenged as an offence against the pari passu principle, preventing, as it did, creditors of the companies in liquidation from submitting proofs of debt until AIG had been paid in full.

The use of subordination clauses remains a valid option for financiers, who find subordination clauses such as the one in this case can provide a necessary adjunct to their security position. The wording of the relevant clauses is provided for illustrative purposes below.

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