The Financial Markets and Insolvency (Settlement Finality) Regulations 1999

Proceedings of designated system take precedence over insolvency proceedings

14.—(1) None of the following shall be regarded as to any extent invalid at law on the ground of inconsistency with the law relating to the distribution of the assets of a person on bankruptcy, winding up, sequestration or under a protected trust deed, or in the administration of an insolvent estate—

(a) a transfer order;

(b) the default arrangements of a designated system;

(c) the rules of a designated system as to the settlement of transfer orders not dealt with under its default arrangements;

(d) a contract for the purpose of realising collateral security in connection with participation in a designated system otherwise than pursuant to its default arrangements; or

(e) a contract for the purpose of realising collateral security in connection with the functions of a central bank.

(2) The powers of a relevant office-holder in his capacity as such, and the powers of the court under the Insolvency Act 1986(1) or the Bankruptcy (Scotland) Act 1985(2), shall not be exercised in such a way as to prevent or interfere with—

(a) the settlement in accordance with the rules of a designated system of a transfer order not dealt with under its default arrangements;

(b) any action taken under its default arrangements;

(c) any action taken to realise collateral security in connection with participation in a designated system otherwise than pursuant to its default arrangements; or

(d) any action taken to realise collateral security in connection with the functions of a central bank.

• This does not prevent the court from afterwards making any such order or decree as is mentioned in regulation 17(1) or (2).

(3) Nothing in the following provisions of this Part shall be construed as affecting the generality of the above provisions.

(4) A debt or other liability arising out of a transfer order which is the subject of action taken under default arrangements may not be proved in a winding up or bankruptcy, or in Scotland claimed in a winding up, sequestration or under a protected trust deed, until the completion of the action taken under default arrangements.

• A debt or other liability which by virtue of this paragraph may not be proved or claimed shall not be taken into account for the purposes of any set-off until the completion of the action taken under default arrangements.

(5) Paragraph (1) has the effect that the following provisions (which relate to preferential debts and the payment of expenses etc) apply subject to paragraph (6), namely—

(a) in the case of collateral security provided by a company (within the meaning of section 735 of the Companies Act 1985(3))—

(i) section 175 of the Insolvency 1986, and

(ii) where the company is one in relation to which an administration order is made, section 19(4) of the Insolvency Act 1986, section 40 (or, in Scotland, section 59 and 60(1)(e)) of that Act, and section 196 of the Companies Act 1985; and

(b) in the case of collateral security provided by an individual, section 328(1 and (2) of the Insolvency Act 1986 or, in Scotland, in the case of collateral security provided by an individual or a partnership, section 51 of the Bankruptcy (Scotland) Act 1985 and any like provision or rule of law affecting a protected trust deed.

(6) The claim of a participant or central bank to collateral security shall be paid in priority to—

(a) the expenses of the winding up mentioned in sections 115 and 156 of the Insolvency Act 1986, the expenses of the bankruptcy within the meaning of that Act or, as the case may be, the remuneration and expenses of the administrator mentioned in section 19(4) of that Act, and

(b) the preferential debts of the company or the individual (as the case may be) within the meaning given by section 386 of that Act,

unless the terms on which the collateral security was provided expressly provide that such expenses, remuneration or preferential debts are to have priority.

(7) As respects Scotland—

(a) the reference in paragraph (6)(a) to the expenses of bankruptcy shall be taken to be a reference to the matters mentioned in paragraphs (a) to (d) of section 51(1) of the Bankruptcy (Scotland) Act 1985, or any like provision or rule of law affecting a protected trust deed; and

(b) the reference in paragraph (6)(b) to the preferential debts of the individual shall be taken to be a reference to the preferred debts of the debtor within the meaning of the Bankruptcy (Scotland) Act 1985, or any like definition applying with respect to a protected trust deed by virtue of any provision or rule of law affecting it.

(1)

1986 c. 45.

(2)

1985 c. 66.

(3)

1985 c. 6.