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Banking Case Law - Whether “Investment Fund” Was a “Bank or Other Financial Institution” 

Published: July, 2005

Submission: January, 2006


The English Commercial Court has held that an investment fund was a financial institution under a loan agreement which limited transfer of the loan to “a bank or other financial institution”. The ARGO Fund Ltd v Essar Steel Ltd [2005] EWHC 600 (Comm). Facts; Essar defaulted under its syndicated loan agreement . The loan agreement allowed the participating banks to transfer their rights and obligations to another “bank or other financial institution”. While Essar was in restructuring negotiations with the banks, a Cayman mutual fund investment company, Argo, purchased a large portion of the debt from some syndicate members. Argo issued proceedings against Essar, claiming debt or damages for breach of the loan agreement. Essar argued that the transfer to Argo was invalid as Argo did not fall within the definition of “bank or other financial institution”. The court held that Argo shared the following characteristics with a bank and so fell within the definition for these purposes: It was a lender of money (institutions that buy debt in the secondary market become lenders by definition as they step into the shoes of the original lenders); It had a “lending office” and maintained accounts evidencing money lent to the borrower and had the financial, technical and legal capability of lending money on the scale required to be a participant in the syndicated loan; and It was an entity properly constituted under the laws of the Cayman Islands, carrying on business there under the Cayman Islands Monetary Authority and that business was commercial finance.






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