APPG Statement on the Supreme Court Judgement - Sevilleja v Marex Financial Ltd

The All Party Parliamentary Group on Fair Business Banking welcomes the release today of the Supreme Court’s judgment in Sevilleja (Respondent) v Marex Financial Ltd (Appellant) [2020] UKSC 31.

The judgment is the first time the ‘rule against reflective loss’ has been considered at this level in 20 years.  Because of its public importance, the APPG applied for and was granted permission to make written and oral submissions, to provide evidence from its experience that the rule should be applied flexibly to avoid causing injustice to business owners and victims of fraud.

The Supreme Court’s judgment has unanimously changed the previous understanding of the law, holding that the rule does not apply to claims against wrongdoers by creditors or guarantors.  This means that business owners who provided loans to and personal guarantees for the benefit of a company now retain their individual legal rights vis-a-vis wrongdoing third parties, and those rights will not be damaged by the actions or inaction of insolvency practitioners appointed upon a company’s administration or liquidation.

The Supreme Court, by a 4 to 3 majority, held that the rule against reflective loss continues to apply to claims made by shareholders for loss of value in the shares themselves. The APPG is concerned that this means that the rule may continue to cause injustice in an insolvency, when the insolvency practitioner’s action or inaction results in a loss of value in the business owner’s shares.

However, some scenarios involving shareholders were not directly addressed in the judgment, including where the appointment of the insolvency practitioner was the foreseeable or intended result of the wrongdoing.  This means that how the rule is interpreted in the future is likely to depend on the particular facts of each case.  It is clear that the overall judgment has significantly changed the narrow and prescriptive approach taken in recent decades to reflective loss, and the APPG hopes that the court’s ruling will lead to a more considered, and less rigid, approach than before.

Kevin Hollinrake MP, Co-Chair of the APPG, states: “The judgment is an important step forward for business owners.  Whilst we remain concerned about the position of shareholders who lose the value of their businesses when they enter insolvency, we welcome the Supreme Court’s narrower application of the rule.”

Heather Buchanan, Executive Director of the APPG, states: “It is a great result insofar as personal guarantees are concerned, which we have seen causing severe hardship.  We hope that our work with insolvency practitioners and the Business Banking Resolution Service will provide other ways to ensure that shareholders are also protected”.

Ned Beale of Trowers & Hamlins LLP, who acted for the APPG in its intervention, states: “The panel of 7 Justices, the 14 month gap between hearing and decision, the lengthy judgments, and the divided court evidence the complexity of the law around reflective loss.  A number of ongoing cases will be affected by the judgment, and it will be interesting to see how lower courts apply it.”

The All Party Parliamentary Group on Fair Business Banking was represented by Ned Beale of Trowers & Hamlins LLP, instructing Peter Knox QC, Richard Samuel and Chloe Shuffrey of 3 Hare Court, Simon Reveell of Thomas More Chambers and Amit Karia of New Square Chambers.