## Facts

- IMB Morgan plc, a financial institution, entered insolvency.
- Commerzbank AG, a major creditor, had engaged in a series of financial transactions with IMB Morgan plc, including repurchase agreements and securities lending arrangements.
- After IMB Morgan's insolvency, Commerzbank AG sought to recover its claims by asserting ownership over certain securities held by IMB Morgan.
- The Financial Collateral Arrangements (No. 2) Regulations 2003 were relevant to the enforceability of certain contractual rights over collateral in this context.

## Issues

1. Whether Commerzbank AG's claims to certain securities should be treated as proprietary or personal in the context of the insolvency.
2. Whether the distribution of IMB Morgan’s assets appropriately followed the pari passu principle, ensuring equal treatment of creditors.
3. How the Financial Collateral Arrangements (No. 2) Regulations 2003 interacted with the pari passu rule and affected creditor rights.

## Decision

- The Court determined that, under the relevant agreements, Commerzbank AG had acquired proprietary rights to the securities.
- Commerzbank’s proprietary claims were not subject to the pari passu distribution rule and could be enforced independently of the insolvency process.
- The arrangements qualified under the Financial Collateral Arrangements (No. 2) Regulations 2003, affirming the enforceability of the title transfer despite insolvency.

## Legal Principles

- The pari passu principle generally requires equal and proportionate asset distribution among unsecured creditors, as established by Section 107 of the Insolvency Act 1986.
- The pari passu rule is subject to contractual arrangements and statutory exceptions.
- Title transfer collateral arrangements, where ownership is transferred to the creditor, confer proprietary rights that may take priority over the pari passu distribution, particularly under the Financial Collateral Arrangements (No. 2) Regulations 2003.
- Statutory and contractual rights can override the default equitable treatment of creditors in insolvency.

## Conclusion

The Court of Appeal emphasized that clear contractual and statutory provisions can allow certain creditors, like Commerzbank AG, to enforce proprietary rights and bypass the pari passu principle in insolvency, underscoring the importance of explicit agreements and relevant regulatory frameworks in determining creditor priorities.

Commerzbank AG v IMB Morgan plc [2005] 1 Lloyd's Rep 198