Argentex: administrator termination rights

In relation to an EMI special administration, the ICC judge in this case considered whether customer contracts could be “closed out” by the joint administrators before their maturity date. 

This case concerned an electronic money institution that was placed into special administration. The joint special administrators (JAs) sought directions from the court as to whether they were entitled under the terms of their contracts with customers to trigger ‘close out’ provisions effectively terminating the contracts before their agreed maturity date.

The court’s judgment on this point was a sequel judgment to its earlier judgment reported in our December newsletter on the preliminary question of whether such a close out would trigger an administration expense liability (the court having held in that earlier case that it would not).

Argentex offered foreign exchange contracts to its customers. It wasn't authorized to take market risk and so it 'backed off' each contract sold to a customer with a hedging contract with one of its banks.

As a result of the weakening of the US dollar, Argentex was subject to significant margin calls from its hedging banks without having the ability under some of the customer contracts to make concomitant margin calls on its customers. The liquidity position of the firm rapidly deteriorated resulting in the counterparty banks closing out Argentex’s hedging contracts with them and Argentex’s entry into special administration.

The court noted that the customer contracts didn't contain an express provision entitling Argentex to terminate for its own insolvency, and that it was the JAs’ submission that the customer contracts enabled it to terminate to protect its economic interests resulting from loss of hedging, and from market volatility regardless of whether Argentex was insolvent or not.

The court held:

• the purpose of the contracts between the customers and Argentex from the point of view of the customers was to enable the customers to purchase foreign currency at a fixed rate in the future. The currency rate may go up and down before the maturity date but effectively this risk was borne by Argentex and which it would have to hedge given the restriction on its licence
• a reasonable person with all the background knowledge reasonably available to the parties when entering into the customer contracts, would not have understood them to entitle Argentex to effectively terminate for its own economic interests rather than being bound by the terms of the contracts to perform its obligations at the date of maturity
• accordingly the JAs were not entitled under the proper construction of the customer contracts to close them out or terminate them prior to their maturity date

Conway v Plass; In re Argentex [2025] EWHC 3125 (Ch) ICC Judge Agnello KC