Part VIII Examples of Legal Risk, 28 Recharacterization

Subject(s):

Financial regulation

This chapter considers the risk of ‘recharacterization’, which refers to the court’s practice of deeming a transaction to be something other than what the parties intended. It argues that although English courts rarely indulge in recharacterization, there are policy considerations that may come into play and put the more adventurously structured transactions at risk. It is important that this risk, which is a legal risk, be understood and evaluated in the more extreme cases and that it is strictly confined to cases where the policy reasons for recharacterization are compelling. The remainder of the chapter discusses different ways of raising money, the risk of wrong labels, essential differences between sale and security, the lender’s dilemma, and the House of Lords’ decision in National Westminster Bank plc v Spectrum Plus Ltd.