Lessons from Cukurova

Key points - The recent decision of the High Court of the British Virgin Islands in Alfa v Cukurova has caused a stir among lawyers serving the international financial markets based in London. - The decision concerns the meaning of ‘appropriation’. Appropriation is a new remedy for collateral takers introduced by the Financial Collateral Arrangements (No. 2) Regulations 2003, which implement the Financial Collateral Directive. - The decision holds that effective appropriation requires the collateral taker to take over from the collateral giver the ability to deal with the collateral as its own. - In Cukurova, where an equitable mortgage was taken over directly held shares, this required that the collateral taker become the registered owner of the shares. - The decision was appealed to the BVI Court of Appeal in late January 2008 and may go further. In the meantime, this article provides an overview of the decision and considers its wider significance.