Re T &N Ltd

JurisdictionEngland & Wales
CourtChancery Division
JudgeMR JUSTICE DAVID RICHARDS,Mr Justice David Richards
Judgment Date17 November 2006
Neutral Citation[2006] EWHC 3096 (Ch),[2006] EWHC 842 (Ch),[2005] EWHC 2870 (Ch)
Docket NumberCase No: 5798 (and others) of 2001

[2005] EWHC 2870 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

COMPANIES COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Before

Mr Justice David Richards

Case No: 5798 (and others) of 2001

In Matter of T&N Limited and Others
and
In the Matter of the Insolvency Act 1986

Richard Snowden QC and Peter Arden (instructed by Denton Wilde Sapte) for the Administrators of T&N Ltd

Richard Sheldon QC, Monica Carss-Frisk QC, Jane Mulcahy and Daniel Bayfield (instructed by Lovells and Herbert Smith) for the Official Committee of Asbestos Creditors and the Future Claimants' Representative

Robin Dicker QC and Richard Fisher (instructed by Sidley Austen Brown and Wood) for Federal Mogul Corporation and its affiliates as debtors in possession in the proceedings under Chapter 11 of the US Bankruptcy Code, the Official Committees of Unsecured Creditors and of Equity Security Holders and JP Morgan Chase Bank as Administrative Agent for the holders of pre-petition bank debts

William Trower QC and Stephen Robins (instructed by DLA Piper Rudnick Gray Cary (UK) LLP) for Lloyd's Syndicate 45/177

David Allan QC and Hugo Groves (instructed by John Pickering and Partners) for the Representative UK Asbestos Claimants

Simon Mortimore QC, James Eadie and Blair Leahy (instructed by Allen & Overy) for the Trustees of the T&N Retirement Benefits Scheme (1989)

Hearing dates: 11, 12,13, 14, 25 and 26 October 2005

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

MR JUSTICE DAVID RICHARDS Mr Justice David Richards

Introduction

1

This is an application by the administrators of T&N Limited and other companies in the T&N group, by which they seek the determination of certain legal issues which are central to the future conduct of the administrations. The directions sought by the administrators and the issues raised by this application are set out in paragraphs 12–18 below. It is convenient first to give the necessary background information.

2

In a judgment given in October 2004, Re T&N Ltd [2004] EWHC 2361 (Ch), [2005] 2 BCLC 488, I set out in paragraphs 6–44 the background to the administrations and the problems confronting the companies. The brief summary which follows and which brings the information up to date is sufficient for present purposes.

3

The T&N group was for many years engaged on a large scale in the mining of asbestos and in the manufacture and distribution of asbestos products. More recently it diversified into other product areas not necessarily involving asbestos, particularly the manufacture of parts for use in the automotive industry. The UK holding company was listed on the London Stock Exchange until 1998 when it was taken over by Federal Mogul Corporation Inc (FMC).

4

By then the hazardous nature of asbestos was well known and there had for some years been a rising number of claims against asbestos producers, such as T&N, by employees and former employees and members of their families, by third parties who had worked with asbestos products in, for example, the shipbuilding industry and by others who had been exposed to asbestos dust. These were in the main personal injury claims, but there have also been property damage claims and contribution claims by other asbestos producers.

5

The volume and scale of asbestos-related claims, particularly in the United States, continued to grow to the point in 2001 that the management of the Federal Mogul group, including the management of the T&N sub-group, concluded that the affected companies should seek the protection of appropriate insolvency proceedings. On 1 October 2001, administration orders were made in England in respect of T&N and 132 other English companies in the Federal Mogul group. At the same time, those companies and 23 US companies in the Federal Mogul group filed for protection under Chapter 11 of the US Bankruptcy Code.

6

The relevant companies face liabilities on a massive scale. There are great difficulties in attaching figures to the companies' asbestos-related liabilities, particularly as some asbestos-related conditions do not manifest symptoms, or even start, for many years after exposure to asbestos dust. Evidence previously filed on applications in the administrations has provided a range of figures for current values of present and future claims of approximately £250 million for the United Kingdom and a range of about $2.7 billion to $10.5 billion for the United States. Proceedings were held earlier this year in the US District Court to estimate the value of all "pending" and "future" asbestos claims against the T&N companies for the purposes of a proposed plan of reorganisation of the companies. Written and oral expert evidence was submitted to the court. In its judgment on 19 August 2005, the US District Court estimated the current discounted value of total US claims, both pending and future, at $9 billion. For these purposes, claims were pending if they had been made by 1 October 2001, the date of the petitions under Chapter 11, and all remaining claims were future. Although the figure of $9 billion was not apportioned between the two categories, it is accepted by all parties that the future claims represent a very significant majority of the total figure. Future claims for these purposes include both claims made since the petition date and an estimate of claims which may be made in the future. Again there is no apportionment of the figure between these two elements, but it is accepted that the estimate for claims not yet made represents a significant majority of that category.

7

Evidence was also placed before the US District Court as to the value to be attributed to UK asbestos claims. This evidence was not challenged and the relevant figures were adopted by the court in its judgment. Pending claims were valued at £14 million and future claims at £229 million.

8

As well as asbestos liabilities, T&N and 13 other companies in administration have very substantial liabilities to the trustees of the T&N Retirement Benefit Scheme (1989) (the T&N pension scheme). Actuaries instructed by the trustees have valued the claim against the companies as at March 2004 at £1.8 billion, making the trustees the largest single creditor by a wide margin. In addition, the trustees have claims under section 75 of the Pension Act 1995. The Pension Protection Fund (the PPF) was established under the Pensions Act 2004. Its function is to assume responsibility for, and to provide compensation to members of, eligible pension schemes, when there is a qualifying insolvency event in relation to the employer and there are insufficient assets in the pension scheme to provide for the level of protected liabilities. It became operational on 6 April 2005. It is anticipated, and it is critical to the success of proposals for the future conduct of the administrations, that the T&N pension scheme will be taken into the PPF. The "assessment period" during which the PPF must determine whether it would be appropriate to take the scheme into the PPF will start when the administrators send out notices to creditors convening meetings to consider proposals for company voluntary arrangements (CVAs) under Part I of the Insolvency Act 1986.

9

Since the administration and Chapter 11 proceedings started in October 2001, there has been agreement in principle among the administrators, the debtor-in-possession management and the major creditor groups and representatives that, if possible, a means should be found to avoid a liquidation of the relevant US and UK companies. Some of the companies have businesses which are considered to be viable, and the problems associated with the long-term profile of the asbestos claims make highly desirable a solution other than liquidation. The solution would, if possible, involve a plan of reorganisation approved under the procedures contained in Chapter 11 of the US Bankruptcy Code and schemes of arrangements or CVAs in the UK. There have, however, been great difficulties in reaching agreement between the various groups as to the appropriate terms of these proposals. I outlined some of the issues in my judgment given on 21 October 2004: see paras 45–57 and 83–120.

10

More recently, progress has been made and on 26 September 2005 a number of parties entered into a Settlement Agreement. The parties are the administrators, FMC and T&N (acting by their debtor in possession management), the US Plan Proponents, the PPF and High River Limited Partnership, the most substantial holder of bonds issued by FMC. It represents a settlement which is acceptable to the largest creditors or creditor groups of the UK companies, that is, the trustees of the T&N pension scheme, in so far as it leads to entry into the PPF, and the Official Committee of US Asbestos Claimants. It has been approved by a resolution of the T&N creditors' committee, with two abstentions. The unequivocal view of the administrators is that it embodies a sensible solution which treats all creditors fairly. It will enable the companies to come out of administration and Chapter 11 proceedings.

11

The Settlement Agreement involves the promotion of CVAs or schemes of arrangement which will provide for the payment of specific amounts to certain creditors and for the establishment of trusts and reserves from which dividends will be paid to relevant groups of creditors. The Plan Proponents agreed to make an application to the US Court for an Order that CVAs or schemes can be promoted before a Plan of Reorganisation is approved by the US Court. Since the hearing of this application, an order has been made by the US Court in terms which permit the promotion of CVAs or schemes. Certain creditor groups (notably US and Canadian asbestos personal injury claimants and...

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