Anthony Victor Lomas and Others v Burlington Loan Management Ltd and Others

JurisdictionEngland & Wales
JudgeMr Justice David Richards
Judgment Date31 July 2015
Neutral Citation[2015] EWHC 2269 (Ch)
Docket NumberCase No: 7942 of 2008
CourtChancery Division
(1) Anthony Victor Lomas
(2) Steven Anthony Pearson
(3) Paul David Copley
(4) Russell Downs
(5) Julian Guy Parr (The Joint Administrators of Lehman Brothers International (Europe) (In Administration))
(1) Burlington Loan Management Limited
(2) Cvi GVF (LUX) Master Sàrl
(3) Hutchinson Investors LLC
(4) Wentworth Sons Sub-Debt Sàrl
(5) York Global Finance Bdh LLC

[2015] EWHC 2269 (Ch)


Mr Justice David Richards

Case No: 7942 of 2008







Royal Courts of Justice

Rolls Building,

London, EC4A 1NL

William Trower QC, Daniel Bayfield, Stephen RobinsandAlexander Riddiford (instructed by Linklaters LLP) for the Applicants

Robin Dicker QC, Richard FisherandHenry Phillips (instructed by Freshfields Bruckhaus Deringer LLP, Ropes & Gray International LLP and Schulte Roth & Zabel International LLP) for the 1 st, 2 nd and 3 rd Respondents

Antony Zacaroli QC, David AllisonQC andAdam Al-Attar (instructed by Kirkland & Ellis International LLP) for the 4th Respondent

Tom Smith QC and Robert Amey (instructed by Michelmores LLP) for the 5 th Respondent

Hearing dates: 18, 19, 20, 23, 24, 25, 26 February and 9 March 2015

Mr Justice David Richards



This judgment considers issues concerning the entitlement of creditors to interest on their debts for periods after the commencement of the administration of Lehman Brothers International (Europe) (LBIE) on 15 September 2008.


These are some of the issues raised by the joint administrators of LBIE in an application for directions issued on 12 June 2014. The application, as amended, contains 40 paragraphs raising a wide variety of different issues. In order to keep the application within manageable bounds, I directed in November 2014 that the questions raised be divided into three groups, each of which would be considered at a separate hearing. The issues dealt with in this judgment constitute the first group ( Waterfall IIA), while issues concerning the effect of certain post-administration contracts made with creditors on their claims for post-administration interest and currency conversion losses, and generic issues concerning the construction and effect of ISDA Master Agreements and other market standard agreements, were directed to be heard in later, separate hearings ( Waterfall IIB and Waterfall IIC respectively). I have handed down judgment in Waterfall IIB at the same time as this judgment: see [2015] EWHC 2270 (Ch).


The need to seek directions on these issues, and also directions on an earlier application ( Waterfall I), arises because, after paying or providing for all the debts proved in the administration of LBIE, there remains a substantial surplus which the administrators estimate will reach or exceed £7.39 billion. The applications concern the existence of claims to this surplus and the order in which claims are to be satisfied.


So far as relevant to the present application, it was held in Waterfall I, at first instance and by the Court of Appeal, that the surplus was to be distributed in the order of, first, statutory interest payable under rule 2.88 of the Insolvency Rules 1986 (as amended); secondly, non-provable claims of creditors, including claims to currency exchange losses resulting from a depreciation of sterling against the currency in which creditors' contractual claims were payable between the commencement of the administration and the date on which dividends were paid on such claims; and thirdly, the US $2.27 billion subordinated debt. The judgments in Waterfall I are reported at [2014] EWHC 704 (Ch), [2015] Ch 1 and at [2015] EWCA Civ 485.


LBIE was the principal trading company for the European operations of the Lehman Brothers group and is a company incorporated under the Companies Acts in England as an unlimited company. LBIE entered administration on 15 September 2008, the same day as Lehman Brothers Holdings Inc, the ultimate holding company of the group, filed for protection under Chapter 11 of the US Bankruptcy Code, and shortly before Lehman Brothers Inc, the principal operating company in the United States, entered into liquidation under the Securities Investor Protection Act on 19 September 2008.


In November 2009, on the application of the administrators, an order was made granting permission to make a distribution to the unsecured creditors of LBIE.


Since then, dividends amounting to 100% by value of the principal amounts in sterling of the admitted claims have been paid as follows:

i) a first interim dividend of 25.2 pence in the pound pursuant to a notice given on 26 November 2012;

ii) a second interim dividend of 43.3 pence in the pound pursuant to a notice given on 19 June 2013;

iii) a third interim dividend of 23.7 pence in the pound pursuant to a notice given on 21 November 2013; and

iv) a fourth and final interim dividend of 7.8 pence in the pound pursuant to a notice given on 23 April 2014.


It is not in dispute that statutory interest is payable out of the surplus remaining after payment of these dividends, in respect of the admitted claims for the period since the commencement of the administration on 15 September 2008. The payment of this interest is governed by rule 2.88 of the Insolvency Rules 1986 (as amended). Most of the issues covered by this judgment turn on questions of construction of rule 2.8 As interest is payable at the higher of Judgments Act rate (judgment rate) and the rate to which the creditor was otherwise entitled, and given that judgment rate has stood at 8% pa since before 2008 while market interest rates have been at a very low level, a very substantial amount of interest will be payable.


Arguments have been raised by different groups of unsecured creditors for the payment of interest on different bases. The general unsecured creditors seek to maximise the interest payable under rule 2.88 or otherwise, while the holders of the subordinated debt, who rank after all interest and non-provable claims, seek to minimise it.


The first to third respondents are holders of unsecured debts and are collectively called the Senior Creditor Group (the SCG). Their aggregate holdings have a principal value of over £2.75 billion. The fifth respondent (York) is one of four co-participants in unsecured claims against LBIE with an agreed total value of US $676.25 million. York is authorised by the other co-participants to act on their behalf. Although largely aligned with the SCG, York has on some issues advanced its own submissions. The fourth respondent (Wentworth) is the holder of the subordinated debt.


The respondents have not been appointed as representatives of different classes of creditors but they have advanced submissions in effect on behalf of those classes, and the administrators are content to act on directions given by the court on this basis. The administrators uploaded all the position papers of the respondents on the LBIE administration website and invited any creditor who considered there to be relevant positions or arguments not canvassed in those position papers to contact them. On some issues all the respondents have taken the same position and the administrators have been content not to advance any other position where they did not consider that there was an arguable position to the contrary. Notice of these agreed positions was also given on the administration website, with a similar invitation to creditors who disagreed with those positions to contact the administrators. By contrast, where the administrators considered that there was an arguable alternative to a common position taken by the respondents, they have advanced submissions to that effect. On those issues where the respondents are divided, the administrators have made submissions only where they have considered it necessary to do so in order to ensure that all available arguments are before the court. The administrators have also provided background information, all of which is uncontroversial for the purposes of the issues covered by this judgment.

Rule 2.88


Express provision is made in rule 2.88 of the Insolvency Rules for the payment of interest on debts. Interest accruing due in respect of periods prior to the commencement of the administration are capable of proof in the administration and will, if accepted, form part of a creditor's admitted claim. Interest after the commencement of the administration cannot be the subject of proof, but is payable as provided in rule 2.88(7)-(9) out of any surplus remaining after the payment in full of the debts proved in the administration.


Rule 2.88, in the form which was in force on 15 September 2008 and which therefore applies in the administration of LBIE, provides as follows:

"(1) Where a debt proved in the administration bears interest, that interest is provable as part of the debt except in so far as it is payable in respect of any period after the company entered administration or, if the administration was immediately preceded by a winding up, any period after the date that the company went into liquidation.

(2) In the following circumstances the creditor's claim may include interest on the debt for periods before the company entered administration, although not previously reserved or agreed.

(3) If the debt is due by virtue of a written instrument, and payable at a certain time, interest may be claimed for the period from that time to the date when the company entered administration.

(4) If the debt is due otherwise, interest may only be claimed if, before that date, a demand or payment of the debt was made in writing by or on behalf of the creditor, and notice given that interest would be payable from the date of...

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4 firm's commentaries
  • The Delta Report – Derivatives Newsletter: January 2017
    • European Union
    • JD Supra European Union
    • 13 February 2017
    ...of the 61 Ibid [259]. 62 Ibid [261]. 63 Ibid [262]. 64 Reported in [2014] EWHC 704 (Ch); [2015] Ch 1; [2015] EWCA Civ 485. 65 [2015] EWHC 2269 (Ch) 24 administration of LBIE. It was held by the High Court that statutory interest pursuant to Rule 2.88 accrues on all debts, including continge......
  • The Lehman Administration Surplus and the High Court Ruling in Waterfall IIC
    • United Kingdom
    • JD Supra United Kingdom
    • 8 February 2017"_ftn4" name="_ftn4" title>[4] Ibid [262]. [5] Reported in [2014] EWHC 704 (Ch); [2015] Ch 1; [2015] EWCA Civ 485. [6] [2015] EWHC 2269 (Ch) [7] [2015] EWHC 2270 (Ch) Hui Hua function JDS_LoadEvent(func) { ...
  • Court of Appeal Judgment: Waterfall IIA Case
    • United Kingdom
    • JD Supra United Kingdom
    • 24 October 2017
    ...from Practical Law in its case report of the first instance judgment Lomas and others v Burlington Loan Management Ltd and others [2015] EWHC 2269 (Ch). [10] [at paras 25 and [11] Rejecting the existence of currency-conversion claims. [View source.] Sonya Van de Graaff...
  • Court Of Appeal Judgment: Waterfall IIA Case
    • United Kingdom
    • Mondaq UK
    • 1 November 2017
    ...from Practical Law in its case report of the first instance judgment Lomas and others v Burlington Loan Management Ltd and others [2015] EWHC 2269 (Ch). 10 [at paras 25 and 11 Rejecting the existence of currency-conversion claims. Because of the generality of this update, the information pr......
1 books & journal articles
  • Statutory Misinterpretation: Rash Holding in Brash Holdings
    • United Kingdom
    • Sage Federal Law Review No. 45-2, June 2017
    • 1 June 2017
    ...…92 84 See generally Wight v Eckhardt Marine GmbH [2004] 1 AC 147, [29], [33] (Lord Hoffmann); Lomas v Burlington Loan Management Ltd [2015] EWHC 2269 (Ch) (31 July 2015) [203] (David Richards J). 85 See generally Wight v Eckhardt Marine GmbH [2004] 1 AC 147, [32] (Lord Hoffmann); Thomas H ......

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