Bank of Credit and Commerce International Sa and Another
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE DILLON,LORD JUSTICE RUSSELL,LORD JUSTICE FARQUHARSON |
| Judgment Date | 17 July 1992 |
| Judgment citation (vLex) | [1992] EWCA Civ J0717-2 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | 92/0674 |
| Date | 17 July 1992 |
[1992] EWCA Civ J0717-2
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice
Lord Justice Dillon
Lord Justice Russell
Lord Justice Farquharson
92/0674
MR DAVID HUNT Q.C. and MR LESLIE KOSMIN (instructed by Messrs Richards Butler) appeared for certain creditors of BCCI.
MR PETER SCOTT Q.C., MR RICHARD SYKES Q.C. and MR RICHARD HACKER (instructed by Messrs Simmons & Simmons) appeared for the Majority Shareholders of BCCI Holdings (Luxembourg) SA.
MR MICHAEL CRYSTAL Q.C., SIR THOMAS STOCKDALE, MR MARTIN PASCOE and MR RICHARD SHELDON (instructed by Messrs Lovell White Durrant) appeared for the Liquidators.
I do not propose to set out the facts of and background to this matter in any detail.
The appeal before us is an appeal by certain creditors or persons claiming to be creditors of B.C.C.I. S.A., the Bank of Credit and Commerce International S.A. (which I shall call "S.A."), against an order of the Vice-Chancellor, Sir Donald Nicholls, of 12th June of this year. The substance of that order is that he ordered and directed (1) that the Agreements substantially in the form of the drafts appearing in a bundle marked "A" be approved, (2) that the English liquidators of S.A. be authorised and empowered to execute the same and do and execute all such documents, acts and things as may be necessary or desirable to implement and bring and carry the same into full force and effect in all respects and comply with and perform each of their obligations thereunder in accordance with their respective terms. He included in clause (3) a qualification on the English liquidators' powers, to which I shall have to come back, and he also gave a number of consequential directions.
The Agreements referred to in paragraph 1 of his order (which I shall call "the Agreements") are fairly numerous and very complex. We are particularly concerned with two, called the Pooling Agreement and the Contribution Agreement. The Pooling Agreement is subject to its terms being approved by the courts in Luxembourg, the Cayman Islands and England, but is not subject to approval of the Contribution Agreement. The Contribution Agreement is subject to its terms being likewise approved and to the Pooling Agreement being so approved. The Vice-Chancellor's order gave the requisite approval of the English court with, as I have mentioned, further consequential directions. The approval of the Cayman Islands court was given on 19th June 1992 on an unopposed application. Judgment on the application for approval by the Luxembourg court is due to be given early next week.
S.A. is a company incorporated in Luxembourg and in compulsory liquidation there. That is why the Luxembourg court comes in. The Pooling Agreement provides for the pooling of assets and liabilities of S.A. and Bank of Credit and Commercial International (Overseas) Limited (which I shall call "Overseas"), a company incorporated in the Cayman Islands and in liquidation there. That is why the Cayman Islands comes in. Both S.A. and Overseas carried on worldwide the business of bankers and deposit takers.
So far as England is concerned, S.A. carried on business through branches in England where it had very substantially more branches than in any other country. It is in liquidation here as a result of a compulsory winding up order pronounced on a winding up petition presented by the Bank of England. Technically, with S.A. the English liquidation is ancillary to the principal liquidation in Luxembourg, the country of S.A.'s incorporation.
It is not in doubt that S.A. and Overseas are insolvent with massive deficiencies as a result of frauds perpetrated by those concerned in the management of the companies. The overall deficiency is put on a provisional calculation at $9.25 billion. The consequence of that is that a very large number of individuals, companies and other bodies have suffered massive losses which they cannot afford. The bulk of the creditors are the unfortunate depositers who placed their monies with the various branches of the companies. There are harrowing stories of the sufferings of various of them. That is, however, merely background to the present appeal.
Mr. Hunt, who appears for the appellants, recognises that, if he seeks to appeal the exercise of the Vice-Chancellor's discretion, he faces the difficulties indicated in such cases as Hadmor Productions Ltd. v. Hamilton [1983] 1 A.C. 191. Instead, he places his challenge on the ground that, on a true appreciation of the law, the Vice-Chancellor had no power to make the order he did—in effect, a challenge in various forms to the jurisdiction which the Vice-Chancellor purported to exercise—and a submission that in truth the Vice-Chancellor did not have any discretion. It follows that I shall be concerned in this judgment with highly technical issues of law which have been debated in this court over the last four days. 1 cannot hope to follow the Vice-Chancellor's example of producing a judgment which is short and simple so that any depositor may read and understand it.
The application to the Vice-Chancellor to approve the Agreements referred to in his order and authorise the liquidators to carry them into effect was made under paragraphs 2 and 3 of Part I of Schedule 4 to the Insolvency Act 1986. These are in the following terms under the heading in Part I "Powers exercisable with Sanction":
"2. Power to make any compromise or arrangement with creditors or persons claiming to be creditors, or having or alleging themselves to have any claim (present or future, certain or contingent, ascertained or sounding only in damages) against the company, or whereby the company may be rendered liable.
3. Power to compromise, on such terms as may be agreed—
(a) all calls and liabilities to calls, all debts and liabilities capable of resulting in debts, and all claims (present or future, certain or contingent, ascertained or sounding only in damages) subsisting or supposed to subsist between the company and a contributory or alleged contributory or other debtor or person apprehending liability to the company, and
(b) all questions in any way relating to or affecting the assets or the winding up of the company…"
The section conferring these powers is section 167 of the 1986 Act which provides:
"Where a company is being wound up by the court, the liquidator may—
(a) with the sanction of the court or the liquidation committee, exercise any of the powers specified in Parts I and II of Schedule 4 to this Act (payment of debts; compromise of claims etc.;…"
These provisions came into the 1986 Act from the Companies Act 1985. Corresponding provisions in substantially the same terms have been included in all the successive major Companies Acts since the original 1862 Act. For convenience, I refer to these powers as "the compromise powers".
In passing, I note that paragraph 1 in Part I of Schedule 4 gives a power exercisable with sanction, i.e. for present purposes the sanction of the court, as follows "1. Power to pay any class of creditors in full". The most obvious purpose of this would be to enable small creditors to be paid in full for convenience of administration. This is some indication that the powers in Part 1 of Schedule 4 may be exercised in appropriate cases in ways which depart from the strict or fundamental paripassu rule, now Rule 4.181 of the Insolvency Rules 1986. This is in the following terms:
"Debts other than preferential debts rank equally between themselves in the winding-up and after the preferential debts shall be paid in full unless the assets are insufficient for meeting them, in which case they abate in equal proportions between themselves."
I should read next section 195 of the Insolvency Act 1986.
This provides:
"(1) The court may—
(a) as to all matters relating to the winding up of a company, have regard to the wishes of the creditors or contributories (as proved to it by any sufficient evidence), and
(b) if it thinks fit, for the purpose of ascertaining those wishes, direct meetings of the creditors or contributories to be called, held and conducted in such manner as the court directs, and appoint a person to act as chairman of any such meeting and report the result of it to the court."
This also has its antecedents in the same terms in the general Companies Acts back to and including the 1862 Act. It is pointed out in argument that the word used in section 195 is "may", not "shall".
The basis in law of the complaints of the appellants and of the other creditors who, before the Vice-Chancellor, opposed his approving the Agreements is primarily that he has wholly failed to have any regard to the views and wishes of the overwhelming majority of those creditors of S.A., whose views were made known to him. On the contrary, in despite of section 195 and, it is said, the settled practice which has developed in such matters, he has rejected the views of the overwhelming majority of those creditors and has substituted his own view that it is expedient in the interests of the creditors of S.A. that the Agreements should be approved and be carried into effect.
In addition, it is urged in relation to the Pooling Agreement that it seeks to achieve something which can only be approved by a scheme of arrangement under section 425 of the Companies Act 1985 (to which I will come) and cannot be approved under the compromise powers. It is also urged in relation to the Contribution Agreement that...
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