Barclays Bank Plc v Andrew Mark Homan and Others (also known as Maxwell Communications Corporation Plc Re)
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE GLIDEWELL,LORD JUSTICE MANN,LORD JUSTICE LEGGATT |
| Judgment Date | 08 October 1992 |
| Judgment citation (vLex) | [1992] EWCA Civ J1008-9 |
| Docket Number | 92/0913 |
| Court | Court of Appeal (Civil Division) |
| Date | 08 October 1992 |
[1992] EWCA Civ J1008-9
Lord Justice Glidewell
Lord Justice Mann
Lord Justice Leggatt
92/0913
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
(MR JUSTICE HOFFMANN)
Royal Courts of Justice
MR NICHOLAS MERRIMAN Q.C. and MR ALI MALEK, instructed by Messrs Richards Butler, appeared for the Appellant (Applicant).
MR JOHN HIGHAM Q.C. and MR ROBIN DICKER, instructed by Messrs Norton Rose, appeared for the Respondents (Respondents).
The parties
Maxwell Communications Corporation Plc is an English company which was controlled by the late Mr Robert Maxwell. It is registered in England, and until its collapse last December was quoted on the London Stock Exchange and managed by a Board of Directors in London. However, its principal assets were and are in the U.S.A. They are shares which Maxwell Communications owns, indirectly through two wholly-owned subsidiary companies, in Macmillan, Inc. and Official Airline Guides, Inc., American companies with American subsidiaries. The total assets in the U.S.A. are worth many times the value of the assets outside America, which are estimated to be worth less than £100m.
Barclays Bank Plc is an English bank, with the majority of its branches in the United Kingdom. In the U.S.A. Barclays has branches in the State of New York and offices in other major cities.
The facts
Until November 1991 Maxwell Communications had an agreement with Barclays for an overdraft facility at the bank's branch in Holborn, London. The limit on the facility was expressed in sterling, but drawings could be made in any convertible currency. The agreement provided that drawings in foreign currencies were to be repaid to "such bank or branch of the bank as the bank shall specify." By October 1991 US$30m had been drawn against this facility. As is now well-known, by that date it was apparent to their creditors that Maxwell Communications and other companies in which the late Mr Robert Maxwell was interested were in severe financial difficulties. Barclays started to express concern about the extent of Maxwell Communications' overdraft drawings.
On 5th November 1991 Mr Robert Maxwell died. Shortly before that, on 1st November 1991, MacMillan Inc. had sold one of its subsidiary companies, QUE, to Prentice-Hall, Inc. for US$157.5m. The purchase price was paid by Prentice-Hall to National Westminster Bank Plc in New York, where it was credited to a suspense account on 18th November. On the following day it was credited to Maxwell Communications' US$ account with National Westminster in London.
In November 1991 Mr Pelly of Barclays corresponded with and spoke on occasion to Mr Kevin Maxwell about the repayment of the overdraft facility. By 15th November Mr Pelly understood that he and Mr Kevin Maxwell had reached agreement that the $30m should be repaid. In a letter dated 24th November 1991 to Mr Kevin Maxwell, Mr Pelly said:
"I am writing to follow up my letter of 15th November and our telehone conversation on thursday night when you were in your office at The Daily News.
"I was most concerned by your apparent reluctance to stick to our agreement that the $30 million drawing under the above facility would be repaid on maturity on 25th November from the proceeds of the sale of QUE. I understand that somewhere in the region of $160 million of these proceeds are deposited with the Nat West and that the company is capable of abiding by its contractual arrangements with this Bank. However, you intimated that you were taking advice from the Nat West not to make the payment to Barclays.
"This letter will serve as a warning that the non-payment of the $30m will result in a breach of the facility and Barclays will take whatever action is required to recover its money.
…..
We believe the cooperation of this Bank will be important to you over the days and weeks to come, both on the Private Side and in discussions regarding the financing of MCC to which we will continue to provide significant facilities after the repayment of the $30m. However we will not be inclined to 'Standstill', thereby improving the position of other banks, if the $30m remains outstanding."
On 26th November 1991 Mr Pelly met Mr Kevin Maxwell in London and again threatened action if the $30m was not paid. On the same day a payment was made of the $30m plus accrued interest from the NatWest dollar account to Barclays' branch in New York, through which all payments in dollars to Barclays are routed. It was then credited to pay off the overdraft account at the Holborn branch.
Proceedings in the U.S.A. and England
On 16th December 1991 Maxwell Communications by its Directors filed a petition in the U.S. Bankruptcy Court in the Southern District of New York under Chapter 11 of the U.S. Bankruptcy Code. Although Maxwell Communications is an English company, it is not disputed in this court that the U.S. court has jurisdiction to entertain the petition on the ground that Maxwell Communications has property in the United States. The effect of presenting the petition was under section 362 of the Code to bring into operation an automatic stay on all proceedings against Maxwell Communications by creditors subject to the jurisdiction of the U.S. court. However, this did not prevent action being taken in England by other creditors.
On 17th December 1991 Maxwell Communications presented a petition to the High Court in England for an Administration Order. On 20th December 1991 Hoffmann J. appointed the first three respondents to this appeal as Administrators. On the same day the U.S. bankruptcy judge in New York, The Hon. Tina L. Brozman, ordered the appointment of an Examiner under section 1104 of the Code. Subsequently, Mr Richard A. Gitlin, a distinguished Connecticut lawyer, was appointed Examiner.
The Administrators in England and the Examiner in New York, subject to the respective jurisdictions of their courts, have carried on the administration of Maxwell Communications in co-operation with each other. On 31st December 1991, Hoffmann J. authorised the Administrators to consent to an order of the court in New York to enable the Administrators and the Examiner to enter into an agreement to harmonise their work. On 15th January 1992 Judge Brozman made such an order. By that order, the Administrators were recognised as the corporate government of Maxwell Communications. The order was expressed not to affect the jurisdiction of the High Court in England or of the U.S. court under their respective laws or to preclude any party from seeking an expansion or reduction of the Examiner's powers.
The Administrators, in consultation with the Examiner, are engaged on formulating a scheme which it is hoped can be approved as a plan of re-organisation under Chapter 11 of the American legislation, and as a scheme of arrangement under section 425 of the Companies Act 1985.
The law on setting aside a preference
The current provision empowering an English court to set aside a preference on the insolvency of a company is contained in section 239 of the Insolvency Act 1986. By the definition in section 239(4), a company gives a preference to a creditor if it does anything which has the effect of putting that creditor into a position better, in the event of the company's liquidation, than he would have been in if the thing had not been done. Clearly the repayment by Maxwell Communications of the $30m with interest to Barclays falls within this definition. If the preference was given within the period of six months ending with the onset of insolvency (section 240(1) (b)), the court may order the position to be restored to what it would have been if the preference had not been given. However, this is all subject to section 239(5), which provides that:
"The court shall not make an order under this section in respect of a preference given to any person unless the company which gave the preference was influenced in deciding to give it by a desire to produce in relation to [the creditor] the effect mentioned in subsection (4) (b)"
i.e. to put him in a better position than he would otherwise have been in. Thus the subjective intention of the debtor company is critical.
The equivalent provision in the U.S. Bankruptcy Code is section 547. This has much the same effect as section 239 of the Insolvency Act 1986, but differs from that section in two ways. The first and major difference for the purposes of this appeal is that the U.S. Code contains nothing equivalent to section 239(5) of the 1986 Act. Thus the intention of the debtor company is irrelevant in deciding whether the court should order a preferential payment to be repaid. Indeed the only exceptions appear to be payments made to settle new transactions, and payments in the ordinary course of business. The second difference, which is not material to this appeal, is that the court may only order the repayment of a preferential payment made within 90 days before the filing of the petition.
Barclays take the view that section 239(5) provides them with an argument which may render them not liable to make repayment of the $30m as a preference under section 239, but that they are less likely to be successful in resisting a claim for an order under section 547 of the U.S. Code.
The present proceedings
On 6th July 1992 Millett J., on an ex parte application made on behalf of Barclays, granted them an interim injunction restraining the respondents from
"a) bringing...
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