Bestrustees Plc v Kaupthing Singer & Friedlander Ltd ((in Administration))
| Jurisdiction | England & Wales |
| Judge | Sir Terence Etherton |
| Judgment Date | 31 July 2013 |
| Neutral Citation | [2013] EWHC 2407 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: 8805 of 2008 |
| Date | 31 July 2013 |
[2013] EWHC 2407 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
THE CHANCELLOR OF THE HIGH COURT
Case No: 8805 of 2008
In the Matter of Kaupthing Singer & Friedlander Limited (in Administration)
And the Matter of the Insolvency Act 1986
Raquel Agnello QC (instructed by Pinsent Masons) for the Applicant
Tom Smith (instructed by Freshfields Bruckhaus Deringer) for the Respondent
Hearing dates: 24 July 2013
The Chancellor ( Sir Terence Etherton):
This is an application pursuant to Rule 2.78 of the Insolvency Rules 1986 by BESTrustees plc ("the Trustee") against the joint administrators of Kaupthing Singer & Friedlander Limited ("KSF"). KSF formerly carried on the business of a bank.
The Trustee is the trustee of Singer & Friedlander Limited Pension & Assurance Scheme ("the scheme").
The application challenges and seeks to reverse the decision of the administrators to reduce by £2 million the Trustee's proof of debt in the administration of KSF of £74,652,000 on the ground that the same amount had been paid to the scheme by KSF out of a trust account in which the scheme had a beneficial interest.
The background
The scheme is a defined benefit pension scheme established to provide benefits to or in respect of its members on retirement, death, having reached a particular age, the onset of serious ill health and other circumstances. KSF is the sponsoring employer of the scheme. The scheme is an occupational pension scheme within the Pensions Act 1995 ("PA 1995") and the Pensions Act 2004.
The scheme held a UK sterling bank account with KSF. The money in that account was used for the administration and management of the scheme, including paying monthly pensions payments to the scheme's pensioner members.
On 3 October 2008 the Financial Service Authority issued a First Supervisory Notice ("the notice") under powers conferred on it by the Financial Services and Markets Act 2000 requiring KSF, which was in financial difficulties, to open a segregated trust account. The notice required KSF to credit the trust account with a cash amount at least as great as the aggregate value of deposits accepted by KSF on both 2 and 3 October 2008 and thereafter to credit it with a cash amount at least as great as the value of subsequent deposits accepted by KSF from its customers from time to time. KSF duly set up the trust account at the Bank of England pursuant to the notice ("the trust account").
Subsequently, on 3 October 2008 the scheme paid £2 million for the credit of its account with KSF. Pursuant to the notice that money was credited to the trust account.
On 8 October 2008 KSF entered into administration and the administrators were appointed in accordance with the provisions of Schedule B1 of the Insolvency Act 1986.
The scheme had a funding deficit as at that date. The Trustee was required to quantify the deficit as being the debt owed to the scheme by KSF, as the employer, pursuant to PA 1995 s. 75 ("the section 75 debt"). That process was not completed until April 2012.
In the meantime, on 13 February 2009 the administrators issued an application for directions on several issues concerning the funds in the trust account, including whether they were subject to a valid trust and, if so, the persons beneficially entitled to those funds. Mr Justice Peter Smith delivered his judgment on 15 July 2009 ( Brazzill v Willoughby [2009] EWHC 1633 (Ch)), in which he held that all the money in the trust account was held on trust. He also specified who were the persons beneficially entitled to that money. There were appeals from his decision in relation to the identity of the beneficiaries and also whether there was an entitlement on the part of KSF to withdraw sums subject to the trust. The issue of the existence of the trust was not itself appealed. The judgments of the Court of Appeal (Sedley, Thomas and Lloyd LJJ) were delivered on 27 May 2010 ( [2010] EWCA Civ 561). The Court of Appeal effectively reduced the beneficiaries who were entitled to claim against the funds in the trust account. It also held that KSF was not entitled to withdraw funds from the trust account unless the account was fully funded as regards the entitlement of regulated depositors, and then only to the extent of the surplus.
Barnett Waddingham LLP, the scheme actuary ("the actuary"), produced a report and certificate dated 3 April 2012 certifying the section 75 debt at £74,652,000. The report and certificate were based upon the annual report and financial statements for the scheme for the period ended 7 October 2008 audited by KPMG LLP. Those accounts attributed no value to the £2 million deposited by the scheme with KSF on 3 October 2008. The explanation given in the accounts was that the Trustee was unable, with certainty, to confirm the likely level of any recovery from the scheme's bank account pending the outcome of legal proceedings. The audit opinion was dated 3 June 2009.
On or shortly after 31 May 2012 the scheme was paid the sum of £2 million from the trust account together with interest of £16,039
On 25 July 2012 a revised proof of debt was filed with the administrators based upon the actuary's certification of the section 75 debt at £74,652,000.
By letter dated 2 August 2012 served in accordance with rule 2.77(2) of the Insolvency Rules 1986 the administrators said that they were only willing to admit the claim to rank for dividend as a non-preferential claim in the amount of £71,938,921. They made two deductions from the Trustee's proof. The first was a sum of £713,079 representing the set-off of a claim of KSF against the Trustee. That is not challenged by the Trustee. The second deduction, which is challenged by the present application of the Trustee, was a sum of £2 million "representing amounts paid to the Trustee in respect of the claim of the Scheme against funds held [in the trust account]." The letter continued with the following explanation:
"This amount has been treated by the [administrators] as part of the dividend payable to the Scheme under its section 75 debt claim. As you are aware, the accounts on which the Scheme actuary based his section 75 valuation report do not, as far as the Administrators are aware, include any value for the funds held at the Bank of England, this increasing the section 75 debt by £2 million. As the [trust account] funds and the section 75 debt claim are, to the extent of the £2 million deposit, being made in respect of the same debt, the double dipping principle applies so as to prevent the Trustee from recovering a total of more than 100p in the pound on that claim."
Those grounds for the £2 million reduction by the administrators have subsequently been amplified in correspondence and by the written and oral submissions on behalf of the administrators in the course of these proceedings to include, among other things, reliance on unjust enrichment and subrogation.
The administrators have so far made distributions to unsecured creditors of 76p in the pound. Their best estimate of the total dividend which will be paid to non-preferential creditors is 84p to 86.5p in the pound.
PA 1995 section 75
The debt claim under section 75 of PA 1995 is a statutory debt triggered by, in the present case, the entry into administration of KSF on 8 October 2008. In very general terms, that insolvency event triggered a statutory debt becoming due under the provisions of section 75 because, immediately before KSF entered into administration, the value of the assets of the scheme were less than the amount at that time of the liabilities of the scheme. By virtue of section 75(4) an amount equal to the difference was to be treated as a debt due from KSF to the Trustee. By virtue of section 75(4A) the debt is to be taken to have arisen immediately before the entry into administration of KSF.
Section 75(5) states that, for the purposes of ascertaining the existence and amount of the statutory debt, the liabilities and assets to be taken into account and their amount or value must be determined, calculated and verified by a prescribed person and in the prescribed manner. The relevant regulations are the Occupational Pension Schemes (Employer Debt) Regulations 2005 ("the Employer Debt Regulations"). In very broad terms, sufficient for the purpose of this judgment, the Employer Debt Regulations provide that (1) the amount of the relevant scheme liabilities are to be calculated and verified by the scheme actuary; (2) they are to be so calculated and verified on the basis that they would be discharged by the purchase of annuities; and (3) the assets, which are to be valued by reference to the same date as the liabilities are calculated, are those attributable to the scheme in the relevant audited accounts and are to have the value given in those accounts.
The relevant accounts in the present case are the audited accounts prepared for the period ended 7 October 2008 ("the audited accounts"). The parties agree that, strictly speaking, those accounts should have been prepared for the period ending on 8 October 2008, which was the date on which KSF entered into administration, but no point has taken on that detail in this application.
The hearing of the application
On the hearing of the application, Mr Tom Smith, counsel for the administrators, emphasised that the administrators do not challenge the validity of the section 75 certificate and they accept that the section 75 debt is the sum certified by the actuary. He supported the administrators' reduction of the amount of the Trustee's proof (as to the £2 million element of the reduction) on two bases. Firstly, he contended that...
To continue reading
Request your trial