Buchler and another v Talbot and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Chadwick,Lord Justice Longmore,Lord Justice Peter Gibson |
| Judgment Date | 22 February 2002 |
| Neutral Citation | [2002] EWCA Civ 228 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: B2/2000/3615 |
| Date | 22 February 2002 |
[2002] EWCA Civ 228
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
(Mr Justice Rimer)
Royal Courts of Justice
Strand,
London, WC2A 2LL
Lord Justice Peter Gibson
Lord Justice Chadwick and
Lord Justice Longmore
Case No: B2/2000/3615
Mr R. Potts QC & Mr P. Gillyon (instructed by Messrs Freshfields Bruckhaus Deringer) for the Appellants, Stichting Ofasec
Mr R Snowden (instructed by Messrs Hammond Suddards Edge) for the Respondents
Mr R. McAlpine of Denton Wilde Sapte for the Receivers
This is an appeal against an order made on 17 November 2000 by Mr Justice Rimer on an application made under the Insolvency Act 1986 by the joint liquidators of Leyland Daf Limited ("LDL"), an English company in voluntary liquidation. The respondents to that application included (i) joint administrative receivers appointed under a mortgage debenture granted by LDL and (ii) Stichting Ofasec ("Ofasec"), a Dutch foundation, to whom that debenture was granted as security agent for certain banks and other lenders. Ofasec was the only respondent to take an active part in the proceedings; although the joint administrative receivers were represented before the judge, as they have been in this Court, by their solicitor.
Section 115 of the Insolvency Act 1986 provides for the priority of the liquidator's expenses and remuneration in a voluntary liquidation. The section is in these terms:
"All expenses properly incurred in the winding up, including the remuneration of the liquidator, are payable out of the company's assets in priority to all other claims."
The issue before the judge was whether the assets out of which the joint liquidators were entitled to be paid expenses and remuneration, pursuant to that section, included the proceeds of realisation of those assets which had been subject to a floating charge under the debenture. The issue arises in the circumstances (i) that the floating charge had crystallised before the commencement of the liquidation and (ii) that the effect of a decision that the liquidation expenses are payable out of the floating charge assets is that those expenses may well have to be borne by the persons entitled to the security created by the debenture – there being no unsecured assets available to meet them and insufficient secured assets to satisfy the claims of those who (as things stand) are entitled to share in the security.
The judge decided that issue in favour of the joint liquidators. He granted permission to appeal from his order. Ofasec is the appellant in this Court.
The factual background
The facts are not in dispute. I adopt the summary set out in paragraphs 4 to 10 of the judgment handed down by the judge on 17 November 2000:
"4. LDL and LDIL [Leyland Daf International Limited] were English subsidiaries of Leyland Daf Holdings Limited, which was itself a subsidiary of a Dutch company called DAF NV. They manufactured commercial vehicles. In May 1988 DAF NV made an unsecured bond issue in Holland governed by Dutch law and guaranteed by two Dutch banks which were the lead banks in a syndicate which financed the DAF NV group. A Dutch company, Nederlandsche Trust-Maatschappij ("NTM"), was trustee for the bondholders.
5. In 1989 the DAF NV group entered into a refinancing agreement with its banks, but in 1992 it was again in financial difficulty. Its banks made further loans. They were secured by, amongst other things, mortgage debentures dated 25 March 1992. These were granted by LDL and LDIL to Ofasec, a Dutch foundation, which acted as security agent for the banks as well as for various other lenders who had previously also made loans to the group and are referred to in the evidence as "the OFA Grantors". The debentures granted fixed and floating charges over the assets of the two companies. The respective rights of the banks and the OFA Grantors to participate in such security were governed by a set of conditions. On the face of them, neither NTM nor the Dutch bondholders were entitled to participate in it.
6. In early 1993 the DAF NV group collapsed. DAF NV was declared bankrupt on 26 February 1993 and trustees in bankruptcy were appointed to it. On 3 and 4 February 1993 Ofasec appointed joint administrative receivers (John Andrew Talbot and Murdoch Lang McKillop) to LDL and LDIL under the debentures. The receivers proceeded to realize the assets charged by the fixed and floating charges created by the debentures. They have discharged receivership preferential creditors of LDL in the sum of about £8m. LDIL had no preferential creditors. By the end of 1994 they had made interim distributions of £110m to Ofasec towards satisfying its indebtedness. These distributions were made before LDL and LDIL went into liquidation. They still hold about £61m derived from the proceeds of the assets that were subject to Ofasec's floating charge. These derive exclusively from the LDL floating charge, since all the LDIL realizations were of fixed charge assets. The unsecured creditors of LDL and LDIL amount to about £141m.
7. In December 1994 NTM began proceedings in Holland against (amongst others) Ofasec and DAF NV's trustees in bankruptcy. It claimed to be entitled, on behalf of the bondholders, to participate pari passu with the banks and the OFA Grantors in the proceeds of the security granted by the debentures. The receivers challenged the jurisdiction of the Dutch court, but that challenge was rejected in March 1996. On 24 July 1996 LDL and LDIL entered creditors' voluntary liquidation and joint liquidators were appointed. They are David John Buchler and Christopher John Hughes, the applicants.
8. Following their appointment, the liquidators co-operated with the receivers in their defence of the NTM action. In January 1997, the District Court of Amsterdam dismissed the action, after which the liquidators embarked on agreeing the claims of creditors in the winding up of LDL and LDIL. In October 1998, however, the Dutch Court of Appeal reversed the decision of the District Court and held that NTM was entitled to participate in security granted by the debentures. That decision has been the subject of an appeal to the Dutch Supreme Court in the Hague, but judgement has not yet been given, and the evidence indicates that the final disposal of that litigation might still take several years.
9. If NTM succeeds in maintaining its claim to share in the security created by the debentures, then that (with other factors) will raise a major question as to whether there would be any assets available to pay a dividend to the unsecured creditors of LDL and LDIL. NTM's claim has in consequence also triggered the question of principle identified at the beginning of this judgement. The debentures are both governed by English law and, if liquidation expenses do have priority over Ofasec's claims as chargee, NTM does not claim to be in a better position that Ofasec: it claims no more than to be entitled to share pari passu with the banks and the OFA Grantors in the security [granted] to Ofasec.
10…. I should make clear that the liquidators do not suggest that the receivers are accountable to them in respect of any payments made to Ofasec prior to the commencement of the liquidations. All that is claimed is that they have a right of recourse for liquidation expenses to those floating charge realizations still held by the receivers, and that they are so entitled in priority to the claims of Ofasec. Such expenses include a potential tax liability of more than £2m in respect of interest earned by LDL and LDIL as well as liquidators' unpaid costs to date and their future costs, which are likely to exceed £1m. As at 6 September 1999 the liquidators had realized £1,430,977 and had made payments of £1,232,699, including £810,087 professional costs."
I have already set out section 115 of the Insolvency Act 1986. More detailed provisions as to the order in which the expenses of the liquidation are payable out of the assets are found in rule 4.218 of the Insolvency Rules 1986. The provisions of that rule apply, also, in the case of a company being wound up by the court – see rule 4.1(2) of the 1986 Rules and, for the rule-making power, section 411 of the Act. Those provisions are subject to the power of the court, where the assets are insufficient to satisfy the liabilities, to make an order under section 156 of the Act – see rule 4.220(1) and, as to the power to make an order under section 156 in a voluntary winding up, section 112(1) of the Act. In relation to assets to which those provisions apply, and subject to any order made under section 156 of the Act, the effect of those provisions is to require payment of liquidation expenses out of those assets in priority to all other claims.
The relevant question, in the present context, is whether "the company's assets" – or (in the context of rule 4.218) "the assets" – includes assets which are, or would otherwise be, required to satisfy the claims of a secured creditor under a floating charge over those assets; and, in particular, the claims of a secured creditor under a charge which, as created, was a floating charge but which has crystallised before the commencement of the winding up. If assets which would otherwise be required to satisfy the claims of a secured creditor are, nevertheless, to be treated as "the company's assets" – or as "the assets", as the case may be – then (subject to any order made under section 156 of the Act) the effect of section 115 and rule 4.218 is that the expenses of the winding up are payable out of those assets in...
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