Burlington Loan Management Ltd and Others v Antony Victor Lomas and Others
Jurisdiction | England & Wales |
Judge | Lady Justice Gloster,Lord Justice Patten,Lord Briggs of Westbourne |
Judgment Date | 24 October 2017 |
Neutral Citation | [2017] EWCA Civ 1462 |
Docket Number | Case No: A3/2015/3753; A3/2015/3762; A3/2015/3763; A3/2015/3764; A3/2016/4213; A3/2016/4216; A3/2016/4217; and, A3/2017/0043 |
Court | Court of Appeal (Civil Division) |
Date | 24 October 2017 |
[2017] EWCA Civ 1462
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE (CHANCERY DIVISION)
COMPANIES COURT
MR JUSTICE DAVID RICHARDS
[2015] EWHC 2269 (Ch); [2015] EWHC 2270 (Ch); and, [2016] EWHC 2131 (Ch)
MR JUSTICE HILDYARD
Royal Courts of Justice
Strand, London, WC2A 2LL
Lady Justice Gloster
Vice-President of the Court of Appeal, Civil Division
Lord Justice Patten
and
Lord Briggs of Westbourne
Case No: A3/2015/3753; A3/2015/3762; A3/2015/3763; A3/2015/3764; A3/2016/4213; A3/2016/4216; A3/2016/4217; and, A3/2017/0043
Mr Robin Dicker QC, Mr Richard Fisher, andMr Henry Phillips (instructed by Morrison & Foerster LLP, Freshfields Bruckhaus Deringer LLP, and Ropes & Gray International LLP) for the 1st, 2nd and 3rd Appellants
Mr Antony Zacaroli QC, Mr David AllisonQC andMr Adam Al-Attar (instructed by Kirkland & Ellis International LLP) for the 4th Appellant
Mr Tom Smith QC and Mr Robert Amey (instructed by Michelmores LLP) for the 5th Appellant
Mr Daniel Bayfield QC and Mr Stephen Robins (instructed by Linklaters LLP) for the Respondents
Hearing dates: 3 – 6 April 2017; 10 – 12 April 2017; and, 25 July 2017
Approved Judgment
This is the judgment of the court.
Introduction
This appeal forms the latest instalment in the protracted sequence of litigation which has arisen in the wake of the collapse of Lehman Brothers International (Europe) (" LBIE") in 2008. The facts surrounding LBIE's collapse, and subsequent entry into a distributing administration, have by now been well rehearsed in a number of judgments, most recently by the Supreme Court in Waterfall I [2017] UKSC 38. For present purposes, it is enough to recall that when LBIE entered into administration on 15 th September 2008, it was thought to be insolvent by nearly all concerned. As it turned out, after fully paying or providing for all the debts proved in LBIE's administration, and for administration expenses, there remained a surplus estimated at around £7.39bn.
The active parties to this appeal are representative creditors of LBIE whose interest is to ensure that they receive as great a share of that surplus as possible. The Senior Creditor Group (" the SCG") is comprised of Burlington Loan Management Limited, CVI GVF (Lux) Master SARL and Hutchinson Investors LLC. They are all holders of unsecured debt in LBIE with an aggregate value of over £2.75bn. York Global Finance BHD LLC (" York") is one of four co-participants in unsecured claims against LBIE, with a total aggregate value of US$676.25m. Throughout most of this appeal, York has largely adopted, and where appropriate amplified, the submissions of the SCG. Wentworth Sons Sub-Debt SARL (" Wentworth") is a holder of subordinated debt, and therefore ranks below both the SCG and York in the statutory waterfall. The joint administrators of LBIE, whose application for directions in relation to the surplus gave rise to the current litigation, have remained neutral, participating in the proceedings only to the extent necessary to ensure that all the possible arguments are given a proper airing before the court.
The 1986 insolvency regime
The background to the 1986 insolvency regime is set out in detail in the judgment of Lord Neuberger in Waterfall I (at [10]–[15]). For present purposes, it is necessary only to set out the relevant provisions of the Insolvency Rules 1986 (" the 1986 Rules"), insofar as they applied to LBIE's administration.
Those provisions are largely contained in Chapter 10 of the Rules, which applies to all distributing administrations (Rule 2.68(1)). The rules which govern the proving of debts in such an administration are set out from Rule 2.72 onwards. In accordance with Rule 2.86, debts which are denominated in a foreign currency must be converted to sterling on the date of the administration for the purposes of proof:
"(1) For the purpose of proving a debt incurred or payable in a currency other than sterling, the amount of the debt shall be converted into sterling at the official exchange rate prevailing on the date when the company entered administration or, if the administration was immediately preceded by a winding up, on the date that the company went into liquidation."
Rule 2.88, around which the issues arising on this appeal are centred, provides for the payment of statutory interest on debts in the event of a company's administration. It is convenient to set out in full the provision as it was in force on the date of LBIE's administration:
"(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 the demand to the date of payment.
(5) Interest under paragraph (4) may only be claimed for the period from the date of the demand to that of the company's entering administration and for all the purposes of the Act and the Rules shall be chargeable at a rate not exceeding that mentioned in paragraph (6).
(6) The rate of interest to be claimed under paragraphs (3) and (4) is the rate specified in section 17 of the Judgments Act 1838 on the date when the company entered administration.
(7) Any surplus remaining after payment of the debts proved shall, before being applied for any purpose, be applied in paying interest on those debts in respect of the periods during which they have been outstanding since the company entered administration.
(8) All interest payable under paragraph (7) ranks equally whether or not the debts on which it is payable rank equally.
(9) The rate of interest payable under paragraph (7) is whichever is the greater of the rate specified under paragraph (6) or the rate applicable to the debt apart from the administration."
The scope of this appeal
As with the rest of the Waterfall litigation, this appeal is concerned with the proper application of the LBIE surplus. In particular, it requires the court to determine the extent of creditors' entitlements to interest on their debts for periods after the commencement of the administration, and the correct approach to calculating those entitlements. The potential scope of those entitlements has been considerably reduced by the course charted by the previous Waterfall litigation, in particular by the Supreme Court's decision in Waterfall I. In order properly to understand the terrain to be covered it is first necessary to sketch a brief history of the procedural background to this appeal.
The litigation thus far
In February 2013 the joint administrators of LBIE applied to the court for directions on a number of issues relating to the proper distribution of the surplus. Amongst them were two issues with a direct bearing on the scope of the present appeal. The first arose from the fact that the statutory insolvency regime requires creditors whose unsecured debts are denominated in a foreign currency to convert their claims into sterling for the purposes of proof, at the rate of exchange prevailing at the date LBIE went into administration, and to be paid dividends on those proofs in sterling. The question was whether those foreign currency creditors could bring a "currency conversion claim" for any shortfall arising as a result of a depreciation in the value of sterling between that date and the date of payment of the dividend. The second directly relevant issue concerned whether, if creditors did not receive their full entitlement to statutory interest during an administration, such interest could nevertheless be claimed during a subsequent liquidation. The February 2013 application also raised a number of other important, albeit not immediately pertinent, issues concerning the proper ranking of subordinated debt in the statutory waterfall and the scope of members' obligations to make contributions to meet LBIE's liabilities in liquidation under s74 of the Insolvency Act 1986. The proceedings arising out of the February 2013 application are known collectively as the Waterfall I litigation.
In June 2014, the joint administrators LBIE made a second application for directions. In November 2014, David Richards J directed that the issues raised by the June 2014 application be sub-divided into three more manageable groups. The first of these groups, which has become known as Waterfall IIA, concerned the entitlements of creditors to post-administration interest including, but not limited to, the existence of claims to interest on foreign currency and other non-provable claims. The second group of issues related to the effect of certain post-administration contracts made with creditors on their claims for currency conversion losses and post-administration...
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