Kaupthing Hf v Kaupthing Singer & Friedlander Ltd ((in Administration))
| Jurisdiction | England & Wales |
| Judge | The Chancellor |
| Judgment Date | 31 July 2012 |
| Neutral Citation | [2012] EWHC 2235 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: 8805 of 2008 |
| Date | 31 July 2012 |
[2012] EWHC 2235 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
THE CHANCELLOR OF THE HIGH COURT
Case No: 8805 of 2008
Re: Kaupthing Singer & Friedlander Ltd (in administration)
Re: The Insolvency Act 1986
John Brisby QC and Tom Gentleman (instructed by Reynolds Porter Chamberlain LLP) for the Applicant
Stephen Robins (instructed by Freshfields Bruckhaus Deringer LLP) for the Respondent
Hearing date: 24 July 2012
The Chancellor
Introduction
Kaupthing HF ("KHF") was incorporated in Iceland, a state member of the European Economic Area ("EEA"). It is the holding company of Kaupthing Singer and Friedlander Ltd ("KSF"), a company incorporated in England. Both KHF and KSF carried on the business of banking. Both are credit institutions for the purposes of Directive 2001/24/EC of the European Parliament and Council on the reorganisation and winding up of credit institutions made on 4th April 2001 ("RWR"). Article 34 thereof required Member States to bring their laws into conformity therewith on 5th May 2004.
In 2004 KHF issued €4,000m. bonds ("the Bonds") under its European Medium Note Programme maturing on 30th June 2014. The conditions under which they were issued provided for their early redemption or purchase and cancellation at the option of KHF and that English law should apply. In May 2008 KHF and KSF entered into the two transactions with which I am concerned. They were:
(a) the purchase on 13th May 2008 by KHF from KFS of €5m bonds for €4,409,369 paid by KHF to KFS on 16th May 2008, and
(b) the purchase on 29th May 2008 by KHF from KFS of €5m bonds for €4,313,316 paid by KHF to KFS on 30th May 2008.
On 8th October 2008 Floyd J made an administration order in relation to KSF on the application of the Financial Services Authority under s.359 Financial Services and Markets Act 2000. The consequences of that order included the application to KSF of the provisions of Schedule B1 Insolvency Act 1986 and Part 4 of the Credit Institutions (Reorganisation and Winding-up) Regulations 2004 (2004/1045) ("CIR"). CIR was made under European Communities Act 1972 s.2(2) for the purpose of implementing RWR in the UK. The administration of KSF was extended to 7th October 2012 by order of the court made on 24th April 2009. An application for its further extension to 2015 is due for hearing on 10th August 2012.
Following the processes in Iceland described in some detail by Burton J in Rawlinson & Hunter Trustees SA v Kaupthing Bank HF [2011] 2 BCLC 682 paras 10 to 19, KHF was put into liquidation in Iceland by order of the District Court of Reykjavik made on 22nd November 2010 with a reference date for the purposes of Icelandic law of 15th November 2008. The consequences of the winding up of KHF included the application of the Icelandic Bankruptcy Act No.21/1991 ("IBA") and the Financial Undertakings Act No. 161/2002 ("FUA"). FUA was enacted in order to give effect to RWR in Iceland. Article 99 of FUA was amended in a material respect to which I shall refer later in 2011 by Act 78/2011.
By a letter dated 8th December 2011 the solicitors for KHF notified the administrators of KSF that KHF considered that the two payments made by KHF to KSF specified in paragraph 2 above should be 'rescinded' and repaid by the latter to the former pursuant to ss.134 and 142 of IBA. KHF considered that the effect of FUA was to extend to Iceland the provisions of paragraph 43(6)(b) Schedule B1 Insolvency Act 1986 so that proceedings to rescind such payments taken in Iceland or in England required the permission of the court in England. Accordingly, by an application notice dated 1st June 2012 ("the Permission Application") KHF sought such permission from this court. The application was urgent in that it was considered that the relevant periods of limitation would expire on 30th June 2012. Indeed proceedings were commenced in the District Court in Reykjavik on 10th June 2012 seeking 'rescission of [KHF]'s payment to [KSF]'. There was some doubt whether KSF was accountable for those payments to those from whom it had acquired the bonds in question. Accordingly those persons, UBS AG, Tradition London Clearing Ltd and Deutsche Bank, were joined as 'reserve' defendants. By his order made on 15th June 2012 Arnold J gave permission for the commencement of the claim in Iceland and a parallel claim in England limited, in each case, to the commencement of proceedings. He adjourned the application with directions as to the evidence to be filed in the meantime. The claim form in the parallel English proceedings was issued on 28th June 2012 and both have been served on KSF.
On 29th June 2012 the administrators of KSF issued a further application ("the Provable Debt Application") seeking the directions of the court under paragraph 63 of Schedule B1 to the Insolvency Act 1986 in order to ascertain whether the obligations KHF sought to enforce in the proceedings authorised by Arnold J would, if valid, give rise to a provable debt within Rule 13.12(1) Insolvency Rules 1986.
Expert evidence on the law of Iceland has been filed by both sides. The expert for the administrators of KSF is Mr Einarsson. He has made two reports dated respectively 29th June and 13th July 2012. The expert witness for KHF is Mr Thorlaksson. His report is dated 6th July 2012. I shall refer to all three reports later. There was no cross-examination of either of them. I was invited to resolve any differences between them as best as I could. Accordingly the issues before me are:
(1) whether to give to KHF permission to continue either or both of the proceedings commenced by KHF in Iceland and England to recover the payments made by KHF to KSF summarised in paragraph 2; and
(2) whether, if either is successful, KHF is entitled to prove in the administration of KSF for the amount of those payments.
I will deal with those issues in due course. Common, and essential, to both is an understanding of RWR and CIR, IBA and FUA and their respective effects.
Directive 2001/24/EC of the European Parliament and Council on the reorganisation and winding up of credit institutions made on 4th April 2001.
Article 1.2 Council Regulation on Insolvency Proceedings 1346/2000/EC specifically excludes credit institutions. They and their branches are covered by RWR (Art.1.1). It is not disputed that both KHF and KSF were credit institutions at the material times, their respective home member states were Iceland and UK and references to winding up proceedings include administration proceedings (Art.2). The relevant provisions are contained in Articles 9, 10 and 30.
Article 9, so far as relevant, provides:
"1. The administrative or judicial authorities of the home Member State which are responsible for winding up shall alone be empowered to decide on the opening of winding-up proceedings concerning a credit institution, including branches established in other Member States.
A decision to open winding-up proceedings taken by the administrative or judicial authority of the home Member State shall be recognised, without further formality, within the territory of all other Member States and shall be effective there when the decision is effective in the Member State in which the proceedings are opened."
The relevant provisions of Article 10 are:
"1. A credit institution shall be wound up in accordance with the laws, regulations and procedures applicable in its home Member State insofar as this Directive does not provide otherwise.
2. The law of the home Member State shall determine in particular:
[(a)-(d)]
(e) the effects of winding-up proceedings on proceedings brought by individual creditors, with the exception of lawsuits pending, as provided for in Article 32;
[(f)-(k)]
(l) the rules relating to the voidness, voidability or unenforceability of legal acts detrimental to all the creditors."
Article 30 is in the following form:
"Detrimental acts
1. Article 10 shall not apply as regards the rules relating to the voidness, voidability or unenforceability of legal acts detrimental to the creditors as a whole, where the beneficiary of these acts provides proof that:
— the act detrimental to the creditors as a whole is subject to the law of a Member State other than the home Member State, and
— that law does not allow any means of challenging that act in the case in point.
2. Where a reorganisation measure decided on by a judicial authority provides for rules relating to the voidness, voidability or unenforceability of legal acts detrimental to the creditors as a whole performed before adoption of the measure, Article 3(2) shall not apply in the cases provided for in paragraph 1 of this Article."
As I have already indicated Article 34 required Member States to give effect to the provisions of RWR in their domestic law. This was achieved in the UK by CIR and in Iceland by FUA. In summary:
(1) The administration of KSF in England and the winding up of KHF in Iceland is to be recognised in the respective home states of the other;
(2) Subject to the exceptions recognised by Art.30, the law of those respective home states is to be applied in the administration KSF and the winding up of KHF.
Credit Institutions (Reorganisation and Winding Up) Regulations 2004 SI 2004/1045
CIR was made to give effect to the obligations of the UK under RWR in the European Economic Area which includes Iceland. Regulation 2 contains a large number of definitions to which I shall refer as and when necessary. Regulation 3 precludes a court in the UK from winding up a credit institution (or any of its branches) established in any state, other than the UK, forming part of the EEA. Regulation 5 provides:
"(1) An...
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