Parmalat Capital Finance Ltd v Food Holdings Ltd ((in Liquidation))
| Jurisdiction | UK Non-devolved |
| Judge | Lord Hoffmann |
| Judgment Date | 09 April 2008 |
| Neutral Citation | [2008] UKPC 23 |
| Court | Privy Council |
| Docket Number | Appeal No 7 of 2007 |
| Date | 09 April 2008 |
and others
[2008] UKPC 23
Present at the hearing:-
Lord Hoffmann
Lord Hope of Craighead
Lord Walker of Gestingthorpe
Baroness Hale of Richmond
Lord Mance
Privy Council
[Delivered by Lord Hoffmann]
The Parmalat group of companies is based in Italy. Its principal business is supplying food and dairy products. Parmalat Capital Finance Ltd ("PCFL") is a member of the group incorporated in the Cayman Islands. It carried on business raising finance for other members of the group.
In 1999 PCFL took part in a scheme to raise money for the group by the issue of loan notes on the US bond market. The scheme involved the incorporation in the Cayman Islands of two companies named Food Holdings Ltd ("Food") and Dairy Holdings Ltd ("Dairy"). Each was to issue loan notes to the value of about US$150m. The proceeds were to be used to purchase stock in a Brazilian subsidiary called Parmalat Administracao SA ("Parmalat Brazil) and thereby provide it with equity finance.
The security for the noteholders was, in the first instance, the stock in Parmalat Brazil. Food and Dairy charged the stock to Norwest Bank Minnesota ("Norwest") as trustee for the note holders. It was however contemplated that when the notes fell due, PCFL would buy the stock and the notes would be paid off out of the purchase price. For this purpose, PCFL entered into put agreements with Food and Dairy, giving them the right to demand that PCFL buy the stock at a price determined in accordance with a formula. This obligation was guaranteed by the Italian parent company, Parmalat Spa. The rights under the put agreements were likewise charged to Norwest as security for repayment of the notes. Norwest gave notice to PCFL of its security interest in the stock and the put agreement. These documents were governed by New York law and their effect was that the money which might become payable under the put agreement became payable to Norwest, to be deposited in a collection account for the benefit of the noteholders and in which Food and Dairy would have only an equity of redemption.
Just before Christmas 2003, the Parmalat group collapsed. In Italy, Dr Enrico Bondi was appointed special administrator of the Italian company. In the Cayman Islands, some of the noteholders applied for the appointment of provisional liquidators of Food and Dairy. Henderson J appointed James Cleaver and Gordon MacRae ("the Cayman liquidators"). Those companies, acting by their provisional liquidators, then petitioned for the winding up of PCFL. The debts upon which the petitions were founded were the sums owing under the put agreements. On 24 December 2004, Henderson J appointed the Cayman liquidators as provisional liquidators of PCFL. The winding up petition was heard in 2006 and on 12 May 2006 Henderson J ordered PCFL to be wound up and appointed the Cayman liquidators to be its liquidators.
There appears to have been some lack of co-operation between the Cayman liquidators and Dr Bondi. No one has sought to assign blame for this state of affairs and the Board will not attempt to do so. But the result was that although PCFL is admitted to be heavily insolvent, it has (acting by Dr Bondi as administrator of its controlling shareholder) appealed against both the winding up order and the appointment of the Cayman liquidators. The grounds of objection to the winding up petition were, first, that Food and Dairy had no locus standi as petitioners because they had assigned the entire benefit of the put agreements to Norwest, and secondly, that the debt was disputed on substantial grounds. The main ground for objection to the Cayman liquidators was that their interests as liquidators of Food and Dairy conflicted with the interests of PCFL. The Court of Appeal rejected both objections.
There is no dispute that, at the commencement of the winding up, the money due under the put agreements had become payable and PCFL was insolvent. Section 96 of the Companies Law provides that a petition may be presented by a "creditor" and the first question is whether Food and Dairy were creditors. The Board considers that they were. Food and Dairy were the contracting parties to the put agreements and had the right, as against PCFL, to demand payment. They retained both the legal title and the equity of redemption. In the opinion of the Board, the fact that they had assigned the debts by way of security to Norwest did not deprive them of the status of creditors.
Mr Moss QC, who appeared for the appellants, submitted that even if Food and Dairy were entitled to sue, the proceedings were not properly constituted because Norwest, as equitable assignee, should have been joined in the proceedings. He relied upon the analogy of an action to recover a debt, in which it is clear that an assignor seeking to recover an assigned debt must join the assignee: see Walters & Sullivan Ltd v J Murphy & Sons Ltd [1955] 2 QB 584, 588. But the analogy is false. As P O Lawrence J explained in Re Steel Wing Company Ltd [1921] 1 Ch 349, 357:
"The main reason why an assignee of a part of a debt is required to join all parties interested in the debt in an action to recover the part assigned to him is in my opinion because the Court cannot adjudicate...
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