Re Longmeade Ltd ((in Liquidation))
| Jurisdiction | England & Wales |
| Judge | Mr Justice Snowden |
| Judgment Date | 25 February 2016 |
| Neutral Citation | [2016] EWHC 356 (Ch) |
| Docket Number | Case No: 8060 of 2010 |
| Court | Chancery Division |
| Date | 25 February 2016 |
[2016] EWHC 356 (Ch)
Mr Justice Snowden
Case No: 8060 of 2010
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
IN THE MATTER OF LONGMEADE LIMITED (IN LIQUIDATION)
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
Royal Courts of Justice
Rolls Building, Fetter Lane,
London, EC4A 1NL
Joseph Curl (instructed by Clyde & Co LLP) for the Applicants
Hearing date: 18 November 2015
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
INTRODUCTION
The applicants are the joint liquidators (the "Liquidators") of Longmeade Limited (in liquidation) ("Longmeade"). They seek directions pursuant to s.168(3) of the Insolvency Act 1986 (the " IA 1986") in relation to a potential claim which they have identified that Longmeade could bring in negligence against the Secretary of State for Business Innovation and Skills ("BIS") for about US$26 million ("the Claim").
The Liquidators have been advised by counsel that the Claim has a good prospect of success and have arranged for a litigation funder to finance the pursuit of the Claim on terms that mean there will be no cost and no financial risk to the insolvent estate in doing so. If successful, even allowing for the share of recoveries payable to the funder, the Claim would double the likely return to creditors in the liquidation. The Liquidators therefore believe that the Claim should be pursued, and under the new IA 1986 regime in force since 26 May 2015 they do not need the sanction of the liquidation committee or the court to bring such a claim.
The application for directions has been made because in spite of the ability to pursue the Claim without risk and the significant financial benefits that the Claim might bring for Longmeade's insolvent estate, over 99% by value of Longmeade's creditors have indicated, for a variety of reasons, that they are opposed to the Claim being pursued.
The Liquidators therefore seek directions as to whether they should convene a meeting of creditors pursuant to section 168(2) IA 1986, or whether they should cause Longmeade to pursue the Claim.
None of the creditors of Longmeade to which I shall refer later in this judgment are parties to the application, but the two largest creditor groups (HMRC and Lehman Brothers Holdings Inc ("LBHI") and its affiliates) were provided in advance with copies of the application and evidence. A solicitor for LBHI was also present as an observer during the hearing.
BACKGROUND
Longmeade was a company in the UK Lehman Brothers group. It went into compulsory liquidation in England on 24 November 2010, whereupon the Official Receiver, based at the Insolvency Service's Bloomsbury office in London, was appointed liquidator pursuant to section 136(2) IA 1986.
Prior to the liquidation of Longmeade, in October 2008 a US corporation called Lehman Commercial Paper Inc ("Commercial Paper") had entered proceedings under Chapter 11 of the United States Bankruptcy Code. Commercial Paper was a member of the US group headed by LBHI and it was Longmeade's principal debtor.
On 31 August 2011, various US Lehman Brothers entities including LBHI and Commercial Paper entered into a plan in the US called "The Modified Third Amended Joint Chapter 11 Plan of LBHI and its Affiliated Debtors" ("the Plan"), which was confirmed by the United States Bankruptcy Court for the Southern District of New York. The Plan is being administered by LBHI, and a New York entity known as Epiq Bankruptcy Solutions LLC ("Epiq") acts as LBHI's agent for these purposes. In the UK, LBHI and its controlled affiliates receive financial advice and assistance from Alvarez & Marsal Europe LLP ("A&M").
Under the Plan, Longmeade was admitted as a creditor of Commercial Paper in the sum of US$130,404,439.21. By an email dated 6 December 2011 to Mr. Abdullah Said, who was an examiner employed by the Insolvency Service, a Mr. John Keen of A&M confirmed that Longmeade's claim against Commercial Paper had been provided for in the Plan. The Insolvency Service is an executive agency of BIS, and Mr. Said had been appointed by BIS to assist the Official Receiver in the carrying out of his functions as liquidator of Longmeade pursuant to section 401(4) IA 1986. By an email later the same day, Mr. Said acknowledged Mr. Keen's email and commented that the Official Receiver might cause an independent liquidator to be appointed to Longmeade, depending on the prospects of making a realisation under the Plan.
Some time later, on 14 March 2012, Mr. Keen wrote a further email to Mr. Said which stated,
"In order for Longmeade Limited to receive distributions on its claim, it has to provide a tax form(s) and sign what's called an OFAC certification. I understand we have sent these to you but received no response.
….
Please can you get these forms in as soon as possible."
The tax forms were for the purposes of US tax, and the OFAC certification was required by the Office of Foreign Assets Control of the US Department of the Treasury. Under the terms of the Plan, such US tax forms and OFAC certifications (the "Tax and OFAC forms") were required to be filed within a designated "Response Period" in order for creditors to be entitled to participate in distributions. Mr. Keen's email to Mr. Said included details as to how the Tax and OFAC forms could be completed and filed online
The Official Receiver did not, however, file the Tax and OFAC forms on behalf of Longmeade during the relevant Response Period. Distributions to creditors under the Plan were then made in April and October 2012, but Longmeade did not receive any such distributions and irretrievably lost its entitlement to the same under the terms of the Plan. If the Tax and OFAC forms had been filed on time, Longmeade would have received a total of about US$26 million in the two distributions made in 2012.
The Liquidators were eventually appointed to replace the Official Receiver on 13 March 2013. On discovering further notices which had been received from Epiq requiring submission of Tax and OFAC forms for distributions scheduled for 2013, the Liquidators promptly took steps to file the necessary forms. That having been done, Longmeade participated in subsequent distributions under the Plan, receiving payments of about US$35 million.
LONGMEADE'S PROPOSED CLAIM
The Liquidators have investigated whether or not a claim is available against anyone in respect of the losses to Longmeade arising from the failure to file the Tax and OFAC forms in 2012. Attention has focussed on the potential liability of BIS, which was the appointor and employer of the Official Receiver (see sections 399(2) and 400(1) IA 1986) and the appointor and employer of Mr. Said (see section 401(4) IA 1986).
The Liquidators have obtained advice from Counsel who concluded that claims with at least a 60% prospect of success lie against BIS either on the basis of vicarious liability for the negligence of the Official Receiver and/or Mr. Said, or on the basis of a direct duty of care by analogy to the duty of care owed to registered companies by Companies House (also an executive agency of BIS). Counsel considered cases dealing with the extent of the immunity from suit of the Official Receiver (such as Burr v Smith [1909] 2 KB 306, Re John Tweddle & Co. Ltd [1910] 2 KB 698, Mond v Hyde [1999] QB 1097, and R (Howard) v Official Receiver [2013] QB 930) as well as the recent decision of Edis J in relation to Companies House: see Sebry v Companies House [2015] 1 BCLC 670.
As a result of discussions with the creditors (to which I shall return below), the Liquidators have also sought to make it as attractive as possible for Longmeade to bring the Claim against BIS.
First, it has been accepted that no claim should be pursued against Mr. Said personally: it was thought to be unnecessary and oppressive to do so.
Secondly, the Liquidators approached a litigation funder, Manolete Partners ("Manolete"), and have obtained a firm offer to provide 100 per cent funding for the Claim, together with a deposit of £1 million to provide cover against any adverse costs orders, in return for a substantial share of any recoveries. Subject only to Manolete meeting its obligations, and any adverse costs not exceeding £1 million, Manolete's offer is designed to eliminate all financial risk to Longmeade's estate in pursuing the proceedings.
Thirdly, to deal with a further concern raised by one of the creditors, Manolete's offer also includes an indemnity in relation to the additional management costs of keeping the Longmeade liquidation open to pursue the Claim.
In short, the position has been reached that the litigation could be pursued at no financial cost or risk to Longmeade, albeit that if successful, Longmeade would be required to pay Manolete a significant share of the recoveries.
During discussions with creditors, the Liquidators produced and up-dated a schedule showing that the projected future dividend in the liquidation if the Claim was not pursued would be 9.4 pence in the £. This would be the same in the event that the Claim was pursued with funding provided by Manolete but was ultimately unsuccessful. If, on the other hand, the Claim was pursued with funding from Manolete and was successful in recovering US$26 million, then after allowing for Manolete's share, the projected dividend to creditors of Longmeade would more than double to 20.3 pence in the £. If the Claim was pursued without funding from Manolete, the estimated dividend would increase further to 27.4 pence in the £, if the claim was successful but would fall to...
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