Re SSSL Realisations (2002) Ltd ((in Liquidation)) and Another

JurisdictionEngland & Wales
JudgeLord Justice Chadwick,Lord Justice Jonathan Parker,Mr Justice Etherton
Judgment Date18 January 2006
Neutral Citation[2006] EWCA Civ 7
Docket NumberCase No: A2/2004/1940
CourtCourt of Appeal (Civil Division)
Date18 January 2006

[2006] EWCA Civ 7

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

COMPANIES COURT

(MR JUSTICE LLOYD)

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Lord Justice Chadwick

Lord Justice Jonathan Parker

Mr Justice Etherton

Case No: A2/2004/1940

No 0057 of 2004

Between:
Squires and Others (Liquidators of Sssl Realisations (2002) Limited
Applicants
and
Aig Europe (Uk) Limited and Another
Respondents
Between
Robinson and Another (Liquidators of Save Group Plc)
Applicants/Appellants
and
Aig Europe (Uk) Limited and Another
Respondents

Mr Michael Briggs QC and Mr Philip Jones (instructed by Pannone & Partners of 123 Deansgate, Manchester M3 2BU) for the Appellants, the liquidators of Save Group Plc

Mr Gabriel Moss QC and Mr Richard Fisher (instructed byDLA Piper Rudnick Gray Cary UK LLPof 3 Noble Street, London EC2V 7EE) for the Applicants, the liquidators of SSSL Realisations (2002) Limited

Mr Richard Snowden QC and Mr Andrew Lenon (instructed by Halliwells LLP of 1 Threadneedle Street, London EC2 R 8AW) for the Respondents, AIG Europe (UK) Limited

Lord Justice Chadwick
1

This is an appeal from an order made on 27 July 2004 by Mr Justice Lloyd in conjoined applications in the liquidations of Save Group Plc ("Group") and one of its subsidiaries, SSSL Realisations (2002) Limited (formerly known as Save Service Stations Limited and, hereafter, "Stations") . The application in each liquidation was made by the liquidators. Each company was named as a respondent to the application in the liquidation of the other. The other respondent (in each liquidation) was AIG Europe (UK) Limited ("AIG") , a creditor of both Group and Stations and of other companies in the Save group. Common questions arise between Group, AIG and those other companies (which are in liquidation and of which the liquidators are the same as those of Stations) as arise between the parties to the conjoined applications. Those other companies agreed to be bound by the order (subject to any appeal) made in those applications.

The underlying facts

2

The underlying facts are not in dispute. They are set out by the judge at paragraphs 2 to 4 of his judgment [2004] EWHC (Ch) 1760, [2005] 1 BCLC 1:

"2 The Save group traded primarily as retailers of petrol, and had some 400 or so petrol stations. The trading pattern was that Group bought petrol and related products from suppliers, and sold it on to Stations who sold it to retail customers. Group was also in charge of bank borrowing for the whole Save group, and lent on to subsidiaries such funds as were necessary for their trading purposes. There were, therefore, substantial inter-company debts, above all on the part of Stations to Group for money borrowed and lent on to Stations, and for petrol products bought by Group and sold on to Stations. Stations owned the premises from which retail trading took place, and most other fixed assets used in the retail business.

3. The supply of petrol to Group gave rise to liabilities to Her Majesty's Customs & Excise for duty. It is possible to defer liability to pay the duty by providing a bond to the Customs & Excise to secure payment. AIG and members of the group of which it forms part are willing to enter into such bonds. As a condition of that transaction they require indemnities from the companies on whose behalf they provide the bonds. AIG (or another member of its group – it matters not which and I will treat AIG as if it were the only relevant party) entered into such a bond on behalf of the Save group. AIG also entered into a deed of indemnity on 30 September 1997 with 6 members of the Save group, including Group itself, the parent, and Stations. The issues I have to decide relate to the effect of that deed, which I will call the Deed.

4. Administration orders were made in relation to Group and each of its subsidiaries on 28 February 2001. Stations and the other subsidiaries went into creditors' voluntary liquidation on 8 May 2002. Group was wound up compulsorily on 9 May 2002. The administrators had sold the business and assets of the entire Save group for some £54.5 million. By far the largest proportion of that represented the property and other fixed assets owned by Stations, and almost £53.5 million of the price was attributed to Stations. When Stations' liquidators were appointed they received about £50.5 million from the administrators. They have paid a first dividend of 18p to those creditors whose debts are undisputed, and they hold some £39 million for distribution, including some in a trust account for preferential creditors. Group's main asset is the inter-company debt owed to it by Stations, of the order of £127 million. Stations also owes other subsidiaries about £38 million. AIG was owed almost £10 million. Under the Deed it is a creditor for the same amount in respect of each of Stations, Group and several other subsidiaries. Stations has other creditors, including banks for some £60 million, and trade creditors for some £6 million. The banks are creditors of each relevant member of the group for the same amount. Fuel suppliers have claims against Group for £27 million, and there are some other trade creditors of Group, of about £100,000."

3

The subordination provisions upon which AIG relied were contained in clauses 8.2 and 8.3 of the deed of indemnity:

"8. ENFORCEMENT OF SURETY'S RIGHTS AND NON-COMPETITION

. . .

8.2 Postponement of Indemnitors' Rights

Until all amounts which may be or become payable by the Indemnitors to the Surety under this deed have been irrevocably paid in full no Indemnitor shall after a claim has been made by the Surety hereunder or by virtue of any payment made by it under this deed:

(a) be subrogated to any rights, security, cash cover or other monies received on account of that Indemnitor's liability hereunder.

(b) claim rank prove or vote as a creditor of any Indemnitor or its estate in competition with the Surety: or

(c) receive, claim or have the benefit of any payment distribution or security from or on account of any Indemnitor or exercise any right of set-off as against any Indemnitor.

8.3 Declaration of Trust

Each Indemnitor shall hold in trust for and forthwith pay or transfer to the Surety:

(a) any payment distribution benefit or security received by it contrary to clause 8.2 and

(b) following any claim upon or payment by the Surety under or in respect of a Bond any payment or repayment received by it from the Commissioners or any other person in respect of the Charges or in respect of any overpayment or over-declaration of Value Added Tax."

In that context AIG is "the Surety" and the companies listed in the first schedule to the deed (which include Group and Stations) are "the Indemnitors".

The issues before the judge

4

As the judge observed, at paragraph 3 of his judgment, the issues which he had to decide turned on the effect of the deed dated 30 September 1997, under which Group, Stations and other members of the Save group had agreed to indemnify AIG in respect of the liabilities to Customs & Excise which AIG had undertaken in providing bonds to secure payment of excise duty. It was AIG's contention that, under the terms of that deed, the indebtedness of Stations to Group (some £127 million) and to other members of the Save group (some £38 million) – together "the Stations' intercompany debt" (some £165 million) —was subordinated to the debt which Stations owed to AIG. If that contention were made good, the assets available for distribution in the liquidation of Stations (some £39 million) would be applied towards the payment of AIG, the banks and its trade creditors, whose proofs of debt in that liquidation exceeded, in aggregate, £76 million (AIG—£10 million; banks—£60 million; trade creditors—£6 million) . The Stations' intercompany debt would remain unpaid. As the judge put it, at paragraph 6 of his judgment:

"6. Broadly, if AIG is right, Group and the other subsidiaries will get nothing out of Stations, and the competition for the assets in that liquidation will be between AIG, the banks and Stations' trade creditors, all of whom will therefore do much better because of the exclusion of the inter-company debts of £165 million. There will be no dividend in the liquidation of Group, so the Fuel suppliers and Group's trade creditors will get nothing, and although AIG and the banks will also get nothing out of the liquidation of Group, they will have done much better through Stations."

5

The issues for trial by the judge had been directed by an order made on 5 May 2004 by Mr Justice Peter Smith. They included the following (so far as material) :

" Construction

1. Whether or not as a matter of construction of clause 8.2 of the Deed dated 30 th September 1997 and made between (1) AIG (2) Group and each of its subsidiaries including Stations ("the AIG Indemnity") , Group is entitled to prove for its inter-company debt due from Stations as a non-subordinated debt or otherwise in the liquidation of Stations and to receive a dividend in respect of such proof in the liquidation of Stations.

2. Whether as a matter of construction of clause 8.3 of the AIG Indemnity, the obligations thereby imposed on Group (a) to hold on trust and (b) to pay or transfer to AIG apply to:

i all sums received within the provisions of subclauses 8.3(a) and (b) , or

ii only such of the sums so received as are sufficient to pay in full the amount which AIG is owed.

Public Policy

3. Whether or not on the true construction of clause 8.2 of the AIG Indemnity, Group's assets fall to be dealt with in a manner contrary to sections 107 or 148 of the Insolvency Act 1986 or r.4.181 of the ...

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