Richard Heis v (1) Financial Services Compensation Scheme Ltd

JurisdictionEngland & Wales
JudgeLord Justice McFarlane,Sir Colin Rimer,Lady Justice Asplin
Judgment Date11 June 2018
Neutral Citation[2018] EWCA Civ 1327
CourtCourt of Appeal (Civil Division)
Docket NumberCase No: A2/2018/1270
Date11 June 2018

[2018] EWCA Civ 1327





Mr Justice Hildyard

[2018] EWHC 1372 (Ch)

Royal Courts of Justice

Strand, London, WC2A 2LL


Lord Justice McFarlane

Lady Justice Asplin


Sir Colin Rimer

Case No: A2/2018/1270

(1) Richard Heis
(2) Michael Robert Pink
(3) Edward George Boyle
(1) Financial Services Compensation Scheme Limited
(2) Attestor Value Master Fund LP

David Allison QC and Alex Barden (instructed by Allen & Overy LLP) for Attestor Value Master Fund LP, the appellant

Daniel Bayfield QC and Adam Al-Attar (instructed by Weil, Gotshal & Manges (London) LLP) for Messrs Heis, Pink and Boyle, respondents

Mark Arnold QC and Marcus Haywood (instructed by Burges Salmon LLP) for Financial Services Compensation Scheme Limited, a respondent

Hearing date: 6 June 2018

Judgment Approved

Sir Colin Rimer



This expedited appeal is against Hildyard J's order of 25 May 2018 made in the Business and Property Courts of England and Wales (Insolvency and Companies List). The hearing before him was also expedited, the application having been issued on 23 March and heard over 15 to 17 May. Hildyard J gave permission to appeal and we heard the appeal on 6 June, with the demands of the case requiring our judgments to be delivered during the morning of 11 June. The appeal asks a question as to the interpretation of paragraph 3.1(e) in Section 2 of a company voluntary arrangement approved on 12 December 2017 (‘the CVA’) by the creditors and sole member of MF Global UK Limited (‘MFGUK’). In explaining the background I have gratefully drawn on the judge's full and careful judgment: [2018] EWHC 1372 (Ch).


The applicants, respondents to the appeal, are Richard Heis, Michael Pink and Edward Boyle. They are the joint special administrators of MFGUK and the joint supervisors of the CVA. They sought directions as to whether, and if so how, to proceed to the implementation of the CVA in light of what the judge called ‘the unexpected emergence of substantial claims’ filed since its approval. The need for such directions arose because the interpretation of the relevant provisions of the CVA were, the judge said, far from straightforward and the interests of two groups of CVA creditors were potentially in conflict. The applicants were neutral in the application; and they also expressed themselves as content to surrender to the court any discretion they may have in relation to the issues raised. They have adopted the same position on this appeal.


The main debate was argued by the respondent court-appointed representatives of the two groups of creditors: (i) the Financial Services Compensation Scheme (‘the FSCS’), representing a large class of ‘Exiting Creditors’; and (ii) Attestor Value Master Fund LP (‘Attestor’), acting by its investment manager, Attestor Capital LLP, representing a small class of ‘Participating Creditors’.


Paragraph 3 of Section 2 of the CVA imposed five conditions precedent to the coming into effect of the CVA, each of which had to be satisfied for it to do so. The critical condition is that in paragraph 3.1(e): the other four conditions have all been met. The questions for the judge were: (1) whether, in light of the emergence, and continuing existence, after a defined ‘Challenge Period’ of the disputed claims, the administrators should confirm ‘that this should not preclude the CVA from becoming effective’ (the relevant words in paragraph 3.1(e)); (2) whether the supervisors should waive the need for satisfaction of the paragraph 3.1(e) condition (as they were empowered to do by the opening words of paragraph 3.1); and (3) whether the supervisors should determine that the disputed claims were a material impediment to the implementation of the CVA (a question arising under paragraph 27.1(c) of Section 2).


The FSCS's case, in support of ensuring that the CVA should come into effect, was that questions (1) and (2) should be answered ‘yes’ and that question (3) should be answered ‘no’. Attestor's case, in support of ensuring that the CVA should not come into effect in light of the emergence of the disputed claims, was that questions (1) and (2) should be answered ‘no’ and question (3) ‘yes’. The urgency in relation to the application was that the CVA was destined to terminate automatically in accordance with its terms if the paragraph 3 conditions precedent were not satisfied (or, so far as permitted, waived) by 12 June 2018, which is tomorrow. That is because the effect of paragraph 27.1(b) of Section 2 of the CVA is that if by then those conditions precedent have not been satisfied or waived, the CVA will automatically terminate on that day (‘the lapse date’).


The judge accepted the FSCS's submissions and, in answer to question (1), directed the administrators to ‘confirm that the CVA is not precluded from becoming effective in accordance with the condition precedent at clause 3(1)(e) … in light of the [three] Disputed Claims …’, which his order then summarised. His answers to questions (2) and (3) were ‘no’ to both. By agreement following the making of the order, and pending the disposal of this appeal, the administrators have not given the confirmation referred to in question 1, and so the paragraph 3.1(e) condition precedent still remains unsatisfied.


Attestor's argument on its appeal is that the judge was wrong in his interpretation of paragraph 3.1(e) and wrong, therefore, in answer to question (1), to direct the administrators as he did. It submits that this court should give the administrators a contrary direction, one which when complied with will mean that the CVA will not become effective.


The three late, disputed claims referred to in the application are as follows:

(i) a claim by the German Tax Authority (‘the GTA’) to claw back certain withholding tax reclaims of €52m received by MFGUK in relation to ‘cum/ex’ trades in German equities carried on by MFGUK on its own account;

(ii) a claim by Deutsche Bank (‘DB’), which was MFGUK's custodian and paying agent, for an indemnity in the event that the GTA seeks to recover directly from DB the same amounts;

(iii) a claim by DB for an indemnity in the amount of €126m in relation to potential liabilities arising from ‘cum/ex’ trades carried out by MFGUK on behalf of clients (‘the Client Trades’) (‘the DB Indemnity Claim’).

It is, however, only claim (iii) that was and is the real cause of dispute as it relates to a liability not foreseen at the time the CVA was approved, whereas the other two had been disclosed shortly before. It is the DB Indemnity Claim upon which Attestor focusses in asserting that its emergence has so upset the perceived scheme of the CVA when it was approved, and represents such a risk of potential unfairness to the Participating Creditors, that the CVA should not now come into effect.



MFGUK is a wholly-owned subsidiary of MF Global Holdings Ltd (‘MF Holdings’), a Delaware company. Its sole shareholder is MF Global Holdings Europe Ltd. The MF Global group carried on a worldwide business as broker-dealers in financial markets. Its principal operations were in New York and London, carried on by MF Global Inc and MFGUK respectively. Both companies entered into formal insolvency proceedings in the USA and England on 31 October 2011. MFGUK entered into administration by an order of the court and its administrators were appointed under the Investment Bank Special Administration Regulations 2011. The administrators published their proposals for achieving the purpose of administration on 16 December 2011.


MFGUK's administration has reached the point at which, by January 2014, 99.9% of client assets had been distributed and, following a sixth interim distribution out of the administration estate in August 2016, almost all creditors whose claims had been admitted have received dividends of 90p/£ on their claims. In early 2017, the administrators approached Attestor about a proposal for a CVA, which was then worked on by Attestor and MF Holdings (MFGUK's largest creditors) over the following months.



The main objectives of the CVA were described in the proposal for it as being to:

‘(1) give unsecured creditors the option to exit the Administration now in exchange for a certain final cash payment shortly upon the implementation of the CVA;

(2) agree a streamlined process for making final distributions to the remaining creditors, once the key issues regarding the remaining liabilities are resolved; and

(3) save substantial administrative and operational costs going forward as a result of reducing the number of creditors of the estate.’


These objectives were proposed to be achieved by dividing the creditors into two main classes: (i) those wishing to exit early in exchange for the payment of a sum certain and immediate, and (ii) those wishing to continue to participate, to a greater or lesser extent, in the administration, with a view to an enhanced, albeit deferred, return. To that end the CVA offered creditors the option of becoming members of one of three classes:

(i) Exiting Creditors. They would be entitled to a further final cash payment of 9.75p/£ on each ‘Allowed Claim’ (ie a provable claim, submitted by the ‘Final Claims Date’, 5pm on 15 January 2018, and accepted by the administrators) so as to provide a total return of 99.75p/£. They would have no further interest in the outcome of the special administration, would receive no further dividend payment, no share in any further asset realisations and no statutory interest (if payable).

(ii) Stay-in Creditors. They would not be entitled to the fixed cash payment of 9.75p/£. They would retain their interest in the outcome of the special...

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2 cases
  • Robert Nicholas Jason Schofield v Matthew David Smith
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    • 3 September 2020 if parties. That is the purpose and effect of s.5 IA 1986. 34 In Heis & Ors v Financial Services Compensation Scheme Ltd & Anor [2018] EWCA Civ 1327 the Court of Appeal, Sir Colin Rimer at [22] with whom McFarlane and Asplin LJJ agreed at [70]–[71], adopted a short passage from the judg......
  • Bundeszentralamt Für Steuern (being the Federal Central Tax Office of the Federal Republic of Germany) v Richard Heis
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    ...not proceed: it never became fully effective because not all the conditions precedent to its operation were satisfied ( Heis v FSCS [2018] EWCA Civ 1327). Accordingly, the rationale for requiring creditors to submit their proofs by 15 January 2018 has 13 Nevertheless, of course, once submi......

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