Schemes of Arrangement and Asbestos Litigation: In Re Cape plc
| Date | 01 September 2007 |
| Author | John Townsend |
| DOI | http://doi.org/10.1111/j.1468-2230.2007.00665.x |
| Published date | 01 September 2007 |
CASES
Schemes of Arrangement and Asbestos Litigation:
In Re Cape plc
JohnTownsend
n
Schemes of arrangement under section 425of the Companies Act1985have been
criticised byProfessor Goode as being‘complex and cumbersome.’
1
Other promi-
nent academics have also noted that this complexity may have led to a poor
uptake of section 425 schemes in the reorganisation of distressed companies.
2
But the latest case in the asbestoslitigation concerning Cape plchas demonstrated
how well schemes of arrangement under section 425 may be integrated within an
emergingphilosophyof corporate rescuei n English law.
3
Although not currently
insolvent, Cape plc was faced with a present and future liability of enormous and
unknowable proportions from the clai ms of employees exposed to asbestos d ust.
Under the proposed scheme, a subsidiary, Cape Claims Services Ltd (CCS),
would be created for the purposes of meeting the claims. The asbestos claims
would in future be enforceable against CCS only. CCS would be funded by an
initial payment of d40 million from Cape plc, and would receiveco ntinued fund-
ing from the parent company. This arrangement was necessitated by the ‘great
uncertainty as to the likely cost of future claims.’
4
The scheme would be subject
to revision, in order to take account of the expanding liabilities, and to calculate
the future amount of funding required from Cape to meet those claims.
5
In this
way, Cape could meet current asbestos liabilities and hope to trade out of future
di⁄culties. A crucial question before the court in In re Cape plc was whether the
court could approve such an arrangement, which allowed the continued revision
or variation of provisions a¡ecting creditors bound by the scheme.
6
Although a
numberof challenges weremade, the court could see no prohibition of the orders
sought by Cape plc, and accordingly approved the scheme.
This comment proposes an interpretation of the Cape litigation as a fusion of
the rival theories of Professor Thomas Jackson and Professor Donald Korobkin,
who standat the opposite ends of the debateover the proper normative contentof
n
Pupil, Maitland Chambers, 2007^2008.Thanks are due to Professor Vanessa Finch, of the London
School of Economics, and the anonymous reviewer of the Modern Law Review for their helpful
observations on the earlier draftsof this comment.
1 R. Goode, Principlesof Corporate Insolvency Law (London: Sweet & Maxwell,20 05)at para 10^134.
2 V. Finch, Corporate Insolvency Law: Perspectives and Principles (Cambridge: Cambridge University
Press, 2002) 326.
3In re Cape plc [2006] EWHC 1316 (Ch); [2007] Bus LR 109. Other le ading cases include Adams v
CapeIndustries plc [1990] Ch 433 and Lubbe vCapeplc [2000] UKHL 41; [2001] 1 WLR1545.
4Per Richards J in In re Cape plci bid at [3] and [46].
5ibid at [55].
6ibid at [58].
r2007 The Authors.Journal Compilation r2007 The Modern Law Review Limited.
Published by BlackwellPublishing, 9600 Garsington Road,Oxford OX4 2DQ,UK and 350 Main Street, Malden, MA 02148, USA
(2007) 70(5) MLR837^856
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