SMP Trustees Ltd v Keydata International Fund SPC
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Proudman |
| Judgment Date | 29 July 2013 |
| Neutral Citation | [2013] EWHC 3678 (Ch) |
| Docket Number | Case No: HC13P01905 |
| Court | Chancery Division |
| Date | 29 July 2013 |
[2013] EWHC 3678 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
The Rolls Building
Fetter Lane
London EC4A 1NL
The Honourable Mrs Justice Proudman
Case No: HC13P01905
Paul Wright (instructed by Messrs Dechert LLP) appeared on behalf of the Claimant
William Edwards (instructed by Messrs Enyo Law) appeared on behalf of the Defendant
Approved Judgment
This is the claimant Trustee's Part 8 claim for directions. The Trustee is an Isle of Man company which is a trustee in relation to a secured note programme under which Lifemark SA, a Luxembourg Special Purpose Vehicle, was the issuer in respect of 25 issues of 248 series of unrated bonds in six currencies. The money raised by the bonds was mainly used to acquire a portfolio of US Senior Life Insurance Policies. I observe that since March 2011 it has been evident that there were no funds available for payments on the bonds.
Lifemark is in liquidation in Luxembourg and the claimant has enforced its security (serving a Notice of Default and Enforcement of Security on the liquidator on 19 September 2012) and the trustee wants to make further distributions to bondholders. It is estimated that they will however only receive some 12 to 15 per cent of the face value of the bonds so that there will be a large shortfall.
Each bond issue is covered by its own trust deed. Various amendments were made by supplementary deeds and I have seen a consolidated document with relevant amendments for present purposes. I rely heavily on counsel's assurances that the clauses to which I have been referred are the only material ones and that there are no other provisions in the trust deeds relating to the issues which I must decide. When I refer to a clause or condition (the schedules containing the conditions are imported by clause 1.5 of the consolidated deed) it is a clause or condition of the consolidated deed.
The bonds are all governed by English law and all the trust deeds have an English jurisdiction clause. All the bonds are or were due for repayment at various dates between 2011 and 2019. 41 of them matured before the date of enforcement and some have matured since. Most of the bonds were sold to over 20,000 individual investors, most of whom are retail investors in the United Kingdom, but most of the interest in the bonds is now held by the Financial Services Compensation Scheme Ltd and the Yorkshire Building Society, although there are still about 3,000 individual UK bondholders and others overseas.
Each series is represented by a global bond held by a common depository on behalf of the Clear Stream and Euro Clear systems, so that although legally the depository is the only bondholder, the Trustee has taken into account the interests of those persons beneficially owning the nominal amounts represented by the global bonds.
Directions are sought on the following issues:
• The date to which interest is payable on the bonds.
• Whether after enforcement by the Trustee simple interest is payable on all the bonds or simple for the majority ("the Simple Interest Series") and compound for the rest ("the Compound Interest Series").
• The date on which recoveries (largely made in dollars and now largely held in sterling) are to be converted into the relevant payment currencies for the purpose of (1) calculation of the amounts to be paid pro rata to bondholders and (2) distributions to the bondholders.
I should say something about the position of the defendant. I have read a letter from the FSCS dated 22 May 2013. The trustee has decided that it cannot rely on the outcome of the resolutions at the bondholders' meetings in respect of a proposed controlled liquidation because this did not in the event take place. The defendant is a bondholder which has agreed to be joined to argue the case on the basis that the court will be concerned at the concept of naming no defendant. Where there is no defendant there is a gap in accountability. One way around this is to appoint a professional (as in Thomas v Kent and a paper prepared by the Pension Litigation Court Users Committee of 18 July 2003) or, as I believe the Chancellor decided in a recent case, simply to do without a defendant and rely on the claimant's duty to the court to present all proper arguments.
However it is much better to have a bondholder who can properly present adversarial argument. In this case I would I confess have found it very difficult to make any decision without it on the complex issues which arise.
The defendant holds bonds in various series but has not ascertained which of the various answers to the questions posed would be most favourable to it. This course would be disproportionately expensive given that the outcome of the application is unlikely to have a material impact on the defendant's recoveries. Thus the defendant does not make submissions designed to improve its position but instead to ensure, very properly, that relevant arguments are before the court. No other bondholder wished to be joined, and nor did the liquidator, Lifemark, or the FSCS. It is counterproductive to join reluctant parties and expect them to act as representative defendants. The defendant in this case is well able to take an objective view of its duty to the court, instructing counsel and acting independently. I turn to the questions I am asked.
Issue 1
I turn to the questions I am asked. The first is the date to which interest on the bonds is payable as the interest provisions do not expressly deal with the position of what, if any, contractual interest accrues after enforcement by the trustee.
• First, interest ceased to accrue upon Lifemark entering into liquidation because under Luxembourg law interest ceases to accrue from that date. I agree that this possibility can be dismissed because the assets are not subject to the Luxembourg liquidation.
• Secondly, that interest ceases upon receipt of recoveries by the Trustee. There is perhaps some support for this in clause 2.4.2 of the deed which provides that a payment made as a result of the bonds becoming repayable following an Event of Default shall be deemed to have been made when the full amount has been received by the Trustee, except to the extent that there is failure in payment to the bondholders under the conditions. However (a) the Trustee has only made partial recoveries, a situation clause 2.4.2 does not address, (b) the provisions about payment by the Issuer to the Trustee, not recoveries made by the Trustee following enforcement, and (c) the words at the end ("except to the extent") imply that where there is failure in payment to the bondholders interest continues to accrue.
• The third possibility is date of enforcement by the Trustee. The support for this is in the last part of Condition 12. However, there is no express provision to this effect and there is no good reason why bondholders should be deprived of interest while security is being realised.
• Lastly, there is the date of distribution to the bondholders. This last possibility makes good commercial sense although it is hard to apply Condition 8 to the current situation of acceleration owing to enforcement by the Trustee. Although the Deed makes provision for such acceleration in some respects there is no mention of interest in the acceleration situation at all under Condition 8, which was drafted on the basis that there would be an orderly redemption in full. Condition 8 says, under the heading "Accrual of Interest" (and this part of the condition is internally odd in any event, both so far as punctuation is concerned and in the...
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