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Jennifer Antonelli, senior assoicate in the restructuring and insolvency team at CMS Scotland, comments on the decision of the UK Supreme Court in the matter of Dooneen Ltd (t/a McGinness Associates) and another v Mond (Scotland) [2018] UKSC 54, which was handed down last term. 

In September 2006, a debtor granted a trust deed for the benefit of his creditors. The trust deed provided for termination on the occurrence of three events, one of which was a ‘final distribution’ of the estate. Prior to entering into the trust deed, the debtor was mis-sold PPI, for which the bank agreed to pay him compensation of around £56,000 in April 2015.  Dooneen Ltd (First Respondent) was the debtor’s agent for the purposes of making the claim.  It was accepted by all parties that although the existence of the PPI claim was unknown at the time the debtor entered into the trust deed, it would have vested in the Trustee at the date the trust deed was executed.

This case was initially heard by the Outer House of the Court of Session and then, on appeal, by the Inner House.  The question for the Court was whether the ‘final distribution’ in 2010 brought the trust deed to an end and discharged the debtor of all responsibility to his creditors.  If that was the case, any assets not realised in the course of the trust deed would re-vest in the debtor.  The Outer House held that the PPI compensation vested in the debtor and not the Trustee.  This was upheld by the Inner House on appeal. The Trustee then appealed to the Supreme Court.  The debtor argued that the trust deed had ended in 2010 when the Appellant made the ‘final distribution’ of 22.41 pence in the pound. However, the Appellant argued the trust deed had not ended on the making of the ‘final distribution’, which meant he was entitled to the compensation in order to pay the creditors.  It was further argued that the courts had erred in their interpretation of ‘final distribution’.

The Supreme Court unanimously dismissed the appeal, handing down its judgment on 31 October 2018. The appellant argued that ‘final distribution’ only applies when all assets are distributed or where enough assets are distributed so as to pay creditors in full. The Court rejected this argument, as it would have created consequences that the debtor could not have intended when granting the deed. Furthermore, it would be extremely difficult for the debtor or anyone conducting business with him to know whether he had been finally discharged. The Court also reiterated the purpose of the public Register of Insolvencies insofar that where certificates are registered showing that a ‘final distribution’ has been made, this would no longer be accurate if the appeal were to be allowed. This would consequently undermine the purpose of the Register of Insolvencies.

The wording used in this particular trust deed regarding termination on final distribution was widely used at the time by practitioners so it is likely that this decision will impact on a significant number of historic trust deeds.  The Supreme Court decision makes it clear that final does indeed mean final and practitioners should exercise caution when finalising cases where there is any possibility of unrealised assets coming to light.