On appeal from: [2015] EWCA Civ 485

These appeals considered the proper ranking of certain subordinated debt in the insolvency ‘waterfall’, and whether the creditors of a company in administration whose provable claims are denominated in a foreign currency are entitled to payment of the balance of such claims which remains outstanding due to a decline in the value of sterling against the  currency of the claim between the commencement of the administration and the dates of dividend distributions, and, if so, the proper ranking of such claims. The appeals also considered whether statutory interest accruing but unpaid during a company’s administration is payable in that company’s subsequent liquidation and the scope of liability of members in an unlimited company under the Insolvency Act 1986, s 74, amongst other issues.

The Supreme Court addressed each issue in turn. Agreeing with the lower courts, the Supreme Court held that statutory interest was plainly an obligation payable in Lehman Brothers International (Europe)’s  insolvency. This, and non-provable liabilities, must be met before any balance can be used for payment of the subordinated loans. Disagreeing with the Judge and the majority of the Court of Appeal, the Supreme Court concluded by a majority of 4 to 1 that the Insolvency Rules 1986, rule 2.86, which provides that unsecured debts payable in foreign currencies are to be converted in to sterling at the official rate on the administration date, spells out the full extent of a foreign currency creditor’s rights, and so foreign currency creditors cannot claim as a non-provable debt the difference between the sterling value of the debt at the administration date and that at the date the debt was paid. The Supreme Court considered that it is impermissible to have recourse to an entirely new judge-made rule to fill the gap created by the Insolvency Act 1986, s 189(2) and the Insolvency Rules 1986, rule 4.93 which exclude rule 2.88(7) interest being proved for or paid once a company previously in administration is put in to liquidation. The Court held that statutory interest is payable only where there is a surplus after payment of the debts proved, and, in disagreement with the Judge and the Court of Appeal, that the 1986 Act, s 74 non-provable liabilities cannot be invoked to create a “surplus” from which statutory interest can then be paid. Any money paid under s 74 forms a statutory fund which can only come into existence once a company is in liquidation; if that company not in liquidation, there is no existing person to be identified as a potential creditor, merely a possible future liquidator. The Supreme Court also held that the contributory rule which applies in liquidations can properly be, and should be, extended to a distributing administration.

For judgment, please download: [2017] UKSC 38
For Court’s press summary, please download: Court’s Press Summary
For a non-PDF version of the judgment, please visit: BAILII

To watch the hearing, please visit: Supreme Court Website (17 Oct 2017 morning session) (17 Oct 2017 afternoon session) (18 Oct 2017 morning session) (18 Oct 2017 afternoon session) (19 Oct 2017 morning session) (19 Oct 2017 afternoon session) (20 Oct 2017 morning session)