Update – Waterfall I Application – Appeal Judgment – 15 May 2015

On 14 May 2015 the Court of Appeal handed down its judgment in the appeals against the decision of David Richards J dated 19 May 2014. A copy of the Court of Appeal’s judgment is available here.

In brief, the Court of Appeal's decision was as follows:

(1) LBHI2's claims under certain subordinated debt agreements are provable but rank to be paid, on the proper construction of those agreements, after the payment in full of all non-provable liabilities;

(2) Currency conversion claims, i.e. claims for any shortfall suffered by a foreign currency creditor who receives less in sterling on its proved debt than it would have received in the foreign currency in which its claim was originally denominated (as a result of an adverse foreign currency movement between the date of conversion to sterling and the dates of payments of the proved debt), do exist and rank as non-provable claims (Lewison LJ dissenting);

(3) Where a company moves from administration into liquidation in circumstances where all debts proved in the administration have already been paid and there is a surplus in the hands of the administrator, the liquidator must apply that surplus (once received) first in satisfaction of any accrued but unpaid entitlement to statutory interest under rule 2.88(7) of the Insolvency Rules 1986 in respect of the relevant period;

(4) The liability of a company's members to contribute to the company's assets under section 74(1) of the Insolvency Act 1986 extends to statutory interest and non-provable liabilities;

(5) A company in administration can prove in the insolvencies of its contributories for the amount of the contingent liability to contribute under section 74(1) of the 1986 Act;

(6) The contributory rule, which prevents a contributory from recovering in a liquidation until it has fully discharged its liability, does not apply in administration.

The Court of Appeal considered that it did not need to determine the issues under appeal in relation to set-off.

Should you have any queries regarding this update, please contact LBIE’s Communications and Counterparty Management team at generalqueries@lbia-eu.com.