Update - Waterfall II Application - Parts A & B – Appeal Judgment – 24 October 2017

On 24 October 2017, the Court of Appeal handed down its judgment in respect of the appeals of various issues across Waterfall II Parts A & B, following the hearing of 3 – 12 April 2017 and the supplemental hearing on 25 July 2017.  See the Administrators’ previous announcements in relation to the Waterfall II A and B appeals here and here.  A copy of the Court of Appeal’s judgment is available here.

In summary, the Court of Appeal dismissed the appeals in respect of all issues that fell for determination, such that: 

1. statutory interest is not to be calculated on a Bower v Marris basis (i.e. with dividends being first allocated to the reduction of statutory interest and then to the payment of principal);
2. where the relevant rate of statutory interest to be applied under Rule 2.88(9) of the Insolvency Rules 1986 (“IR 1986”) is the “rate applicable to the debt apart from the administration”, and such a rate is a compounding rate, statutory interest does not continue to compound following the payment in full of the principal amount through dividend;
3. creditors are not entitled to further interest, damages, or any other form of compensation in respect of the time taken for statutory interest to be paid;
4. statutory interest payable in respect of an admitted provable debt which was a contingent debt as at the date of administration is payable from the date of administration;
5. the “rate applicable to the debt apart from the administration” in Rule 2.88(9) IR 1986 cannot include a foreign judgment rate of interest applicable to a foreign judgment obtained after the date of administration or a foreign judgment rate of interest which would have become applicable to the debt if the creditor had obtained a foreign judgment, when it did not in fact do so; and
6. the words “rate applicable to the debt apart from the administration” in Rule 2.88(9) IR 1986 do include, in the case of a provable debt that is close-out sum under a contract, a contractual rate of interest that began to accrue only after the close-out sum became due and payable due to action taken by the creditor after the date of the commencement of LBIE’s administration.

As agreed by the parties, in light of the judgment of the Supreme Court on Waterfall I (see here for the relevant update), all other issues that were appealed were dismissed without determination.

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