R&I—pick of the cases in 2014

R&I—pick of the cases in 2014

As 2014 draws to a close, George Hilton of 11 Stone Buildings looks at the most significant corporate, cross-border and personal insolvency cases of 2014.

Corporate insolvency

Re Lehman Brothers International (Europe) (in administration)  [2014] EWHC 704 (Ch), [2014] All ER (D) 153 (Mar)

The joint administrators of three companies in the Lehman Brothers group sought clarification on the payment of a surplus pursuant to the administration of Lehman Brothers International (Europe) (LBIE), a private unlimited company and subsidiary of the ultimate group parent holding company.

Two shareholders in LBIE had made substantial ordinary unsecured claims against LBIE and one of the shareholders had a very large claim as a subordinated loan creditor. An option open to the administrators was to place LBIE in liquidation with a view to making calls on the shareholders as members under the Insolvency Act 1986, s 74(1) (IA 1986) and with a view to invoking the ‘contributory rule’, whereby a contributory of a company in liquidation could not recover any claims it might have until full discharge of its obligations as a contributory. The liquidators applied to the court to determine which claims could be made against the surplus before return was made available to the two shareholders as members and the order in which those claims ranked.

David Richards J, held:

  • LBIE’s members had a wide obligation to contribute on liquidation under IA 1986, s 74(1) as a result of its unlimited company status—this included:
    • proved debts, then
    • statutory interest on proved debts, and then
    • unproved liabilities
  • the contributory rule and equitable netting-off rule in Cherry v Boultbee [1839] 9 LJ Ch 118 did not apply in administration—this is because there is no statutory mechanism for making calls on contributories in administration (such provisions only exist in liquidation)
  • foreign currency creditors who had suffered a currency loss on their debts between the date of commencement of the administration

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