“The maxim that equality is equity expresses in a general way the object both of law and equity, namely to effect a distribution of property and losses proportionate to the several claims or to the several liabilities of the persons concerned. Equality in this connection does not necessarily mean literal equality, but may mean proportionate equality… [I]n the distribution of property, the highest equity is to make an equality between parties standing in the same relation, though this cannot be done contrary to the plain meaning of the deed.”
“The fairness of a rateable distribution of limited assets insufficient to meet all the claims on them is what underlies the insolvency legislation and has led the Court to adopt that solution in contexts not governed by that legislation where a common misfortune has occurred (see, for example, Barlow Clowes International v Vaughan[1992] 4 All ER 22 ). But the maxim is not of universal applicability. It always yields to a contrary intention, express or inferred, …”
“95. What Section 5 does leave unclear, in my judgment, is what is meant to happen to Notes which mature after the occurrence of a Mandatory Acceleration Event, but before the date on which the accelerated Notes become due and payable (i.e. in the present case the Acceleration Redemption Date). Are such Notes to be treated as remaining due and payable on their respective maturity dates, or are they caught by the machinery in Section 5 in such a way that they become due and payable only on the Acceleration Redemption Date? 96. Even looking at Sections 4 and 5 in isolation, I would be inclined to answer this question in the former sense. There is nothing in Section 5, on the face of it, to modify the clear principle stated in the second sentence of Section 4; and as in the case of Notes maturing before a Mandatory Acceleration Event, the effect of the alternative construction would again be to postpone an otherwise vested right, not to accelerate a future right. On the other hand, there is obvious force in the point that, at a time when insolvency is likely to be imminent, if not already an actual fact, pari passu distribution is fairer and produces a more commercially sensible result than continuation of a pay as you go regime. 97. Any doubt on the point, however, is in my judgment dispelled by reference to the CTSA, and the carefully delineated system of successive operating states which it contains. The Post-Wind Down Priority of Payments in Section 7.4 applies only upon the occurrence of an Acceleration Redemption Date. It does not apply from the occurrence, or notification, of a Mandatory Acceleration Event, although those events are necessary precursors of an Acceleration Redemption Date. It seems clear, therefore, that the scheme of the CTSA, for better or for worse, is that distribution on a pro rata and pari passu basis applies only to funds received or recovered by the Security Trustee on or after the Acceleration Redemption Date. Funds received or recovered before that date, but after confirmation of a Wind Down Event (in the present case21 August 2007 ) or confirmation of an Enforcement Event (23 August), are to be dealt with in accordance with the combined effect of Sections 7.3 and 7.5. As I have already explained, those sections provide for the outstanding CP to be “defeased” by means of crediting the Note Defeasance Account, and for withdrawals from the Note Defeasance Account of the amounts needed to redeem Notes on their maturity dates. Subject only to the question of availability of funds in the Note Defeasance Account, that system seems to me clearly to envisage the continuation of payment of maturing CP on a pay as you go basis, in the same way as during the initial pre-wind down phase when Section 7.2 applies.” 98. I accept the submission of counsel for the Shorts that the structure established by the CTSA is one that depends on written notification of defined and (for the most part) clearly ascertainable events in order to bring about a change of operating state. A structure of that sort has the merits of being clear, certain and relatively simple to operate, all of which are in themselves desirable commercial objectives. The point that one might expect to find machinery for pari passu distribution once insolvency is imminent has force, I acknowledge, but (as I have already suggested in paragraph 48 above) less force than in many commercial contexts precisely because the parties have all agreed to sign up to an investment structure which is “insolvency remote”
“I think it likely that many lawyers may be instinctively surprised at such a conclusion, since the culture with which they will be familiar is one ordinarily providing for a pari passu sharing in an insolvency. The notion of first come first served, or pay as you go, is alien to that culture and so cannot be right. I too had an instinctive initial sympathy with the case advanced by [the parties in an equivalent position to the Longs], since when the available pot is too small to pay everyone in full, a pari passu distribution has an obvious appeal. But we are not here concerned to apply any conventional insolvency regime. The STD [i.e. the Security Trust Deed] reflects a commercial bargain made between, or on behalf of, the interested parties and our task is to interpret what that bargain was. It seems to be apparent that the STD foresaw the possibility that any enforcement might be either a solvent or an insolvent one as regards secured creditors. It is, however, improbable that it foresaw the possibility of the extraordinary, probably unprecedented, market events that have recently unfolded. In those extraordinary events, Party A’s successful argument can, on one view, perhaps be regarded as having achieved an unfair result. But any such assessment necessarily assumes that the parties had made some different bargain which is not being respected. This litigation is concerned with ascertaining the bargain they in fact made. I have expressed my view as to what it was, and the court’s duty is to give effect to it. It is not the court’s function to re-write it.”
“Except as required pursuant to section 5 below, a USCP note may not be redeemed in whole or part prior to its maturity date”
“The USCP Notes shall be redeemed after the occurrence of a Mandatory Acceleration Event.”
“No provision of the Agency Agreement under which the USCP Notes are issued shall alter or impair the obligation of the Co-Issuers, which is absolute and unconditional, (except to the extent set forth in sections 7 and 8 below) to pay the principal of and interest on each USCP Note at the times, place and rate, and in the coin or currency, herein prescribed.”
“In outline, it will be satisfied so long as the market value of the Company’s portfolio amounts to at least 92% of the aggregate outstanding face amount of the CP, the Mezzanine Notes and the Capital Notes, together with any liquidity loan facilities entered into by the Company.”
“In my judgment it is reasonably clear, as a matter of ordinary English usage, that Section 5 is not intended to apply, at the very least, to Notes which reached their maturity date, and therefore became “immediately due and payable” pursuant to Section 4, before the occurrence of a Mandatory Acceleration Event.”
“shall become immediately due and payable”, which suggests that it refers to Notes which are not yet immediately due and payable, and therefore does not easily apply to Notes which were already immediately due and payable, because their Maturity Date had already arrived. The judge went on, at paragraph 94, to reject the idea that a Noteholder who had a vested right to payment, because the Note’s Maturity Date had already arrived, could find that right defeated by the operation of section 5. He said: “I do not find that a plausible intention to attribute to the parties, particularly as it would lead to the surprising consequence that, assuming availability of funds, an investor whose Notes had matured before the Mandatory Acceleration Event could lose his right to payment in full merely because steps had not been taken to redeem them at the due time, possibly due to some administrative failure.”
“There is nothing in Section 5, on the face of it, to modify the clear principle stated in the second sentence of Section 4; and as in the case of Notes maturing before a Mandatory Acceleration Event, the effect of the alternative construction would again be to postpone an otherwise vested right, not to accelerate a future right. On the other hand, there is obvious force in the point that, at a time when insolvency is likely to be imminent, if not already an actual fact, pari passu distribution is fairer and produces a more commercially sensible result than continuation of a pay as you go regime.”
“I accept the submission of counsel for the Shorts that the structure established by the CTSA is one that depends on written notification of defined and (for the most part) clearly ascertainable events in order to bring about a change of operating state. A structure of that sort has the merits of being clear, certain and relatively simple to operate, all of which are in themselves desirable commercial objectives. The point that one might expect to find machinery for pari passu distribution once insolvency is imminent has force, I acknowledge, but (as I have already suggested in paragraph 48 above) less force than in many commercial contexts precisely because the parties have all agreed to sign up to an investment structure which is “insolvency remote”
“Where the Mandatory Acceleration Event is not an Insolvency Event, the Company is given a considerable degree of flexibility in determining when the Acceleration Redemption Date will be: it may fall between 15 and 30 days after service of the Acceleration Redemption Notice by the Security Trustee. This flexibility appears to be for purposes of administrative convenience, and in particular to allow BNYM and DTC to redeem the Notes in an orderly fashion.”
“We take the same view in relation to the first series of Notes, due on the day on which the notice of the Insolvency Acceleration Event was given, and for the same reason. If the effect of clause 6.6 were otherwise, this point would be more difficult, and we could see some force in the judge’s view that section 10.01(c) could not substitute a later maturity date in relation to Notes which were already due for payment. On the other hand, since notice to the company of an Insolvency Acceleration Event is likely to be given either on, or immediately before, a day on which some obligation to a class of Senior Creditors arises for payment, it is not obviously sensible that that particular group of Senior Creditors should be regarded as having priority over others. Moreover, it would be odd that the question of priority should depend on whether the notice is given to the company on the day beforehand, or before 10am New York time on the day itself. In the present case, it was known, at least by the Investment Manager and the receivers, before 15 February that notice was likely to be given on that day; notice was given to the Security Trustee before 9am New York time on 15 February. It would seem rather arbitrary that whether the consequent notice is given, in turn, to the company before or after 10am should make a difference as to the priority as between Senior Creditors. Whether the correct reading of the Indenture, in particular section 9.02(h), is that those Notes were already due for payment at 10am New York time, before the notice was received, is not straightforward. Since it does not matter for present purposes, we do not propose to lengthen this judgment still further by expressing a view on it.”