“However, it is right to say that the court does, in appropriate circumstances, have power to authorise the administrator to take a course, despite the fact that the creditors’ committee have voted by a majority against it, but that is a course which the court would only take in very exceptional circumstances.”
“The question of fairness of the arrangement requires consideration of all the circumstances and in particular the alternatives available and the practical consequences of a decision to confirm or reject the arrangement. In my judgment the only practicable course available to the administrators was to enter into the agreement and proceed with the scheme. The alternative advocated by the Revenue, in their single minded pursuit of their principled objection to the payment in full of the priority debts, can only bring down the whole edifice and secure a nil return for all concerned.”
“In deciding whether or not to sanction a proposed compromise the court must consider whether the interests of those, whether creditors or contributories, who have a real interest in the assets of a company in liquidation are likely to be best served (i) by permitting the company to enter into that compromise with all the terms that it contains; or (ii) by not permitting the company to enter into that compromise. It is not for the court to speculate whether the terms of the proposed compromise were the best that could have been obtained; or whether the proposed compromise would have been better if it did not contain all the terms that it does contain. Unless it is satisfied that, if the company is not permitted to enter into the compromise on the terms which the liquidator has negotiated, there will then be better terms or some other compromise on offer, the decision is between the proposed compromise and no compromise at all.”
“Thus stated, the test is not whether the opposing creditors have reasonable objections to the scheme. A creditor may be equally reasonable in voting for or against the scheme. In such a case Mr Moss submitted that creditor democracy should prevail. Where, as here, those who voted in favour of the scheme are large and sophisticated corporations, the rigid application of this test as the sole criterion would rarely, I think, enable the court to refuse to sanction a scheme. It is also not entirely clear to me how the rigid application of this test sits with statements that the court has an unfettered discretion”
“I do not consider that is the same as asking: would the meeting have been adjourned? It seems to me the real question is: would the revelation of the truth have made a material difference to the way in which the creditors would have considered the terms of the CVA itself? The word “likely” is used in a variety of different ways. It does not necessarily mean that there is more than a 50% chance. It seems to mean, therefore, that the right test is whether there was a substantial chance that the creditors would not have approved the CVA in the form in which it was presented.”
“[23] In an application such as this, the court may have to carry out a difficult balancing exercise. On the one hand the court expects any liquidator, whether in a compulsory winding up or a voluntary winding up, to be efficient and vigorous and unbiased in his conduct of the liquidation, and it should have no hesitation in removing a liquidator if satisfied that he has failed to live up to those standards at least unless it can be reasonably confident that he will live up to those requirements in the future. [24] Support for this approach is not only to be found in Keypack, but also in some cases where the court has compulsorily wound up the company and appointed a new liquidator in circumstances where there is already a voluntary liquidator in place – see for instance, Re Zirceram Ltd[2000] 1 BCLC 751 , especially at para 25(5). Also where the liquidator could not be seen as independent – see, for instance, Re Lowerstoft Traffic Services Ltd[1986] BCLC 81 (where the liquidator concerned seems to have been the same liquidator as in Keypack). [25] It may also be right to remove a liquidator where the circumstances are such that, through no fault of his own, he is perceived to be – even though he may not be – biased in favour of, say, one or more of the creditors – see per Robert Walker J in Re Gordon & Breach Science Publishers Ltd[1995] 2 BCLC 189 , another case concerned with a compulsory winding-up order in circumstances where there was already a voluntary liquidator in place. [26] While the removal of the liquidator is not necessarily based on any fault on his part, most such cases will involve a degree of criticism. Although in Keypack Millett J emphasised there was no criticism of the general ability, experience and professionalism of the liquidator, and that, even in relation to the particular case, there was no evidence of his being biased or dishonest, it is nonetheless clear that he was removed because the judge took a dim view of the way in which he had conducted the particular liquidation. As the judge said, the fact that this may to some extent resound to the discredit of the liquidator, does not mean that the court should shy away from making the order. On the contrary, in an appropriate case it is the duty of the court to make such an order, not merely on the merits of the particular case, but also because it sends out a clear message to liquidators that they have an important function which they should conduct in a vigorous, effective and independent manner. [27] On the other hand, if a liquidator has been generally effective and honest, the court must think carefully before deciding to remove him and replace him. It should not be seen to be easy to remove a liquidator merely because it can be shown that in one, or possibly more than one, respect his conduct has fallen short of ideal. Otherwise, it would encourage applications under s 108(2) by creditors who have not had their preferred liquidator appointed, or who are for some other reason disgruntled. Once a liquidation has been conducted for a time, no doubt there can almost always be criticism of the conduct, in the sense that one can identify things that could have been done better, or things that could have been done earlier. It is all too easy for an insolvency practitioner, who has not been involved in a particular liquidation, to say, with the benefit of the wisdom of hindsight, how he could have done better. It would plainly be undesirable to encourage an application to remove a liquidator on such grounds. It would mean that any liquidator who was appointed, in circumstances where there was support for another possible liquidator, would spend much of his time looking over his shoulder, and there would be a risk of the court being flooded with applications of this sort. Further, the court has to bear in mind that in almost any case where it orders a liquidator to stand down, and replaces him with another liquidator, there will be undesirable consequences in terms of costs and in terms of delay.”
“..a new liquidator would be able to exercise an independent professional judgment about the liquidator’s conduct, having investigated all the circumstances, and to decide not only whether [certain allegations are made out] due to culpable conduct on the part of the liquidators”
“The fact that the present liquidators may face conflicts of interest comparable to those which would face the partners of KPMG if appointed liquidators in their place is no consolation to those such as the perpetual trustee or the FSA claimants who have not been informed of the reasons why the 1986 trustee requisitioned a meeting at the time it did. Indeed the time may be approaching when, to deal with the conflicts faced by all the major firms of insolvency practitioners in liquidations such as this, serious consideration will have to be given to leaving the Official Receiver as a liquidator and authorising him to employ his agents and insolvency practitioners of his choice and to requiring him to monitor their costs and expenses.”
“would never have appointed the same person as liquidator of both [companies which had an antagonistic interest] for no man should ever be placed in a position in which his duty and his interest conflicted.”
“It appeared that the liquidator could not from the books of the two companies say whose debts they were; he was thus going to exercise a quasi-judicial position but, as he represented each of the two companies, he would be appearing for conflicting interests. If there was an apparent conflict then the liquidator could not act for both conflicting interests.”
“…..Of course there are possible conflicts of interest. It is unnecessary to go into them in detail, but one of the more obvious is that in an insolvency situation the subsidiary will have its own creditors whose claims will have to be met. Sometimes the creditors will include the parent company or the subsidiary next up the line. Sometimes the interest of the parent company or subsidiary next up the line will merely be an interest as shareholder which ranks behind the creditors of the subsidiary. But these sort of potential conflicts do not in practice give rise to any serious difficulty because they are well known to the experienced insolvency practitioners.”
“... the course taken by Knox J in appointing the same firm to be both provisional liquidators and receivers of the property holding companies was, if I may say so with respect, eminently sensible. In fact, it is very difficult to see how the necessary process of investigation would have been efficiently conducted if there were separate firms representing all, or worse still some of the receivership companies, and another firm representing the provisional liquidators. It is by no means uncommon in the case of the insolvency of a substantial group of companies for cross-claims and conflicts of interest to arise between companies within the group. That does not usually deflect the court from appointing a single firm of insolvency practitioners in the first instance to deal with the whole insolvency of the group, leaving the question of potential conflict of interests to be dealt with if and when it arises.”
“The present case is very different from those two cases. Here there is not merely a potential conflict of interest but substantial litigation on foot between WSTC and WS & Co, and it would in my judgment be quite wrong to make a winding-up order in this jurisdiction which would be very likely to have the consequence that the liquidators of WSTC, or persons closely associated with them, would be appointed liquidators of WS & Co…..”
“The disadvantage of appointing an additional administrator is as Morritt J. observed in the Polly Peck case, the further expense and delay which is caused by having to have co-operation between two different firms of accountants and in this case by having to introduce a new firm which has no previous knowledge of the circumstances of this company to join Price Waterhouse, who have a head start in the matter. There are other ways of dealing with a potential conflict of interest. One of them is to leave the matter to be dealt with if and when it arises. It seems to me that any provision which I make to deal with it today could equally be made at some future date either here or in the US. If such a conflict should surface there should be no difficulty for the administrators, if they find themselves faced with any difficulty in the matter, in securing the appointment of the necessary independent persons by the court in New York or by the court here to relieve them of any embarrassment which they might feel.”
“Hitherto in virtually all jurisdictions where court proceedings have been taken the court officers appointed to preserve on an interim basis the assets of the BCCI group have either been members of Touche Ross or associates of Touche Ross. Thereby the accountancy profession has managed to achieve, at least in part, a worldwide system for regulating international insolvency which the civilised countries of the world have failed to achieve so far as the law is concerned. For this court to contemplate on the existing state of affairs that there could be imported into that machinery somebody who was not part of the otherwise co-ordinated system of administration would be to send out an entirely erroneous message about what were the intentions and likely intentions of this court.”
“There is in my mind nothing to choose so far as competence, integrity and independence are concerned between these two eminent firms. I have no doubt that each of them would act independently as office holders appointed by the court and that Price Waterhouse would in no way act in a way which favoured the banks at the expense of other creditors or…..that Messrs Touche Ross would cast themselves in the role of the management’s nominees and favour them.”
“In the light of these facts I cannot see any conflict of interest between the creditors of Agency and the creditors of Holdings, nor anything improper in the same office holders acting in respect of the liquidations of each company.”
“Mr Jordan and Mr Stone have made full and detailed disclosure to the Institute, which is still considering the matter. The Institute is, of course, concerned with the integrity and objectivity of its members and has laid down guidelines for the conduct of their professional duties. I am concerned with the interests of the administration. It is, of course, of paramount concern that administrators who are officers of the court, possess integrity and objectivity. No possible criticism can be made of the applicants in the present case.”
“To displace the administrators, a year into office, without a very strong reason for doing so would be very damaging. I can see no reason for doing so and, indeed I would have no hesitation, as Morritt J. in appointing the three administrators even if the question arose at the very outset of the administration, instead of a year into it”
“2.100 Although the matter was canvassed at considerable length with [the claimants’ expert], it seemed to me at the end of his evidence, as indeed it does now, that as an allegation it did not found a cause of action on its own. If as a result of the conflict of interest the defendants were negligent in the advice they gave to the plaintiffs then the plaintiffs have a cause of action as a result of the negligence. The conflict of interest would historically be the reason for the negligent advice ... 2.104... I approach this case not in any semantic way but by looking to see whether as a matter of fact Stoy Hayward acted properly or not in relation to the plaintiffs. If in fact there was a conflict of interest which resulted in their giving improper advice I shall say so; but it is the quality of the advice and not the reason behind it which is the question I have to resolve”
“ 49. The directors [of TXUEL] and their advisers became aware of at least the first of these transfers (albeit after it had taken place) before18 October 2002 (and in all likelihood, some time prior to that). ……. We were told that the group’s total cash balance would be down to£47 million by the following Monday morning (21 October 2002 ), but that£45 million of this was somehow restricted. I had no knowledge at the time where this£45 million had come from or why it was restricted. 50. Two days later, at noon on20 October 2002 , I participated in a conference call in which a further update was given by, I believe, Mr. Gale [of Herbert Smith, TXUEL’s then advisers]. …….I note that Mr. Florent’s [of A&O, acting for the Bank Steering Committee] note states that “We have worked out a way to introduce£45 million into our cash-flow. It is not now blocked”
“We think it is incumbent on you as administrators to give the holders of BV Notes (and especially our clients) sufficient information to make an informed decision, particularly given the potential conflicts of interest arising from this unusual group structure. These potential conflicts of interest arise from: first, your role as administrators not only of TXU Acquisitions Ltd, but also of other companies within the TXU Group; second, from the de facto control that you have over other key TXU companies and, third, by virtue of the fact that you, and your legal advisers Allen & Overy, acted as advisors to certain creditors within the TXU Group prior to commencement of the various TXU administrations. These potential conflicts make it critical that there be transparent and comprehensible explanations of the impact of any steps you might take to maximise recoveries for the TXU Group as a whole, on the recoveries for the creditors of individual TXU entities.”
“In principle, our clients do not object to a straightforward liquidation of [EH3] at this stage. However, our clients maintain their concerns regarding your potential conflicts (as set out in our first letter of today) in relation to your proposal that you now also act as liquidators of [EH3]. As it stands, our clients believe that [EH3]’s liquidators should be entirely independent office-holders, who are neither partners in KPMG nor Ernst & Young.”
“At that meeting, Mr Wallace was evidently keen to overcome the Applicants’ objections to the appointment of KPMG partners as liquidators of EH3. He questioned why the Applicants would want independent liquidators at EH3. He accepted that the Applicants would want the liquidators to fight their corner but said that, in reality, independent liquidators would have limited access to information from the KPMG office-holders and would therefore have less say in the process. Mr Wallace offered to procure that the liquidation committees of EH3 and TEG (which was a large debtor of EGO BV and EH5) would be controlled by the Applicants. Mr Wallace also agreed that the Applicants should have independent accountants to undertake due diligence on their behalf in relation to the accounting work undertaken by KPMG; whilst he did not think this last measure was necessary, he said that he wished the Applicants to have confidence in the Insolvency Proceedings, the outcome of which for the various creditor groups would, to some extent, be determined by the settlement of the ATL inter-company balances.”
“Returned in full from TXU UK to TXUEL”
“This is accepted by Unum Provident and SISU Capital for the purposes only of negotiation with the below-the-line creditors, on the condition that the position of EGO BV bondholders is reserved with regard to the allocation of the£67m Swap Proceeds as between the above the line finance creditors, and on the basis that a process for addressing the above-the-line inter-creditor issues is put in place in short order. This footnote is addressed to the above-the-line finance creditors only and may therefore be removed from this term sheet when it is sent to EY.”
“This disclosure was a shocking revelation to the Applicants and my firm. It appeared that the KPMG office-holders, Allen & Overy, Mr Crystal QC and Mr Oditah QC had from the outset been representing just TXUEL on this issue but had never seen fit to disclose this fact to us or our clients, although it must have been obvious to them that we understood them to be acting for all of the ATL Companies - as they had in relation to the Double Dip, the Multiple Dip and, indeed, all of the other ATL issues. This disclosure also put in a very different light the prior statements of the office-holders and their advisers at Allen & Overy concerning the availability of Mr Crystal QC’s original opinion. It also explained why the position paper and Counsel’s opinion we had been given in early May 2004 were one-sided and lacking in any depth of reasoning. We then understood that the position paper and new opinion were anything but advice to the Creditors’ Committees. This disclosure very substantially raised the level of the Applicants’ concerns about the conflicts of interest faced by the KPMG office-holders and their advisers.”
“if we cannot reach agreement on these [ie the Holding Company] issues the Creditors Committees will need to consider de-linking the Holding Company and Operating Company CVAs.”
“It was an absolute requirement of EET creditors that the creditors’ meetings to consider the Operating Company CVA Proposals be held before the end of January 2005. Mr. Bloom stated in the e-mail that the timetable had no room for slippage. In view of the time that had elapsed since the first proposal, with the support of the Operating Company Creditors, Mr. Bloom indicated that if the lock up agreements were not lodged by 25 November in escrow and released from escrow on 29 November, the CVA process would be terminated. The likely effect of this termination would be the commencement of liquidation at EET and litigation in respect of all those matters which were sought to be dealt with through the CVAs. Although Allen & Overy were able to find one or two extra days in the timetable, thus extending this lock up period, which still allowed for creditors’ meetings to be held before the end of January 2005, I believed that the written threat of termination of the CVA process if the timetable was not adhered to was genuine and serious. This was reinforced in my discussions with key Operating Company creditors and in an e-mail dated26 November 2004 in which the EET only creditors, represented by David Buchler……., also threatened to take steps which were likely to result in EET being put into liquidation. By the end of October at the latest it was clear to me that it would not be possible to resolve Holding Company inter-creditor issues with a view to putting forward proposals for Holding Company CVAs within the same timetable as that contemplated in relation to the Operating Company CVAs. The response from some Committee Creditors was that they were unwilling even to begin to discuss the means by which inter-creditor issues could be resolved amongst themselves until they had completed their due diligence on the PPAs, or separately from a deal with TXU Corp. On16 November 2004 , therefore, Mr. Smith circulated on behalf of Mr. Tucker a detailed e-mail to the Committee Creditors (including the Applicants) explaining our concerns and recommending that the Holding Company CVAs and the Operating Company CVAs be de-coupled. We also recommended that the Committee Creditors should sign off on the Operating Company deal by25 November 2004 .”
“Up until late November 2004 we had received unanimous approval from all of the Committee Creditors for all key decisions put to them. Given the close involvement of all the Committee Creditors in the negotiation of the Operating Company CVA Proposal and the progress of those negotiations in the preceding months, particularly as the PPA information became available in the dataroom, in mid to late November I expected that we would receive unanimous approval from all of the Committee Creditors for us to sign lock up agreements with respect to the Operating Company CVAs on behalf of the Conduit Companies. This situation changed on24 November 2004 , when the Applicants indicated that they would not support the course we proposed.”
“The approach adopted by the Applicants to the restructuring proposals appeared to us to amount to a pursuit of every argument available, regardless of the legal and economic merits, in order to provide them with a lever in the negotiations in the restructuring. This was apparent during the negotiations; the position taken by the Applicants on these issues was always an extreme one. AEGON were not and are not prepared to conduct business in that way. We were not prepared to pursue claims to a point that exceeded a fair reflection of their legal merits in an attempt to increase recoveries by threatening to block or impede the restructuring. Nor do I consider that such a strategy would have yielded a more favourable outcome for EGO BV holders, for the reasons I have given. AEGON have been involved in numerous restructurings and take the view that while parties with different interests are to be expected to push their position in respect of their claims, achieving a restructuring ultimately involves the various competing interests taking a realistic approach resulting inevitably in compromise.”
“I disagree both with this assertion and with Mr Roome’s and Mr Olin’s assessment of me. As regards the assertion I note that Mr Roome does not provide any information as to what he believes AEGON would have recovered under a liquidation scenario. His assertion is unsupported by any facts, documents, or underlying assumptions. Further, his suggestion is inconsistent with the liquidation analysis I had received from KPMG which……estimated the expected recovery for the EGO BV holders in a liquidation scenario would be 62.4p on the pound, some 5p on the pound less than the distributions expected under the CVAs at the time of voting…..”
“[Mr Roome’s comments] led me to believe that he was in fact alleging that the Ernst & Young administrators of TXUEG had conceded the Swap Proceeds issue in exchange for some other equivalent benefit under the Joint Proposal and that such benefit would inure only to the Operating Company creditors of TXUEG and that, consequently, the Holding Company creditors of TXUEG should receive equivalent compensation. Although not directly in response to Mr. Roome’s e-mail, I did address this argument in an e-mail which I sent to Mr. Olin on21 January 2005 . In this e-mail, I stated: “I acknowledge that it is possible to argue that Chris Hughes and the [Ernst & Young] Administrators gave up part or all of the£67 million in return for an equivalent value transfer from the Holding Companies on some other part of the Operating Companies’ Settlement. However, no one has suggested to me areas or issues on which the Holding Companies have given up value that they ought not to have done.”
“[EH3] hereby undertakes to guarantee any receivable (including interest) on [EH3] Group Companies, immediately upon receipt of EGO BV’s first written demand, in relation to its indebtedness arising from Group Financing.”
“…to [EH3] group companies, of which [EH3] holds, whether directly or indirectly, at least 50% of the issued and outstanding shares, or on which [EH3] exercises ultimate control to a substantial extent.”
“440 Bingham McCutchen also instructed Mr. Girolami QC….He then concluded, as we had done, that the terms of the GFA did not on their face extend to EGO BV’s lending to TEG. However, on the basis of an assertion that it seemed “quite plain that the group [had] dealt with EGO BV’s tax affairs on the basis that the liabilities of TEG to EGO BV were within the scope of the GFA” (paragraph 18), he opined that further steps needed to be taken by us to satisfy themselves that they had fully investigated the factual matrix relevant to the creation of the GFA. 441. The matter apparently relied upon by Mr. Girolami QC in support of his assertion was EGO BV’s successful extension of its tax ruling in 2001 (see paragraph 10 of his opinion). This was a matter that Boekel had already addressed in their advice of25 May 2004 . They concluded that Loyens had apparently failed to assess whether EGO BV remained compliant with the terms on which it originally obtained its tax ruling. They did not conclude that EH3 should therefore be deemed to have guaranteed the liabilities of TEG to EGO BV. To the contrary, their view was that, following the 1998 restructuring, it was EGO BV’s new parent TXUEL, rather than EH3, that should have provided any necessary guarantees. 442. In any event, neither we nor our solicitors had located any evidence of action or conduct on EH3’s part to support a conclusion that it had agreed to guarantee TEG’s liability. Nevertheless, given the Applicants’ continuing challenge of our conclusions, our solicitors were instructed to address additional questions directly with the directors of the EH3 and TXUEL companies and TXU Corp in respect of both the GFA and the 1998 TXU Europe group reorganisation. …. Questions were sent to former directors on27 September 2004 ……… 443. At the same time, Bingham McCutchen produced a position paper on behalf of the Applicants with respect to the GFA Claim. No new issues were raised in the position paper. It was again accepted that the TEG receivable fell outside the definition of Group Financing under the GFA. 444. The former EH3 and TXUEL directors took many weeks to respond to the questions posed of them. Berwin Leighton Paisner responded on10 November 2004 on behalf of Mr. Marsh, offering scant information concerning the 1998 group reorganisation, no information on the GFA, and providing no relevant documentation. 445. Pending receipt of answers from the other directors, we arranged for our solicitors to interview Mr. Buchanan on29 November 2004 . …. 446. Mr. Buchanan recalled that no-one had had any involvement with the GFA except himself, Mr. Murray, a former in-house legal counsel to the TXU Europe group, Loyens and The Equity Trust Company. He confirmed again that the GFA had not been considered in the context of the group reorganisation in 1998. 447. Our solicitors then sought to speak to Mr. Murray. However, I understand from Ms. Croucher of Cadwalader that Mr. Murray either declined to be interviewed or was uncontactable despite several requests through his advisers, Berwin Leighton Paisner.”
“(a) Pursuant to the terms of the Tax Cooperation Agreement we had originally entered into……, TXUEL, Finco 2 and EFC had the right to compel a payment of$50 million from TXU Corp in respect of the use of (or agreement not to use) tax losses. Such right would have been retained and enforced if the overall settlement with TXU Corp was not consummated. At TXU Corp’s request, we agreed to amend the Tax Cooperation Agreement in conjunction with the settlement to provide that only$13 million would be paid under its terms on the basis that, in exchange, TXU Corp would pay a further$30 million under the Settlement Agreement. (b) In these circumstances, and as described at Part C, paragraphs 7.5, 7.17 and 7.18 of the Holding Company CVA Proposal, we believed that the allocation of$43 million of the proceeds of the settlement to TXUEL, Finco 2 and EFC was fair……”