“This is another episode in the saga of the Lehman administrations, reflecting continuing disputes between rival creditors in the multitude of companies still in administration as they seek to obtain for themselves a greater share of the considerable surpluses which have been collected.” (4) The Lacuna Application. This application arose out of the Supreme Court’s conclusion (in the Waterfall I decision) that, if LBIE moves from administration into liquidation, any unpaid statutory interest under rule 14.23(7) of the IR 2016 in respect of the period between the commencement and the termination of the administration would not be payable out of the Surplus or provable in the liquidation. That conclusion has come to be known as the “lacuna issue”
“… the [Olivant] Application raises inevitably the status and effect, not only of the Olivant CDD, but potentially of all Claims Determination Deeds entered into by LBIE, of which there have been many, in aggregate of very considerable value. To some of these Wentworth and/or members of the SCG are party. In such circumstances, the Administrators are concerned that this Application could merely be the first in a series of similar challenges under Rule 14.8(3). The outcome of this Application therefore has, at least potentially, broader ramifications for the administration of LBIE.”
“(1) If a majority in number representing 75% in value of the creditors or class of creditors or members or class of members present and voting either in person or by proxy at the meeting summoned under section 896, agree to any compromise or arrangement, the court may, on an application under this section, sanction the compromise or arrangement. (2) An application under this section may be made by – (a) the company ... (3) A compromise or arrangement sanctioned by the court is binding on – (a) all creditors or the class of creditors or on the members or a class of members ... and (b) the company ...” ... and (b) the company ...”
“The classic formulation of the principles which guide the court in considering whether to sanction a scheme was set out by Plowman J in Re National Bank Ltd[1966] 1 All ER 1006 at 1012,[1966] 1 WLR 819 at 829 by reference to a passage in Buckley on the Companies Acts (13th edn, 1957) p 409, which has been approved and applied by the courts on many subsequent occasions: ‘In exercising its power of sanction the court will see, first, that the provisions of the statute have been complied with; secondly, that the class was fairly represented by those who attended the meeting and that the statutory majority are acting bona fide and are not coercing the minority in order to promote interests adverse to those of the class whom they purport to represent, and thirdly, that the arrangement is such as an intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonably approve. The court does not sit merely to see that the majority are acting bona fide and thereupon to register the decision of the meeting; but at the same time the court will be slow to differ from the meeting, unless either the class has not been properly consulted, or the meeting has not considered the matter with a view to the interests of the class which it is empowered to bind, or some blot is found in the scheme.’ This formulation in particular recognises and balances two important factors. First, in deciding to sanction a scheme under s 425 [the predecessor of section 899], which has the effect of binding members or creditors who have voted against the scheme or abstained as well as those who voted in its favour, the court must be satisfied that it is a fair scheme. It must be a scheme that ‘an intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonably approve’. That test also makes clear that the scheme proposed need not be the only fair scheme or even, in the court’s view, the best scheme. Necessarily there may be reasonable differences of view on these issues. The second factor recognised by the above-cited passage is that in commercial matters members or creditors are much better judges of their own interests than the courts. Subject to the qualifications set out in the second paragraph, the court ‘will be slow to differ from the meeting’.”
“The test is based on similarity or dissimilarity of legal rights against the company, not on similarity or dissimilarity of interests not derived from such legal rights. The fact that individuals may hold divergent views based on their own private interests not derived from their legal rights against the company is not a ground for calling separate meetings … The question is whether the rights which are to be released or varied under the scheme or the new rights which the scheme gives in their place are so different that the scheme must be treated as a compromise or arrangement with more than one class.”
“… The golden thread of these authorities, as I see it, is to emphasise time and again … [that] in determining whether the constituent creditors’ rights in relation to the company are so dissimilar as to make it impossible for them to consult together with a view to their common interest the court must focus, and focus exclusively, on rights as distinct from interests. The essential requirement is that the class should be comprised only of persons whose rights in terms of their existing and the rights offered in replacement, in each case against the company, are sufficiently similar to enable them to properly consult and identify their true interests together. I emphasise this point because it … enables the court to take a far more robust view as to what the classes should be and to determine a far less fragmented structure than if interests were taken into account.”
“As you know, our client Goldman Sachs International (“GSI”) has raised concerns about the fairness of the Scheme, and for that reason voted against the proposed scheme. GSI continues to consider that the proposed scheme is unfair, in particular because of the arrangements between the SCG and Wentworth, where the SCG is being paid at least£35 million to support the proposed scheme and compromise its appeal rights in the Waterfall IIC appeal. The same incentive is not available to other Higher Rate Creditors including GSI which will be deprived of its appeal rights under the proposed scheme. In effect, the SCG is being paid at least£35 million in consideration of it not pursuing the Waterfall IIC appeal, while GSI is simply being stripped of that right without compensation. Other Higher Rate Creditors who stand to benefit if GSI succeeds in the Waterfall IIC appeal are similarly prejudiced.”
“if an allegation is made that a creditor had improper regard to interests other than those of the class to which he belonged, it is necessary for there to be a ‘but for’ link between the collateral interest and the decision to vote in the way that he did. The person challenging the relevant vote must therefore show that an intelligent and honest member of the class without those collateral interests could not have voted in the way that he did.”
“So far as stage 2 is concerned, the phrase used by Plowman J was whether the statutory majority are acting bona fides not coercing the minority in order to promote interests adverse to those of the class whom they purport to represent. In our submission, one needs to have regard to that phrase as a whole. It is a unitary concept, essentially: Were they voting with a view to the interests of the class or not? The reason you asked that question is that, having at class stage allocated creditors by reference to their legal rights, what weight do you put on their votes when it comes to the sanction hearing, when deciding how to exercise your discretion. In our submission, the answer to that will often depend critically on the facts, including the precise nature of the collateral interest. So, for example, if the interest is adverse, one may say, "Well, actually, I am not going to put much weight on the fact they voted in favour in deciding whether or not to exercise the court's discretion to sanction the scheme." Conversely, if the interests are aligned, again, depending on the facts, one may put a lot of weight, not so much weight on the votes that they have expressed, depending on the nature and extent of the collateral interest. So, in our submission, the result is likely to be in most cases the same as that advocated for by Mr. Trower. However, in our respectful submission, it might be preferable to preserve as it were a little bit of flexibility reflecting the fact that ultimately this is a question of discretion for the court and unlikely to be capable of being reduced to a sort of rigid flow diagram of analysis.”
“I have therefore concluded that members voting at a class meeting directed by the court must exercise their power to vote ‘for the purpose of benefiting the class as a whole, and not merely individual members only’: see Viscount Haldane’s formulation in the British America Nickel case[1927] AC 369 , 371. I am not sure that the gloss suggesting that members at such a meeting must not vote for extraneous reasons is helpful. The key is that the members of the class must vote in the interests of the class as whole and not in their own specific interests if they are different from the interests of the class.”
“[The votes] must be exercised subject to a general principle, which is applicable to all authorities conferred on majorities of classes enabling them to bind minorities; namely, that the power given must be exercised for the purpose of benefiting the class as a whole, and not merely individual members only.”
“[A]lthough in a meeting which is to be held under this section it is perfectly fair for every man to do that which is best for himself, yet the Court, which has to see what is reasonable and just as regards the interests of the whole class, would certainly be very much influenced in its decision, if it turned out that the majority was composed of persons who had not really the interests of that class at stake.” (2) In Re UDL, Lord Millett said at 185: “The court will decline to sanction a scheme unless it is satisfied, not only that the meetings were properly constituted and that the proposals were approved by the requisite majorities, but that the result of each meeting fairly reflected the views of the creditors concerned. To this end it may discount or disregard altogether the votes of those who, though entitled to vote at a meeting as a member of the class concerned, have such personal or special interests in supporting the proposals that their views cannot be regarded as fairly representative of the class in question.”
“It is accepted that the Wentworth Senior Creditors have an interest not shared by other members of the classes to which they belong. The special interest arises out of the relationship between the Wentworth Senior Creditors and the Subordinated Creditor. It is understood that the Wentworth Senior Creditors (or those controlling them) are entitled to a proportion of the recoveries of the Subordinated Creditor, pursuant to a joint venture arrangement between the various members of the Wentworth Group. It is understood that the joint venture was established in January 2014, but the Administrators do not know the precise terms of the joint venture. The Administrators have received a term sheet which describes the terms of the Wentworth joint venture (the “WW Term Sheet”)… The WW Term Sheet requires members of the Wentworth Group to promote the “Underlying Principle”: “The parties (i) shall act or, to their knowledge, omit to act, in accordance with the underlying principle of enhancing the recoveries for the Recovery Pool and the Preferred Equity and (ii) shall not act in a manner adverse to the economic interests of the LBHI2 Scheduled Creditors (in their capacity as such) …”
“the recovery pool consisting of all the assets in, or deriving from, the LBHI2 Contribution, the KS Contribution and the Elliott Contribution (as adjusted to include the LBHI Contribution, to the extent required).”
“Higher Rate Creditors who control a number of different Claims should be able to take the Certification Option for some of those Claims and the Settlement Option for others. The merits of pursuing the Certification Option for ISDA claims will, absent any other considerations, be entirely fact and circumstance specific to each relevant payee. Creditors should therefore have the freedom to exercise different options in respect of their different claims, and not be subjected to the unfair penalty of being deprived of the 2.5% premium for claims which they would otherwise not certify, simply because a Creditor elects to pursue its legitimate rights of certification in respect of other claims.”
“As it stands, the Scheme provides no form of compensation for the loss of appeal rights against the Waterfall IIC judgment. Whether equivalent to the£35m ‘consent fee’ payable to the SCG or otherwise, such compensation should fairly be paid to all Higher Rate Creditors.”
“Higher Rate Creditors which take the Certification Option should not be effectively subordinated to Specified Interest Creditors, those with 8% Interest Claims and those Higher Rate Creditors which take the Settlement Premium Option through the delay in payment. Higher Rate Creditors which take the Certification Option should be paid the minimum of 8% simple interest at the same time that all other interest is paid by the Company (provided, of course, that the Company has sufficient funds to do so), with only payment of any excess arising from the Certification process deferred.”
“The Wentworth Group should have no right to be informed of Certification Claims or to be consulted by the Company on those Claims. Certification Claims should be confidential as between the Certifying Creditor and the Company, whose Joint Administrators should approach the Claims in good faith and in a manner consistent with their obligations as officers of the court.”
“If the Company rejects a Certification Claim, the Company should give reasons why it is doing so. Only then will the Certifying Creditor know what case it has to meet should it wish to take the Claim further and, if so, what additional evidence it should provide to the Adjudicator.”
“If the Company rejects a Certification Claim and the Certifying Creditor does not accept the Company’s decision, the Claim should be referred to one of the Adjudicators identified (acting as an expert). If none of those named is available, a replacement should be agreed between the Certifying Creditor and the Company, without reference to the Wentworth Group. Whilst the Adjudicator should uphold a Certifying Creditor’s claim unless made in bad faith or irrationally, the Adjudicator should not be obliged only to choose between, on the one hand, the amount certified and, on the other, the statutory minimum or the Company’s counter-offer. If the Adjudicator does not uphold the Certifying Creditor’s claim but considers that, on the evidence presented to the Adjudicator (including evidence requested by the Adjudicator), another sum would be appropriate, the Adjudicator should be free to award that other sum. The Adjudicator should also be free to hold an oral hearing if the Adjudicator considers it appropriate, and should give brief reasons for his or her decision.”
“The Certifying Creditor should be able to take the matter to the court if the Adjudicator has made a manifest error, has made an error of law or has reached a conclusion that no reasonable Adjudicator could have reached.”
“The result, in my judgment, is that if parties agree to refer to the final and conclusive judgment of an expert an issue which either consists of a question of construction or necessarily involves the solution of a question of construction, the expert’s decision will be final and conclusive and, therefore, not open to review or treatment by the courts as a nullity on the ground that the expert’s decision on construction was erroneous in law, unless it can be shown that the expert has not performed the task assigned to him. If he answered the right question in the wrong way, his decision will be binding. If he has answered the wrong question, his decision will be a nullity.”
“An employer may bring proceedings only in the courts of the Member State in which the employee is domiciled.”
“If the parties, regardless of their domicile, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction, unless the agreement is null and void as to its substantive validity under the law of that Member State. Such jurisdiction shall be exclusive unless the parties have agreed otherwise.”
“The court will not generally make any order which has no substantial effect and, before the court will sanction a scheme, it will need to be satisfied that the scheme will achieve its purpose.”
“[17] My principal concern, when the application was first before me on14th December 2006 , was to understand the true impact, if any, of the proposed transfer on the business … What, if any, effect will the transfer have if proceedings against Sompo were brought in those jurisdictions where it did have substantial assets? Would the transfer be recognised in those jurisdictions? If not, what purpose would be served by the transfer? [18] It was relevant, therefore, to have some evidence as to the proportion of the transferred policies which were governed by English law or other UK law and, particularly if the proportion were small, to have some evidence as to the effect of the transfer in Japan and perhaps other jurisdictions where Sompo has substantial assets. [19] If it appeared that the transfer would have little or no significant effect, it raised an issue as to whether in its discretion the Court should sanction the transfer. It is established that, on comparable applications under theCompanies Act 1985 , the Court will not act in vain … [26] Overall this evidence leaves me less than convinced that the scheme once sanctioned will definitely be effective as regards proceedings in foreign jurisdictions to enforce claims under policies which are governed by foreign law, although I acknowledge that it provides a proper basis for concluding that it may well be so effective in Japan and the United States. More importantly, as I have mentioned, the evidence establishes that over 27% of the policies in number and by reference to reserves are governed by English law, and it is reasonable to suppose that the transfer will be effective in any relevant jurisdictions as regards those policies. The proposed scheme will therefore achieve a substantial purpose. The fact that the scheme also extends to a larger class of business not governed by English law is not, in my judgment, a good ground for refusing to sanction the scheme. Whether the scheme is recognised as effective in Japan or the United States or elsewhere will, if necessary, be tested in due course in proceedings in those jurisdictions.”