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RECENT CASES |
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Northern Rock’s former shareholders’ appeal SRM Global Master Fund LP and others v the Treasury [2009] EWCA Civ 788 As expected, the former shareholders of Northern Rock appealed against the High Court’s decision to dismiss their application for judicial review of the statutory compensation scheme (see CLM 2009 Newsletter Issue 2). The grounds for the appeal were numerous and varied but were based upon the claim that the terms of the statutory compensation scheme are incompatible with the human rights principle that any state seizure of property must be balanced by fair compensation. The Court of Appeal rejected their appeal and upheld the decision of the High Court. The former shareholders are now expected to seek permission to appeal to the Supreme Court (which has assumed the appellate jurisdiction of the House of Lords). Scheme of arrangement altering creditors’ proprietary interests See CLM ¶6501, ¶8879, ¶8880 Re Lehman Brothers International (Europe) (In Administration) (No.2) [2009] EWHC 2141 (Ch) A scheme of arrangement that proposes to extinguish creditors’ proprietary rights in order to facilitate the distribution of the company’s assets is outside the scope of the statutory procedure, and therefore cannot be sanctioned by the court. LBIE carried on a brokerage business and held the proprietary interests in assets on behalf of institutional clients. When it went into administration, the administrators had difficulties distributing the assets because they could not accurately ascertain the creditors’ entitlements. Therefore, they proposed to enter into a scheme of arrangement with the creditors who had both pecuniary and proprietary claims, under which the creditors would have to release their existing claims in return for a new claim under the scheme. The court would not sanction the proposed scheme because it was designed to extinguish the existing proprietary rights of the creditors in question. This was outside the scope of the statutory scheme of arrangement provisions and therefore the court had no jurisdiction to sanction it. In practical terms, this meant that those creditors who voted against the scheme were not bound by it. Court considers whether interim costs orders can be reviewed See CLM ¶7156 Business Environment Bow Lane Ltd v Deanwater Estates Ltd [2009] EWHC 2014 (Ch) The High Court has considered whether an interim costs order made in favour of a claimant who is unsuccessful in the proceedings as a whole (for example, due to exaggeration of his claim) can be reviewed. It confirmed that this will depend upon the wording of the interim costs order made. BEBL Ltd acquired the landlord’s interest in premises after DE Ltd’s lease of those premises had been terminated. A schedule of dilapidations served subsequently by BEBL Ltd led to these proceedings. BEBL Ltd succeeded on the trial of a preliminary issue, namely whether a particular defence was available to DE Ltd. The court found that it was not and ordered DE Ltd to pay BEBL Ltd’s costs on that issue. However, BEBL Ltd was unsuccessful in the main proceedings as it turned out that its dilapidations claim had been significantly exaggerated. DE Ltd argued that BEBL Ltd’s costs of the preliminary issue were unjustified as it would not have pursued the preliminary issue (and quite possibly there may not have been any proceedings at all) if such exaggeration had not occurred. DE Ltd succeeded in having the interim costs order reduced to nil and BEBL Ltd appealed. The appeal was allowed. The High Court confirmed that the interim costs order made was intended to deal with the costs of the preliminary issue as a discreet set of costs, which were to be paid by DE Ltd to BEBL Ltd whatever the ultimate outcome of the proceedings. Unless the costs order itself specifically states that it is dependent upon the outcome of the action, it should be dealt with on a self-contained basis. Shareholder’s liability for preferential payments See CLM ¶7819+ Re Oxford Pharmaceuticals Ltd [2009] EWHC 1753 (Ch) An unlawful preference given by a company to its holding company does not necessarily mean that the holding company’s shareholders have also been preferred. OP Ltd incurred substantial debts which it did not repay, and a legal dispute eventually arose between it and one of its creditors. While the dispute was ongoing, OP Ltd made several payments to its holding company (and a guarantor for its liabilities) MI Ltd, which was solely owned by Mr M. Mr M was a director of both OP Ltd and MI Ltd and also provided guarantees for both companies’ liabilities. Within a year of those payments, another creditor of OP Ltd petitioned for its liquidation, and a winding up order was made. The liquidator applied for a declaration that payments made by OP Ltd to MI Ltd were preferences in favour of MI Ltd and Mr M (on the basis that he was a shareholder in MI Ltd). Considering the seriousness of the position with its creditors, and the perception that the legal dispute represented a serious risk to its future viability, the court inferred that OP Ltd had the desire to improve MI Ltd's financial position in the event of its liquidation, which in turn influenced its decision to make payments to MI Ltd. Therefore, the payments constituted unlawful preferences in favour of MI Ltd and had to be repaid. However, the court rejected the argument that Mr M was also preferred because, even though Mr M might have received some incidental benefit from the preferential payments as a shareholder of MI Ltd, the payments were in fact made to MI Ltd. |
