Abstract

Company – Insolvency. The Chancery Division construed a clause of security trust deed for the purposes of an application pursuant to s 35 of the Insolvency Act 1986.

Citation [2009] All ER (D) 204 (Apr) 

Alternative Citations [2008] EWHC 2997 (Ch) 

Hearing Date 7 November 2008 

Court Chancery Division 

Judge Sales J 

Representation

Gabriel Moss QC and Barry Isaacs (instructed by Lovells) for the receivers. Mark Howard QC and Jonathan Dawid (instructed by Mayer Brown LLP) for party A. Richard Michael Sheldon QC and Felicity Toube (instructed by Dechert) for party B. Simon Mortimore QC and Daniel Bayfield (instructed by Jones Day) for party C. Susan Prevezer QC and Edmund King (instructed by Quinn Emmanuel) for party D. James Potts (instructed by Allen & Overy) for D Ltd.  

Summary 

The judgment is available at: [2008] EWHC 2997 (Ch)

The company was incorporated under the laws of the Cayman Islands. It was a structured investment vehicle, established to invest in certain types of asset-backed securities and other financial instruments. The company sought to profit from the difference between its cost of funding its activities and the returns made on its investment portfolio. The company went into insolvent liquidation. The proceedings concerned an application pursuant to s 35 of the Insolvency Act 1986 by the receivers, appointed in respect of the assets of the company, for directions from the court regarding their obligations concerning the management of its assets. The directions given depended upon the proper construction of cl 7.6 of the Amended and Restated Security Trust Deed (the deed)(see [13] of the judgment for relevant terms of the deed) between the company as issuer and D Ltd as security trustee. The deed created a floating charge in relation to the company's assets, which had crystallised at the time of the proceedings. Most of the company's creditors were secured creditors for the purpose of the deed, in which they were beneficiaries. Each of the main groups of secured creditors under the deed was represented by parties A, B, C and D respectively.  

Party A submitted that the natural meaning of cl 7.6 was that during the 'Realisation Period' the 'Security Trustee' should use the available and realisable assets of the company to pay its liabilities in full or (if there were insufficient assets) to the greatest extent possible in order as they fall due within that period (the pay as you go construction). The effect of that construction meant that the company's liabilities to party A falling due on 23 October 2008 would be met (or substantially met) out of its assets, but leaving little or nothing over to meet any other liabilities falling due or later dates within that period (including the liabilities which had arisen or were due to arise in relation to the notes held by party B) or falling due on dates after that period.  

The court ruled: 

On the true construction of cl 7.6, the pay as you go construction of the final sentence of cl 7.6 contended for by party A was the correct construction of the provision. It was true that such an interpretation exposed certain limited infelicities in the drafting of other parts of the deed, but addressing those infelicities did not involve a degree of strain in construing the deed which would begin to approach the extent of the strain which would be required to arrive at the constructions for which the other parties had contended (see [25] and [41] of the judgment).  

Marie-Therese Groarke Barrister.    

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