27 December, 2015
In Lockston Group Inc v Nicholas Stewart Wood [2015] EWHC 2962 (Ch), the English High Court held that foreign currency claims and claims for interest in a deceased insolvent's estate should be calculated at the date of death, rather than the date of any insolvency administration order. This case serves as a reminder of the importance of the pari passu principle in insolvency law and the requirement for a single date for ascertaining a deceased insolvent's liabilities.
Facts
Controversial Russian oligarch Boris Berezovsky died insolvent in March 2013. At his death the deficit in his estate was estimated at around GBP40 million and administrators were appointed. The administrators applied for an order under the Administration of Insolvent Estates of Deceased Persons Order 1986 ("AIEDPO") for administration of the insolvent estate in bankruptcy. The insolvency administration order was granted in January 2015 ("Order"). In Hong Kong, insolvent estates are dealt with in section 112 Bankruptcy Ordinance (Cap. 6) ("BO").
There were a number of creditors each proposing different trustees in bankruptcy; Lockston Group (the "Applicant") supported the appointment of KPMG. Creditors were assigned votes for the creditors' meeting in proportion with the claims submitted in their proof of debt. At the first meeting of creditors Grant Thornton were appointed as trustees rather than KPMG (the "Meeting").
The Applicant challenged the results of the Meeting and sought a declaration that KPMG be appointed as trustees.
The Applicant's argument
The Applicant challenged the results of the Meeting on the basis that the chairman did not correctly apply the statutory provisions when admitting claims for the purpose of calculating votes, such that:
He incorrectly converted foreign currency debts into sterling at exchange rates prevailing on the date of the bankrupt's death; and
He incorrectly allowed interest on debts to be proved down to the date of death and not beyond.
The Applicant submitted that the correct date for both the above purposes was the date on which the Order was made and not the date of death. If correct, the amount of certain admitted proofs would have been significantly higher and the resolution to appoint Grant Thornton as trustees would not have passed.
Question before the Court
The Court had to determine the date on which a creditor's claim in a deceased insolvent's estate should be both identified and quantified.
Judgment
The Court rejected both of the Appellant's arguments and held that, pursuant to the AIEDPO, the date for both the identification and quantification of debts in a deceased insolvent's estate is the date of death. The judge held that the Applicant's arguments were "inconsistent with a fundamental feature of insolvency law, that there is to be single date for the ascertainment of liabilities".
The English insolvency regime provides for distribution of the estate on a pari passu basis (i.e. the claims of all creditors are treated equally without any preference). Therefore, the Court held that such distribution requires "a common date and a common currency for the ascertainment and quantification of debts".
The Court considered the statute, case law and academic authorities to determine that "the relevant provisions fix one date, the date of death of the debtor, as the date at which the assets comprising the insolvent estate are identified and as at which the debts and liabilities are identified and quantified".
The Court therefore rejected the Appellant's arguments and held that:
- Debts denominated in foreign currencies are to be converted into sterling for the purposes of the proof as at the date of death of the deceased; and
- Interest is to be proved down to the date of the death and not beyond.
Conclusion
This case reinforces the importance of the pari passu principle in insolvency law and the requirement for a single date on which liabilities of a deceased insolvent are calculated. It serves as an interesting example of how the Court will interpret the UK insolvency regime in relation to a deceased insolvent's estate. It is unclear whether the Hong Kong courts would reach the same conclusion given that Hong Kong's section 112 BO is based on the UK's now repealed Bankruptcy Act 1914. However, this case may have some persuasive value should the issue come before the Hong Kong courts.
For further information, please contact:
Kyle Wombolt, Partner, Herbert Smith Freehills
kyle.wombolt@hsf.com
