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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Cheyne Finance Plc, Re [2007] EWHC 2402 (Ch) (17 October 2007) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2007/2402.html Cite as: [2008] 1 BCLC 741, [2008] BCC 182, [2008] 2 All ER 987, [2007] EWHC 2402 (Ch), [2008] Bus LR 1562 |
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CHANCERY DIVISION
COMPANIES COURT
IN THE MATTER OF THE INSOLVENCY ACT 1986
B e f o r e :
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(in Private) | ||
IN THE MATTER OF CHEYNE FINANCE PLC (in Receivership) | ||
A N D | ||
IN THE MATTER OF THE INSOLVENCY ACT 1986 |
____________________
Official Shorthand Writers and Tape Transcribers
Quality House, Quality Court, Chancery Lane, London WC2A 1HP
Tel: 020 7831 5627 Fax: 020 7831 7737
(info@beverleynunnery.com)
MR. W. TROWER QC and MR. R. FISHER (instructed by Hunton & Williams) appeared on behalf of Party A.
MR. S. MORTIMORE QC and MISS H. STONEFROST (instructed by Milbank Tweed, Hadley and McCloy LLP) appeared on behalf of Party B.
MR. M. PASCOE QC and MR. D. ALLISON (instructed by Ashurst and Kay Scholer LLP) appeared on behalf of Party C.
MR. S. ISAACS QC and MR. D. BAYFIELD (instructed by Jones Day, Herbert Smith and Sidley Austin) appeared on behalf of Party D.
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Crown Copyright ©
MR. JUSTICE BRIGGS:
THE ASSUMED FACTS
(a) If the Receivers were able to avoid incurring any discounts from open market value by reason of the size and timing of their sales programme, they would, by selling at present market values, just be able to pay all Senior Debts on time and in full. The prospect of avoiding incurring such discounts is regarded by the Receivers, on advice, as unlikely.
(b) If forced sale discounts are encountered at the mid-point of each of the ranges advised by the valuers as being the most likely, then Cheyne will default in paying its Senior Debts as they fall due in February 2009, with a consequential shortfall as against debts falling due then or thereafter.
(c) If higher but still realistically possible discounts are incurred, default with a consequentially larger shortfall could occur as early as November 2008.
(d) The Receivers have considered whether there is any method of realisation of Cheyne's investment portfolio which holds out the prospect of realising better value than forced sales at the rate necessary to pay all Senior Debts in full and on time. Following tentative negotiations their present view is that best value would be obtained by a sale of the whole portfolio to an investment bank in return for an underwritten note. This would, they think, hold out a better and indeed realistic prospect of paying all Senior Debts in full but not on time, i.e. not in accordance with the maturity dates of those debts. This is because the cash flow profile required, when aggregated with Cheyne's existing cash assets to match the maturity dates of the Senior Debts, would not be obtainable on an underwritten note received on a negotiated sale of the investment portfolio.
"As described above, the Receivers are currently in a position to continue with the 'pay as you go' approach to approximately 31 October 2007.
The Receivers also have a substantial investment portfolio of assets in their hands. However, the best current assessment is that the high level of asset sales required to continue with the 'pay as you go' approach would involve Cheyne Finance selling assets for discounted prices which would in turn deplete its balance sheet and render it unable to pay some of its late-maturing Senior Obligations."
THE QUESTIONS RAISED BY THIS APPLICATION
1. Whether, on the assumption that the facts stated in Mr. Kahn's second witness statement are true, Cheyne Finance Plc is unable or about to become unable to pay its debts as they fall due to Senior Creditors within the meaning of Insolvency Event.
2. If the answer to question 1 is "No",
(a) (i) Are the Receivers obliged to sell assets of Cheyne Finance Plc to ensure that so far as is possible it pays its debts to Senior Creditors as they fall due?
(ii) If the answer to (i) is "Yes", are the Receivers nevertheless permitted to cause Cheyne Finance Plc to enter into a sale, the consequence of which is that the debt of any Senior Creditor which would be paid in full as it falls due absent the sale is not paid in full as it falls due? Would such a sale render Cheyne Finance unable, or about to become unable, to pay its debts as they fall due to Senior Creditors within the meaning of Insolvency Event?
(b) Are the Receivers permitted to cause Cheyne Finance Plc to enter into a sale, the consequence of which is that it continues to pay Senior Obligations in full as they fall due, but which renders it certain or most likely that not all Senior Obligations will be paid in full as they fell due? Would such a sale render Cheyne Finance unable or about to become unable to pay its debts as they fall due to Senior Creditors within the meaning of Insolvency Event?
"Insolvency Event means a determination by the Manager or any Receiver that the Issuer [Cheyne] is, or is about to become, unable to pay its debts as they fall due to Senior Creditors and any other persons whose claims against the Issuer are required to be paid in priority thereto, as contemplated by Section 123(1) of the United Kingdom Insolvency Act 1986 (such subsection being applied for this purpose only as if the Issuer's only liabilities were those to Senior Creditors and any other persons whose claims against the Issuer are required under the Security Trust Deed to be paid in priority thereto)."
1. To what extent, if at all, is it permissible for the Receivers to have regard to Senior Debts falling due in the future when addressing Cheyne's commercial solvency ("the Future Debts question"); and,
2. With what degree of confidence must the Receivers have formed the view that Cheyne is or is about to become unable to pay its relevant debts as they fall due before they can properly make an Insolvency Event determination ("the Standard of Proof question").
Most of the debate has centred on the first of those two questions.
THE FUTURE DEBTS QUESTION
1. Leaving aside s.123(1)(a), (b), (c) and (d), none of which apply on the assumed facts, the deliberate omission of subsection (2) shows that the parties agreed that the Receivers had to apply the English test of commercial or cash flow insolvency to be found in s.123(1)(e).
2. When compared with s.123(2), the language of s.123(1)(e) omits, and therefore requires to be ignored, all contingent and prospective liabilities.
3. The draftsmen of the insolvency legislation were perfectly capable of requiring reference to the future where it was intended (see, apart from s.123(2), ss.8 and 89 of the Insolvency Act, and ss.152, 173(3)(b), s.643(1)(b)(ii) and s.714(3)(b)(ii) of the Companies Act 1985).
4. Any doubt as to the admissibility of future events, including the falling due of future debts, is resolved in the Trust Deed by the phrase "is about to become".
5. There is nothing uncommercial in the parties to the Trust Deed adopting a clear and simple test of insolvency which excludes the need to make difficult judgments about the value of Cheyne's assets in the future, even if, as Mr. Trower accepted, it introduces an element of priority in favour of short maturity as against long maturity Senior Debts, which is not found spelt out in terms in the Payment Priority in clause 12.
"A Company under this Act shall be deemed to be unable to pay its Debts…
Whenever it is proved to the satisfaction of the Court that the Company is unable to pay its debts."
"A company shall be deemed to be unable to pay its debts –…
(iv) if it is proved to the satisfaction of the court that the company is unable to pay its debts, and, in determining whether a company is unable to pay its debts, the court shall take into account the contingent and prospective liabilities of the company."
"Construing this section first without reference to authority, it seems to me plain that, in a case where none of the deeming paras (a), (b) or (c) is applicable, what is contemplated is evidence of (and, if necessary, an investigation into) the present capacity of a company to pay all its debts. If a debt presently payable is not paid because of lack of means, that will normally be sufficient to prove that the company is unable to pay its debts. That will be so even if, on an assessment of all the assets and liabilities of the company, there is a surplus of assets over liabilities. That is trite law.
It is equally trite to observe that the fact that a company can meet all its presently payable debts is not necessarily the end of the matter, because para.(d) requires account to be taken of contingent and prospective liabilities. Take the simple, if extreme, case of a company whose liabilities consist of an obligation to repay a loan of £100,000 one year hence, and whose only assets are worth £10,000. It is obvious that, taking into account its future liabilities, such a company does not have the present capacity to pay its debts and as such it 'is' unable to pay its debts. Even if all its assets were realised it would still be unable to pay its debts, viz, in this example, to meet its liabilities when they became due."
"Paragraph (e) (as Companies Act 1985 s.518(1)(e)) formerly read: "if it is proved to the satisfaction of the court that the company is unable to pay its debts (and, in determining that question, the court shall take into account the company's contingent and prospective liabilities)". This formula was unhelpful in that it ran together two issues: (1) the question of whether current debts could be met as they fell due, i.e. "commercial" solvency; and (2) the question whether the company would ultimately prove solvent if its future as well as present liabilities were brought into the reckoning. The confusion was resolved by the amendment made by [the Insolvency Act] 1985: contingent and prospective liabilities are no longer to be taken into account for the purposes of para.(e), while insolvency calculated on a balance-sheet basis becomes a separate test under s.123(2)."
"It was argued that only debts then actually payable and the amounts of which were then actually ascertained should be taken into consideration. One answer to this argument is that the matter for determination is the ability of the debtor, which is a state or condition that cannot be determined without having regard to all the facts. Another answer is that the debts referred to are not his debts 'then' payable, but his debts 'as they become due' – a phrase which looks to the future."
On p.1528 he said this:
"The words 'as they become due' require, as already pointed out, that some consideration shall be given to the immediate future; and, if it appears that the debtor will not be able to pay a debt which will certainly become due in, say, a month (such as the wages payable by Robertson for the month of July) by reason of an obligation already existing, and which may before that day exhaust all his available resources, how can it be said that he is able to pay his debts 'as they become due' out of his own moneys?"
The only dissenting judge, Higgins J., agreed on the meaning of the phrase "as they become due". At p.1554 he said this:
"The critical words are 'as they become due'; so that, on the one hand, a debtor in making a payment or giving a security to a creditor, has to take into account, not only his debts immediately payable, but his debts which will become payable …"
"The conclusion of insolvency ought to be clear from a consideration of the debtor's financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor's inability, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency."
"(1) A person is solvent if, and only if, the person is able to pay all the person's debts, as and when they become due and payable.
(2) A person who is not solvent is insolvent."
The familiar phrase "as and when they become due" has been supplemented by the words "and payable".
"Certain predicted events about which there is little uncertainty, such as the planned sale of a major asset or the falling due of a substantial loan, may influence whether the company is able to pay its debts as they become due and payable."
On p.320 he said this:
"In essence the issue of a company's solvency should be viewed as it would by someone operating in a practical business environment."
"It shall be a term of any appointment of a Receiver under subclause 10.1 that such Receiver shall, unless and until an Insolvency Event Notice is delivered by the Security Trustee in accordance with Clause 9:
(a) manage the Security Assets and the business of the Chargor with the objective of arranging for timely payment in full of the Chargor's obligations to the Senior Creditors and any creditors ranking in priority to the Senior Creditors in the Payment Priority and … in each case as and when they fall due for payment in accordance with Clause 12 below …"
THE STANDARD OF PROOF QUESTION
QUESTION 2
MR. SHELDON: My Lord, I am very much obliged. My Lord, I am not going to attempt, on my feet, to suggest a form of directions. I think we will have to have a look at transcript and then agree, because we have to incorporate various assumptions.
MR. JUSTICE BRIGGS: I think you do. I may have gone slightly beyond my brief in addressing question 2 on my construction.
MR. SHELDON: No, it has been very helpful, my Lord.
MR. JUSTICE BRIGGS: It seemed to me rather stupid not at least to try.
MR. SHELDON: No, it is extremely helpful. We will do that and we will circulate to respective counsel to agree it.
MR. JUSTICE BRIGGS: You may have to come back if you cannot agree it.
MR. SHELDON: Yes, if we cannot agree it we may have to come back to your Lordship.
That is the substantive part of the order. Could I just invite your Lordship to look at the application because there are one or two other consequentials. Your Lordship sees on p.2 of the application that we seek a sealing order under Rule 7.3(1)(v). My Lord, can I suggest that we add words along the following lines – it is basically to ensure that two things happen – first of all, an application is made to a judge rather than to a registrar; and also to make sure that any such application is made on notice to the applicants' solicitors. What I would suggest is something along the following lines at the end of what appears, "Not to be made open to inspection without the court's permission, such permission to be made on application to the judge on 48 hours notice to the applicants' solicitors".
MR. JUSTICE BRIGGS: I would say "to a judge and to Mr. Justice Briggs, if available". It would save time, since I know the background, compared to it going, say, to the Queen's Bench applications judge, who might have other things on his mind.
MR. SHELDON: My Lord, that is very helpful. I do not suppose anybody here will object to that form of words.
My Lord, then there is the question of costs. On the last occasion your Lordship directed that that the costs of all parties be costs in the receivership. My Lord, the Receivers, subject to one caveat, would have no objection to a similar order here. My Lord, the caveat concerns interested Party D who has no less than three instructing solicitors. My Lord, I think it is agreed that only one set of solicitors' costs of Party D would be permitted.
MR. BAYFIELD: My Lord, that is right.
MR. JUSTICE BRIGGS: That seems eminently sensible to me, but otherwise you are amenable to that set being allowed?
MR. SHELDON: Yes.
MR. JUSTICE BRIGGS: Unless there is any objection, I would think it sensible to make that costs order.
MR. MORTIMORE: Yes, my Lord, and we strongly support the change to the confidentiality order suggested by my learned friend.
MR. JUSTICE BRIGGS: Yes, you want skeleton arguments.
MR. MORTIMORE: It should be all the evidence, because there has been an additional statement beyond Kahn 2, which was referred to.
MR. JUSTICE BRIGGS: It ought to be the statement, exhibits – you can re-draft it at leisure, but the statements, exhibits, what about the judgment?
MR. SHELDON: And the judgment?
MR. JUSTICE BRIGGS: The question does arise under article 6, which is not merely an inter partes question, but a public interest question, whether it is right that a judgment should be given on the basis that it is permanently in private.
MR. SHELDON: My Lord, I was going to come on to that. Clearly one would hope that when the dust settles this judgment could be made public. Whereas clause 12.1(b) was perhaps a peculiar, unique set of wording, the definition of Insolvency Event has been adopted I think in a number of similar transactions. So there will clearly be interest in the outcome.
MR. JUSTICE BRIGGS: It seems to be hallowed practice going right back to Byblos, albeit with an older definition. That was an older definition but it was still being incorporated into a party's document.
MR. SHELDON: Yes, it is the cash flow definition that is a slightly novel one. My Lord, what I would suggest is that we undertake to come back to your Lordship to release the judgment into public when the need for confidentiality has lapsed.
MR. JUSTICE BRIGGS: It would still be there, even if there was an insolvency determination because you want to do a deal in relation to the assets?
MR. SHELDON: Yes.
MR. JUSTICE BRIGGS: So it may lapse later than sooner. The only alternative I can think of is a sanitised judgment, but I find it quite difficult to see how that would be workable without treading on confidential matters.
MR. SHELDON: I think it would be difficult.
MR. JUSTICE BRIGGS: It cannot be workable just by anonymising the name of the company because there is reference back to my earlier decision which was given in public. It is difficult to see how, if you get rid of all the assumed facts, it makes sense.
MR. SHELDON: Yes, exactly. I think, just from having listened to it, it would look very odd. One cannot simply do a blue pencil test.
MR. JUSTICE BRIGGS: No, I do not think so. Yes, an undertaking to come back as and when the dust has settled is sensible, but I am not sure there ought not to be built in some automatic review, otherwise it might get forgotten, even in the best run offices.
MR. SHELDON: Yes, my Lord, perhaps we ought to undertake to bring the matter back before your Lordship at the end of a given period.
MR. JUSTICE BRIGGS: I suppose an alternative view is a kind of Beddoe application in relation to which there is some authority that article 6 is not engaged. You probably know the case I am thinking of. I am quite content to go down the route you propose. Indeed, I think it would be preferable.
MR. SHELDON: My Lord, yes. I do not know what an appropriate periodwould be.
MR. JUSTICE BRIGGS: Six months?
MR. SHELDON: Yes, that is what I had in mind, six months.
MR. JUSTICE BRIGGS: The obligation is to refer to me – that is a sensible course – in six months. It can be done on paper. If the paper says fine, then fine; if it says not fine, then probably not fine unless I am not satisfied with the explanation.
MR. SHELDON: In which case we will have to persuade your Lordship.
MR. JUSTICE BRIGGS: Yes, there might have to be a hearing. It does not seem to me that it need involve Parties A to D. This is really just protection of the commercial value of the assets in the hands of the Receivers.
MR. SHELDON: Yes.
MR. JUSTICE BRIGGS: Is that agreed?
MR. MORTIMORE: Yes, my Lord.
MR. SHELDON: My Lord, I think that is all I need to say now, although if there are further applications I may want to address your Lordship further.
MR. JUSTICE BRIGGS: I am anticipating there might well be!
MR. SHELDON: My Lord, yes.
MR. FISHER: My Lord, I am instructed to make an application for permission to appeal against your Lordship's judgment, my Lord, in short, on both the grounds that there is a real prospect of success or some other good reason why permission should be given.
My Lord, three short points: there is a point on construction on which reasonable parties could differ; it does involve within the drafting a point of law of significance, being the meaning of ----
MR. JUSTICE BRIGGS: Section 123(1)(e).
MR. FISHER: Yes, and Mr. Sheldon has made the point in terms of wider significance, the drafting in issue and the incorporation of 123 definition is something which has wide usage in the industry.
My Lord, for all those reasons we would ask that we do have permission to appeal against your Lordship's judgment.
I am aware that Mr. Sheldon may want to something about the timing. Your Lordship's order on the last occasion was to make an order that the appeal would be pursued with extreme diligence.
MR. JUSTICE BRIGGS: I think I suggested last time, did I not, that it was probably quicker to give you permission but attach some really nasty strings to it than to refuse it. I may have suggested that anyway, I have done on a number of occasions.
MR. FISHER: My Lord, I was not unfortunately there at the last hearing.
MR. JUSTICE BRIGGS: I can anticipate that there is urgency. There may be difficulty in it being dealt with in private in the Court of Appeal, but that is a separate problem.
MR. FISHER: There is both the locus point that your Lordship carved out in the last order, which was that you gave permission but without prejudice to the question of locus standi to appeal where we were not formally parties. My Lord, we can deal with that, we say, before the Court of Appeal.
MR. JUSTICE BRIGGS: Yes.
MR. FISHER: My Lord, in terms of the timing, perhaps I can get my shot in before Mr. Sheldon fires on this, we do need time to consider the judgment, we do need time certainly to analyse the commercial consequences of it for our client in the light of the notes it does hold and where its interests best lie. Advice needs to be given to the client and a decision is going to have to be made at a very high level in terms of whether or not an appeal is to be pursued.
Whilst we would want, and anticipate trying to bring the appeal on next week, my position is that I can undertake that we will notify the other parties as to whether or not we do intend to take up the permission to appeal by close of business UK time on Monday, and lodge an application, an appellant's notice on Tuesday, and then take all steps to have the matter brought on as quickly as possible.
MR. JUSTICE BRIGGS: So you would suggest undertaking to lodge by when?
MR. FISHER: To lodge the appellant's notice by 4.30 on Tuesday, my Lord, and we will give notice to all parties by ----
MR. JUSTICE BRIGGS: That is the 23rd, is it not – yes.
MR. FISHER: -- and give notice to all parties by 4.30 pm on Monday as to whether or not we do propose to move forward with your Lordship's permission for leave being granted.
My Lord, I appreciate there is urgency but, my Lord, realistically that is what I am in a position to offer your Lordship.
MR. JUSTICE BRIGGS: Right, who wants to respond to that?
MR. SHELDON: My Lord, the response in part may depend on whether there is going to be an application for some form of stay. In the light of your Lordship's judgment, and the clearly the Receivers will have to go away and check that there has been no change in the circumstances, but assuming there has been no change one would anticipate the determination of an Insolvency Event very soon.
MR. JUSTICE BRIGGS: Likewise, if a stay is not granted, an appeal would be nugatory, would it not?
MR. SHELDON: Exactly.
MR. JUSTICE BRIGGS: Bearing in mind the transaction which you hope to be able to negotiate.
MR. SHELDON: My Lord, once an Insolvency Event has been determined it would render an appeal nugatory because you cannot undo it really.
MR. JUSTICE BRIGGS: Until something is done pursuant to it it is a piece of paper.
MR. SHELDON: It is, but I think one would have anticipate that action would be taken pursuant to it and it could be very difficult to unravel.
My Lord, Mr. Fisher has not addressed that yet, but can I perhaps deal with the timing issue. We clearly need to know where we stand as soon as possible. There are these negotiations, refinancing negotiations, which are going on.
I must say, I am a little concerned that the timetable proposed by my learned friend is a little bit on the slack side. We really need to know whether or not there is going to be an appeal by the end of this week so that we can take steps – I do not know if your Lordship is in any position to assist on this – to have a hearing before the Court of Appeal next week. I think, on the timetable my friend suggests, that it is likely to push it back a week. What I would propose is that everyone be told by close of business on Friday. That should give my friend's clients enough time to think about it. Then we are in your Lordship's hands about when the notice of appeal is actually filed.
My Lord, I do not want to anticipate an application for a stay, my Lord, but it does raise issues about the holding the fort at the moment, but we do have certain -----
MR. JUSTICE BRIGGS: We had better deal with everything before we deal with any of it, I think. Logically, you deal with whether there is going to be an appeal first, but I take your point that a stay is closely bound up with it.
MR. SHELDON: Yes, as long as your Lordship is aware that there are suggestions that we have. I do not know if your Lordship wants to deal with that now.
MR. JUSTICE BRIGGS: Are those ones you have got, or just made?
MR. SHELDON: My Lord, there is another one, because the other issue is that if we do not, in the meantime, declare an Insolvency Event – if your Lordship were to direct us not to declare an Insolvency Event pending the outcome of an appeal – there is then the issue of the payments. There is $300 million which is due to be paid today.
MR. JUSTICE BRIGGS: So you want a stay of any further current payments so as to freeze the position all ways?
MR. SHELDON: Indeed, absolutely. My Lord, the third element of it is that we would invite your Lordship to direct us not to make a determination that Insolvency Event has occurred by reason of us not making those payments. My Lord, I do not know if it is helpful, I do have a form of words.
MR. JUSTICE BRIGGS: I am just wondering if I can do that. Can I do that? I cannot amend the parties' contract without their consent. It is common ground that if today $300 million is not paid there is an Insolvency Event. I suppose you would say it is one of those events rather like a temporary cash flow crisis, there is not really a commercial insolvency because it is just that some judge has interfered and stopped you paying when you have the money?
MR. SHELDON: My Lord, that is right. My Lord, there does not seem to be any alternative.
MR. JUSTICE BRIGGS: Yes, I can see the point. Otherwise you say all the parties are prejudiced by the stay in a way that is unnecessary?
MR. SHELDON: Yes, and it means that Mr. Fisher's clients, they win even though they have lost!
MR. JUSTICE BRIGGS: I can see the force of your point. I am just hesitant that I can, as it were, declare here and now without hearing any argument that if you did not pay the $300 million due today there would be no insolvency consequences.
MR. SHELDON: My Lord, with respect, it is almost the same as the position on the first limb.
MR. JUSTICE BRIGGS: I suppose what I could do is not to prevent you from declaring an Insolvency Event which would let you off paying the $300 million, because there had been an Insolvency Event and then you do not have to pay anything immediately, in the sense that what you do is you do an orderly administration, but not let you do a transaction which would prevent you going back to the current pay as you go regime if the Court of Appeal took a different view. I am just trying to think of a way of construing a stay in terms that would not involve the court magically varying the contract. I say that out of a desire to help, Mr. Sheldon.
MR. SHELDON: Yes, I do understand.
MR. MORTIMORE: My Lord, if I might assist. We have certainly come to the view that your Lordship was putting forward, namely that the consequences of your Lordship's decision on the first point are that the Receivers' are free to determine an Insolvency Event if they think fit.
MR. JUSTICE BRIGGS: And probably will.
MR. MORTIMORE: Consequent from that two things would follow. One is a payment, but the $300 million would not be paid today ----
MR. JUSTICE BRIGGS: But is kept safe.
MR. MORTIMORE: -- and there are further outflows over the next days certainly into next week, very serious outflows.
The other matter is the potential sale which might render the appeal nugatory.
As regards the Insolvency Event and payments out, the position would be that if the Court of Appeal took a different view the determination by the Receivers on the basis of your Lordship's interpretation would simply be a nullity.
MR. JUSTICE BRIGGS: They would all be paid slightly late, and it would harder in those circumstances for anybody to say that that was because of the insolvency, it was because a judge got it all wrong.
MR. MORTIMORE: It comes entirely within the temporary blip in the Australian cases, so that no one would be the worse off. That is not a problem. The only problem one is left with then is the major sale, and that must be dealt with, as my learned friend says, by a highly urgent application to the Court of Appeal, so that we are definitely in the Court of Appeal next week.
MR. JUSTICE BRIGGS: Which is perfectly attainable, I know, because it has happened on other occasions.
MR. MORTIMORE: My Lord, that is our position.
MR. JUSTICE BRIGGS: Yes, understood. Mr. Pascoe?
MR. PASCOE: My Lord, we would support the position Party B. There are very substantial funds to be paid out shortly which should not be paid out.
MR. JUSTICE BRIGGS: If they declare insolvency.
MR. PASCOE: My Lord, yes, but at the same time the appeal needs to be done very urgently. While it is obviously right that a transaction such as the proposal should not be entered into pending an appeal, but the quid pro quo for that, given that there must be a risk that ----
MR. JUSTICE BRIGGS: Is that they get on with the appeal.
MR. PASCOE: Absolutely, my Lord, and the timescale that my learned friend Mr. Fisher was suggesting ----
MR. JUSTICE BRIGGS: The only slight downside is that if you put somebody under such a timetable to appeal, they spend all their living moments just doing it without thinking whether it is a good idea or not. It has happened before. I suspect that is what is behind Mr. Fisher's sensible observation that a moment for a cooling off period might be sensible.
MR. PASCOE: My Lord, plainly an opportunity has to be given to consider the application for leave, but that has got to be a compressed one. We do say that Mr. Fisher's timetable is too leisurely.
MR. JUSTICE BRIGGS: Yes, very well.
MR. BAYFIELD: My Lord, I do not think I can usefully add anything.
MR. JUSTICE BRIGGS: Well, Mr. Fisher? Do you want to say anything else before we go back to Mr. Fisher?
MR. SHELDON: My Lord, I am just a little bit concerned. If we do make a determination that an Insolvency Event has occurred we have to give notice, and there is, I think, a very real issue which I think we need to think about a little bit more about whether you can undo the Insolvency Event if the Court of Appeal were to disagree with your Lordship.
MR. JUSTICE BRIGGS: Tell me why you cannot. There may be an issue, but at the moment I have not seen it. It may be that Mr. Fisher should be telling me.
MR. SHELDON: Yes, I will see what he has to say.
MR. JUSTICE BRIGGS: At the moment my impression is that providing nothing is done which would prevent a return to the pay as you go regime if the determination and any notice is given pursuant to it were held to be invalid, then what is the problem? I may be wrong. You know this more deeply than, Mr. Sheldon.
MR. SHELDON: I think there is concern about the effect on the rating, for example.
MR. JUSTICE BRIGGS: On the what?
MR. SHELDON: On the rating of the ----
MR. JUSTICE BRIGGS: I suppose there will be – with all that hindsight delivered by the Court of Appeal – a temporary blip in your ratings.
MR. SHELDON: That may be, although of course one does not know what knock-on effect it will have.
MR. JUSTICE BRIGGS: Let us hear from Mr. Fisher. I can rise while you take instructions if there are thought to be other problems you have not had a chance to formulate.
MR. FISHER: My Lord, I am grateful for that. My Lord, I had left the stay to one side simply because I could tell it was going to be most difficult, and I will not mention anything again on the permission to appeal point.
On the stay point, Mr. Pascoe set out timetable is somewhat leisurely, but we will not get the approved judgment, or at least the transcript of the judgment until about 24 hours time from now and we have got to take instructions ----
MR. JUSTICE BRIGGS: I am slightly surprised there has not been a shorthand writer in court if it is all that urgent. There has, good. Madam Shorthand Writer, when do we think, in practice, a judgment could be available?
SHORTHAND WRITER: Tomorrow morning.
MR. JUSTICE BRIGGS: Any rough idea of time, one for correction by parties and me.
SHORTHAND WRITER: Tomorrow morning.
MR. JUSTICE BRIGGS: There you are, Mr. Fisher.
MR. FISHER: My Lord, I am grateful for that. We do need to consider it, and, as your Lordship said, it is appropriate that my clients are given advice on the merits of proceeding with an appeal and whether or not it is in their best interests to do so and that there are grounds to do so before heading off to the Court of Appeal willy-nilly and just trying to get an appeal in because it suits everyone else in the circumstances. My Lord, that is what I say in terms of permission and the timing.
The only undertakings I am in a position to give to your Lordship are those which I set out when I was on my feet a few moments ago. If your Lordship puts a tighter timetable on it, then so be it, but we do need time to consider it carefully and those are the undertakings I am instructed to give.
My Lord, in terms of a stay, we would just make a couple of observations. The current position, assuming your Lordship is minded to give permission, is that the Receivers have a judgment, but it will be one in respect of which your Lordship has given permission, and therefore it is accepted that there is a real prospect that the Court of Appeal may go the other way.
MR. JUSTICE BRIGGS: Yes, real, in the sense of more than fanciful.
MR. FISHER: A real prospect of success, my Lord, yes.
My Lord, it is then a matters for the Receivers, in the light of that judgment, as to whether they feel confident enough in circumstances, where your Lordship has given a judgment which they say has one conclusion but permission has been given to appeal, to call an Insolvency Event.
My Lord, in terms of a stay, my clients would like the position to be preserved so that an appeal is not rendered nugatory. It does seem to us that a sensible solution to that would be that payments are not made on a pay as you go basis, but that a book sale is not effected so that there is no irreversible change of position. Then, were the Court of Appeal to say we disagree with your Lordship and give directions which therefore lead to the Receivers to reconsider whether or not an Insolvency Event had occurred, the position, albeit there would be some late payments, could be restored to that which ----
MR. JUSTICE BRIGGS: That is very helpful. The question is where does the determination of Insolvency Event fit into that. Which side of the dividing line does that come? At the moment I have some difficulty in seeing how the Receivers can stop payments unless they determine an Insolvency Event. I cannot rewrite the contract. Until then, how can they stop payments?
MR. FISHER: My Lord, there is a limited degree of comfort that my clients can give, and your Lordship can give to the Receivers in the circumstances. We would ask for a stay to the extent that it is necessary to protect the ability of the appeal to go forward. It will remain a question for the Receivers as to whether or not, in the light of the judgment, where leave to appeal has been given, whether they feel they should declare an Insolvency Event.
MR. JUSTICE BRIGGS: I see, leave it to the Receivers, not stay it. Thank you. That is helpful. I think everybody has had their say on the subject.
As for getting this judgment perfected into a state when the Court of Appeal have it, it may be sensible at the moment the Shorthand Writer has obtained it in transcript form, for it to be immediately distributed in that form to the parties so that I can receive, as quickly as possible, comments on it. For my part, it would be easiest if I could receive the comments of all the parties, as it were, collected on to one version of the judgment, rather than have to develop four eyes and look at four parallel sets of comments.
MR. SHELDON: My Lord, we will undertake to take charge of that and gather all the parties' comments.
MR. JUSTICE BRIGGS: What I would like to have is one draft back with all the comments on it. I do not really mind who the comments come from. They can all be in the same colour. Indeed, they can all be, if necessary, if it is an electronic document, in the form of proposed track changes. I do not mind how it is done. That seems to me the quickest way of getting an approved judgment to the Court of Appeal.
MR. SHELDON: My Lord, we will undertake to gather comments and then pass them to your Lordship.
MR. JUSTICE BRIGGS: Good, and I will simply do my best to get it out as quickly as I can.
MR. SHELDON: The only thing is, would your Lordship give liberty to apply?
MR. JUSTICE BRIGGS: What sort of liberty to apply? I have given you liberty to apply to the Court of Appeal. If it is something to do with the appeal, it seems to me they have got carriage of it rather than me once the appeal is under way. What did you have in mind?
MR. SHELDON: My Lord, it is the unforeseen.
MR. JUSTICE BRIGGS: All right, but do not assume that if you apply to me I will not send you off to the Court of Appeal.
MR. SHELDON: We do understand that now that your Lordship has dealt with the matter. It is just that there may be something new that arises.
MR. JUSTICE BRIGGS: In particular, if, on reflection, you realise there is some irretrievable consequence of an Insolvency Event determination that nobody has yet thought of.
MR. SHELDON: Yes.
MR. JUSTICE BRIGGS: Very well. I will give all parties liberty to apply but I think they should do it on notice to the Receivers, if it is not the Receivers.
MR. SHELDON: I am obliged. Would your Lordship give me a minute. (After a pause) My Lord, I have assumed, and I am asked just to confirm this, that if we think it is a good deal we can continue to make piecemeal sales of assets. I think when your Lordship said ----
MR. JUSTICE BRIGGS: I have said nothing to stop you.
MR. SHELDON: Absolutely, I did not think your Lordship had.
MR. JUSTICE BRIGGS: If someone comes and offers you something which you should bite their hands off for, I do not see why you should not sell it. Insolvency does not seems to me to have fundamental consequence in terms of your power of sale, it just changes the objectives.
MR. SHELDON: It just changes the objectives, and the size of the body which we must principally have regard to.
MR. JUSTICE BRIGGS: Very well. Thank you for all your assistance.