It was argued that the pari passu distribution of assets among unsecured creditors was a general rule of insolvency law from which it was not possible to contract out, even to one’s own disadvantage, particularly by analogy with cases on set-off in insolvency.
Held: This was not the law. There was no reason why a particular creditor should not waive his right to prove altogether, or save to the extent of assets remaining after another creditor is satisfied, and that he could do this either in the insolvency or in advance of it.
Vinelott J explained his decision in In re British and Commonwealth plc (No 3): ‘I took the view that to the extent that the assets of the company were insufficient to meet the liabilities to unsecured creditors, other than the holders of the loan stock, the holders of the loan stock had no interest in the assets of the company and no right to vote at a meeting of unsecured creditors, that in the very unlikely, indeed, merely theoretical possibility that the realisation of the company’s assets would suffice to meet the claims of the scheme creditors, the rights of the holders of the unsecured loan stock would be unaffected by the scheme; and that in these circumstances the liquidator [sic – he must have meant administrator] could properly call a meeting of the scheme creditors alone, and if the scheme of arrangement was approved, apply to the court to sanction the scheme.’
Judges:
Vinelott J
Citations:
[1993] 1 WLR 1402
Jurisdiction:
England and Wales
Citing:
Cited – In re British and Commonwealth plc (No 3) ChD 1992
Bonds were subordinated in a winding up, and the company was in administration in which the administrators were proposing a scheme of arrangement. The judge was invited to apply the Tea Corporation principles in order to arrive at a conclusion that . .
Cited by:
Cited – Mytravel Group Plc, Re Companies Act 1985 ChD 24-Nov-2004
The company sought approval of a proposed reconstruction under the section.
Held: Approval could not be given. To count as a reconstruction two principal qualities were required. The business carried on should be the same or similar, and those . .
Cited – Belmont Park Investments Pty Ltd v BNY Corporate Trustee Services Ltd and Another SC 27-Jul-2011
Complex financial instruments insured the indebtedness of Lehman Brothers. On that company’s insolvency a claim was made. It was said that provisions in the documents offended the rule against the anti-deprivation rule. The courts below had upheld . .
Lists of cited by and citing cases may be incomplete.
Company, Insolvency
Updated: 16 May 2022; Ref: scu.220257