Update – Announcement on a proposal for a full and final settlement in respect of surplus entitlements and the payment of statutory interest – 22 December 2017

As referred to in the Joint Administrators’ 18^th Progress Report dated 9 October 2017, the Joint Administrators remain committed to exploring consensual options for determining creditor entitlements to LBIE’s surplus in a manner that will allow for the payment of statutory interest. We have maintained a dialogue with stakeholders with a view to achieving this aim.

In this regard, the Joint Administrators are pleased to inform creditors that they are preparing a proposal (the “Proposal”) which will provide for the full and final settlement of predominantly all litigation, disputes and claims in respect of entitlements to LBIE’s surplus and, as a result, allow the payment of statutory interest and, potentially, LBIE’s subordinated debt.

The Proposal has been discussed with the Wentworth group (“Wentworth”) and the Senior Creditor Group (“SCG”), who have both entered into a legally binding commitment to support the Proposal.

A brief description of the key terms of the Proposal are set out below.

Key terms of the Proposal

It is anticipated that the Proposal will be implemented by way of a scheme of arrangement pursuant to the UK Companies Act 2006 (the “Scheme”) and will include the following key features:

• the full and final settlement of the Waterfall IIA (insolvency law matters) litigation and the Waterfall IIC (ISDA Default Rate) litigation on terms that the existing judgments apply;
• payment of statutory interest (subject to any relevant deductions in respect of UK withholding tax (“WHT”), as further described below) in one of the following ways:
  • creditors with admitted ordinary unsecured claims, where no higher rate of contractual interest can apply to their claim, will receive a payment of statutory interest at a simple rate of 8% p.a. Such payment will be calculated in respect of the period from the date of LBIE’s administration up to the date(s) when the principal amount(s) of each such proved claim was paid in full and will be made as soon as LBIE is able to after approval and sanction of the Scheme;
  • the holders of the c. 800 claims that may attract a rate of interest above 8% p.a. (“relevant contractual interest claims”), will elect either to:
    • accept a payment of statutory interest at a simple rate of 8% p.a. together with an additional settlement payment equal to 2.5% of the value of their relevant admitted ordinary unsecured claim(s) in full and final settlement of their relevant contractual interest claims. Such payment is to be made as soon as LBIE is able to after approval and sanction of the Scheme; or
    • submit a certification for the rate of interest applicable to their Relevant Contractual Interest Claims. In the case of ISDA Master Agreements, such certification shall be based on the principles established by the High Court judgment in respect of Waterfall IIC (the “Judgment”) for the rate of interest applicable to their relevant contractual interest claim(s). If LBIE disputes the claim for interest in a creditor’s certification, then such dispute will be resolved through an expedited out of court dispute resolution process (in respect of ISDA Master Agreements, applying the principles from the Judgment). The outcome of the dispute resolution process will be final and binding on creditors, with no right of appeal, and no right to claim the 2.5% settlement payment, including in circumstances where that certification had been rejected. Creditors will receive payment in respect of their statutory interest entitlement, once such entitlement had been determined as a result of the certification process (including, where relevant, completion of the dispute resolution process);
• beneficial holders of relevant contractual interest claims will be required to make the same election in respect of all their relevant contractual interest claims. A creditor cannot elect to receive the 2.5% settlement payment in respect of certain of the relevant contractual interest claims it holds as beneficial holder and to submit a certification for others;
• if all holders with a relevant contractual interest claim were to accept the settlement payment the aggregate settlement payment would be approximately £110 million;
• the full and final determination of all creditor entitlements to LBIE’s surplus (including full and final settlement of any claim that creditors’ statutory interest entitlements would be impacted if LBIE was to enter liquidation) and the full release by all creditors of their rights to bring actions or disputes in the future in respect of their (or any other creditors’) entitlement(s) to LBIE’s surplus; and
• the creation of a bar date, such that any party wishing to participate in the distribution of LBIE’s surplus will have to notify the Joint Administrators of their claim by a specified date.

Under the Scheme, ordinary unsecured claims will be in a separate class from relevant contractual interest claims. Holders of claims may have a vote in more than one class depending on their circumstances.  Approval by a majority of creditors (both in number and at least 75% by value) in each class will be required for the Scheme to become effective. 

UCC3s

As an interim step, UCC3s have been issued for all creditors and are now available on the portal in the usual way. The details within the relevant UCC3s will be defining as regards the calculation of voting entitlements, the constitution of classes and remittances to be made under the Proposal. Accordingly, all creditors are encouraged to review carefully the information contained in their respective UCC3(s). Creditors should confirm their agreement of the information set out in their UCC3s, or, should a creditor dispute any element of its UCC3(s), it should provide details of its objection to LBIE in writing together with supporting evidence by email to UCC3queries@lbia-eu.com by no later than 5pm GMT on 19 January 2018.

WHT

Given the litigation regarding whether there is an obligation to deduct WHT (the “WHT Litigation”), appropriate mechanics will be needed in the Proposal to cover the following circumstances:

1. a final decision in respect of the WHT Litigation determines that no WHT obligation arises (in which case, either no deductions for WHT will be made or such deductions will be distributed);
2. a final decision in respect of the WHT Litigation determines that WHT does apply and requires withholding in relevant circumstances (in which case, LBIE would encourage all creditors to review their own tax situation); or
3. the WHT Litigation remains ongoing and so an appropriate withholding reserve of at least 20% will be made in most, if not all, instances.

As notified on 20 December 2017, the Joint Administrators are reviewing matters in respect of WHT generally following the recent ruling handed down on 19 December 2017.

Next Steps

As stated above, the Joint Administrators have received a legally binding commitment to support the Scheme from both Wentworth and the SCG. Wentworth and the SCG have also provided a legally binding commitment to accept the settlement payment rather than seek to submit a certification for consideration, in respect of any relevant contractual interest rate claims they each hold.

The Joint Administrators intend to:

• launch the proposed Scheme in the first quarter of 2018;
• hold the convening hearing and creditor meetings around the end of the first quarter of 2018; and
• effect a payment in respect of statutory interest to relevant creditors early in the second quarter of 2018.

Creditors can notify the Joint Administrators of their views in respect of the Proposal, by email to schemequeries@lbia-eu.com.

Further announcements will be made in due course as matters develop.