Update - Waterfall II Application (the “Application”) – Supplemental Issue 1(a) Hearing – 29 June 2016

As explained in previous updates, further to the judgment of Mr Justice David Richards (as he then was) in relation to Tranche A of the Application and pursuant to the consequential issues hearing before the Judge on 9 October 2015, written submissions were filed by the parties in respect of Supplemental Issue 1(a) in December 2015 to be considered by Mr Justice Hildyard. 

Supplemental Issue 1(a) asks the Court:  

“Whether, and in what circumstances, the words ‘the rate applicable to the debt apart from the administration’ in Rule 2.88(9) of the Rules include, in the case of a provable debt that is a close-out sum under a contract, a contractual rate of interest that began to accrue only after the close-out sum became due and payable due to action taken by the creditor after the Date of Administration”.

On 27 May 2016, the clerk to Mr Justice Hildyard sent an email to the parties’ legal representatives requesting a short oral hearing to clarify certain aspects arising from Supplemental Issue 1(a). Accordingly, a hearing was held on 24 June 2016 to address the following questions raised by the Judge in respect of Supplemental Issue 1(a):

1)  “What if any reliance the parties respectively place on the Tael decision; whether a contractual right which is subject to a contingency which has not yet been and may never be fulfilled can be said to be an 'accrued right'; whether a rate of interest can be said to ‘apply’ (a) in the case of a right that has not yet accrued or (b) where the right can be said to have accrued, but the conditions to which it is subject before any entitlement crystallises have not been fulfilled.”

2)  “Whether, to constitute ‘the rate applicable to the debt apart from the administration’, the rate to which the creditor is contractually entitled must be one that would have been available at the Date of Administration had any contingencies to which the contractual entitlement is subject been fulfilled at that time.”

3)  “Whether ‘the rate applicable to the debt apart from the administration’ may be a floating or variable rate, or whether the actual rate must be fixed as at the Date of Administration.”

4)  “Any other points that arise in consequence or which the parties wish to emphasise especially.”

On 23 June 2016, the following written submissions were filed and served ahead of the hearing:

• The Senior Creditor Group's written submissions dated 23 June 2016
• Wentworth's written submissions dated 23 June 2016
• York's written submissions dated 23 June 2016
• The Joint Administrators' written submissions dated 23 June 2016

Goldman Sachs International did not file any written submissions but confirmed to the Court that they agreed with the Senior Creditor Group’s answers to the Judge’s questions, as set out at paragraph 18 of the Senior Creditor Group’s written submissions.

The parties engaged a transcriber to produce a transcript of the Supplemental Issue 1(a) hearing. The hearing transcript can be found below. 

• Hearing Transcript - Friday 24 June 2016

Please note that: 

• the transcript is published in the form received from the transcriber (i.e. prior to review by any party to the Application and without corrections); 
• the parties reserve the right to post an amended version of the transcript should they consider it necessary, but accept no responsibility for doing so; and 
• the LBIE administrators are posting such transcript solely for the convenience of interested third parties and neither they nor any other party to the Application makes any representation as to the accuracy of such transcript nor accepts any responsibility for any inaccuracies contained within it.

Should you have any queries regarding this update, please contact LBIE’s Communications and Counterparty Management team at generalqueries@lbia-eu.com.