Purposive Approach Taken To Decide How Undistributed Assets Under A Scheme Of Arrangement Should Be Treated

Key points

When asked for directions to resolve issues arising in relation to schemes of arrangement, courts can take a purposive approach taking into account the apparent aims of the scheme of a whole. Pari passu treatment of creditors is a paramount concern in English insolvency. The facts

In 2003, schemes of arrangement pursuant to section 425 of the Companies Act 1985 were sanctioned in respect of Marconi Corporation Plc ("Corp") and Marconi Plc ("Plc") under which the claims of all the creditors of Corp and Plc (with certain exceptions) were cancelled in consideration for distributions of assets ("Scheme Consideration") pro rata to creditors' claims. Somewhat unusually, all creditors voted in respect of each scheme as one class, despite their differing categorisation - for example, the most significant groups of creditors were lenders under bank facility agreements, bond holders (Eurobond and Yankee bonds) and intercompany creditors. The total potential claims which were extinguished under the schemes were valued at £5.2 billion in relation to Corp, and £4.7 billion in relation to Plc.

Several interim distributions of the Scheme Consideration were made over the course of almost 10 years. However, a comparatively small residue of the Scheme Consideration and accrued interest remained undistributed which was being held to the order of the bond trustees. As at 28 September 2012, the residue amounted to approximately £1.3 million and US$ 2.9 million. The terms of the schemes provided that before distribution could be made in respect of a bond holder's claim, an "Account Holder Letter" should be provided specifying a "Designated Recipient" including account details. In respect of a number of bond holders ("Residue Bond Holders"), no Account Holder Letter had been received at all or the Account Holder Letter submitted was either incomplete or contained incorrect details. Attempts had been made by the supervisors of the schemes over the years to contact the Residue Bond Holders to obtain complete Account Holder Letters. These attempts were not completely successful, meaning that distributions in respect of the remaining Residue Bond Holders claims could not be made, resulting in the residue being held.

The scheme documentation was not prescriptive as to how such residue should be treated, simply stating that the relevant part of the Scheme Consideration should be held to the order of the bond trustees with scant further guidance as to the...