Whistlejacket Capital Ltd, Re

Contractual insolvency provisions must be construed by reference to their language, linked documents and commercial purpose, while respecting the parties’ allocation of risk. An insolvency early-redemption clause may replace stated maturity dates for notes outstanding when the insolvency event occurs, but it does not retrospectively affect notes already due and unpaid before that event. Where a security trust deed directs payment pari passu of amounts “then due”, distributions must be made among creditors whose debts are currently due, without reserving funds for future debts. Express contractual obligations imposed on receivers cannot be displaced by general management discretion.

The receivers of a structured investment vehicle sought directions concerning US medium-term notes and the distribution of assets following an insolvency acceleration event. Two interested noteholders argued that notes due before the insolvency redemption date remained payable on their stated maturity dates and that distributions had to be made only to creditors whose debts had fallen due. The receivers contended that the insolvency provisions placed all relevant noteholders into a common redemption regime and permitted pari passu provision for debts not yet due. The court determined the construction of the note documents and the security trust deed.

1. US medium-term notes. Section 10.01(c) of the Indenture applied to Party B’s notes and to other US medium-term notes whose stated maturity dates fell after the insolvency redemption event. The calculation of the Enforcement Redemption Amount from the date of that event, together with interest until the Insolvency Redemption Date, created a coherent regime substituting a deemed payment date for the stated maturity dates of notes then outstanding. The court rejected arguments based on the headings “Insolvency Early Redemption” and “Insolvency Acceleration Event”.
2. Party A’s notes. Section 10.01(c) did not apply where the notes had already fallen due before the insolvency notice. Under sections 9.02(a) and 9.02(h) of the Indenture, and clause 2 of the Security Trust Deed, the amount due on Party A’s notes should have been deposited with the paying agent before 10 am on 15 February 2008. The failure to pay was a breach of contract. The later notice at 1.38 pm could not retrospectively place Party A within the insolvency redemption regime. Distinctions between different parts of the day were material under the relevant calculation provisions.
3. Distribution of assets. Clause 6.6.3 of the Security Trust Deed required money received by the receivers to be paid pari passu and pro rata among Senior Creditors in respect of amounts then due. It did not permit the receivers to reserve money for debts not yet due. The clause operated both before and after an insolvency acceleration event, and its meaning did not change when that event occurred.
4. The possibility that the interpretation would cause some creditors to be paid earlier than others did not make it absurd or unworkable. General principles concerning receivers’ management discretion could not qualify or oust the express obligations imposed by the Security Trust Deed and the Deed of Appointment.