Kaupthing Singer & Friedlander Ltd, Re: the Insolvency Act 1986

The Chancellor considered whether Kaupthing HF ('KHF') should be permitted to continue proceedings in Iceland and/or England to rescind and recover two payments made by KHF to Kaupthing Singer & Friedlander Ltd ('KSF') in May 2008, and whether any successful claim would give rise to a provable debt in the administration of KSF. The court applied Directive 2001/24/EC (the RWR), in particular Articles 9, 10 and 30, and the implementing UK Credit Institutions (Reorganisation and Winding-up) Regulations 2004 (CIR) (notably regs 22 and 30), together with Schedule B1 para 43 Insolvency Act 1986 and Insolvency Rules 12.3 and 13.12.

The court held that under Icelandic law (Icelandic Bankruptcy Act Articles 134 and 142) the remedies sought by KHF would not have given rise to an obligation on KSF capable of being a provable debt in KSF's administration as at 8 October 2008 because the right to rescind and to require repayment depended on KHF being in liquidation. Accordingly KHF had no provable debt under IR 13.12(1)(b) as at the relevant date. The court also held that, because CIR gives effect to RWR, permission of the English court (or the administrator) was required before extra‑territorial proceedings against a UK credit institution in administration could be commenced or continued, and accordingly granted permission only to continue proceedings in Iceland and refused permission to continue or commence parallel proceedings in England. Permission to pursue the Icelandic proceedings was conditional: KHF may not seek to enforce any order obtained in Iceland against KSF in England except by way of set-off in KHF's Icelandic liquidation.

Background and parties. KHF (Icelandic holding company) and KSF (English incorporated bank in administration) entered transactions in May 2008 whereby KHF bought bonds from KSF and paid monies to KSF. KSF was placed into administration on 8 October 2008. Following KHF's liquidation in Iceland, KHF sought to rescind the May 2008 payments under Articles 134 and 142 of the Icelandic Bankruptcy Act and to recover the amounts. KHF applied for permission to pursue proceedings in Iceland and England to obtain rescission and repayment; the administrators of KSF sought (i) a declaration whether any recovery would be a provable debt in the administration and (ii) directions under paragraph 63 Schedule B1 Insolvency Act 1986 as to provable debts.

Procedural posture and experts. The English High Court heard the Permission Application and a separate Provable Debt Application. Both sides relied on expert evidence about Icelandic law (conflicting reports). Arnold J had earlier given limited permission to commence proceedings. The issues came before the Chancellor at first instance.

Nature of the relief sought. (i) Permission under paragraph 43 Schedule B1 Insolvency Act 1986 (as applied by CIR reg 22(3)(f)) to continue proceedings in Iceland and/or England to rescind and recover payments under Icelandic law; (ii) a declaration whether any recovery would be a provable debt in KSF's administration.

Issues framed by the court. (1) Whether the court should give permission for KHF to continue either or both of the proceedings in Iceland and England to recover the payments; and (2) whether, if successful, KHF would be entitled to prove in KSF's administration for the amounts recovered.

Reasoning and findings. The court analysed RWR (Articles 9, 10 and 30) and CIR (regs 5, 22 and 30) and concluded that CIR gives effect to RWR so that the law of the home Member State governs the effects of winding up on proceedings by individual creditors, save where Article 30 applies. The court held that paragraph 43(6) Schedule B1 (the administration moratorium) applies to proceedings in other EEA states where CIR applies, so permission of the English court (or administrator) was required to continue proceedings abroad against a UK credit institution in administration. On provability the court construed Insolvency Rules 12.3 and 13.12 and concluded that the relevant date for provability was 8 October 2008; because the remedies under IBA Arts 134 and 142 depended on KHF being in liquidation, no obligation on KSF to repay crystallised for the purposes of IR 13.12(1)(b) at that date. The expert evidence was examined and the court found that, while experts differed on whether the repayment claim 'arose' on receipt, the remedies were not enforceable until a court order following KHF's liquidation. Consequently the court declared that any claim by KHF, if established, would not be a provable debt in KSF's administration. The court exercised its discretion to grant permission to continue proceedings in Iceland but refused permission to litigate in England, imposing a condition that any Icelandic judgment could not be enforced against KSF in England except by way of set-off in KHF's Icelandic liquidation.

Wider context. The court commented on the importance of applying RWR and CIR to credit institutions and on the limited territorial effect of administration moratoria where EU rules require deference to home‑state insolvency measures; it declined to refuse Icelandic proceedings on the basis that Article 30 defences would be better advanced in England and emphasised comity with the Icelandic liquidation.

This was a first instance decision. The court declared that the claims which KHF sought to pursue in Iceland (and any similar claims in England), if successful, would not give rise to any provable debt in the administration of KSF because the remedies under the Icelandic Bankruptcy Act (Articles 134 and 142) depended on KHF being in liquidation and therefore no obligation capable of being a provable debt existed as at 8 October 2008. The court granted permission under paragraph 43 Schedule B1 (as applied by CIR reg 22(3)(f)) for KHF to continue the proceedings in Iceland but refused permission to pursue similar proceedings in England; the Icelandic permission was given on the condition that KHF will not seek to enforce any Icelandic order against KSF in England other than by way of set-off in KHF's Icelandic liquidation. The court's reasoning rested on the interaction of Directive 2001/24/EC (Articles 9, 10 and 30), the Credit Institutions (Reorganisation and Winding-up) Regulations 2004 (regs 22 and 30), Insolvency Rules 12.3 and 13.12 and the Icelandic Bankruptcy Act Articles 134 and 142.