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

In the administration of an EEA credit institution, the home-state insolvency regime governs the effects of the administration on creditor proceedings, subject to the statutory exceptions. The moratorium in paragraph 43 of Schedule B1 to the Insolvency Act 1986, as applied by the Credit Institutions (Reorganisation and Winding Up) Regulations 2004, therefore required permission for proceedings against the English institution in another EEA state. A claim based on foreign avoidance provisions was not a provable debt where, at the administration date, the foreign creditor’s subsequent liquidation—and therefore the statutory right to rescind—was neither existing nor objectively in prospect. Permission was granted for the foreign proceedings only, subject to a condition preventing enforcement against the English administration except by set-off.

Kaupthing HF, an Icelandic credit institution and holding company of Kaupthing Singer & Friedlander Ltd, bought bonds from its English subsidiary in May 2008. KSF entered administration in England on 8 October 2008. KHF was later placed into liquidation in Iceland and sought to rescind the payments under articles 134 and 142 of the Icelandic Bankruptcy Act.

KHF applied for permission to continue proceedings in Iceland and England. The administrators sought directions on whether any resulting liability would constitute a provable debt in KSF’s administration. The central issues were whether the claims were obligations incurred before administration and whether the English moratorium applied to proceedings brought in another EEA state.

1. Provable debt. The claims under articles 134 and 142 of the Icelandic Bankruptcy Act depended upon KHF entering liquidation. At 8 October 2008, KHF had no rights under those provisions capable of being exercised against KSF. The possibility that KHF might later be wound up was insufficient to constitute an obligation then incurred by KSF.
2. The authorities on contingent or future liabilities, including Glenister v Rowe [2000] Ch 76, R (Steele) v Birmingham City Council [2006] 1 WLR 2380, Day v Haine [2008] BCC 845 and Unite the Union v Nortel Networks UK Ltd [2010] BCC 706, did not justify recognising an obligation dependent on the future liquidation of KHF. A declaration was accordingly made that the claims, if successful, would not be provable debts in KSF’s administration.
3. Permission for proceedings. Article 10(e) of the Reorganisation and Winding-up Directive and regulations 22(3)(f) and 30 of the Credit Institutions (Reorganisation and Winding Up) Regulations 2004 meant that paragraph 43 of Schedule B1 to the Insolvency Act 1986 applied to proceedings against KSF in any EEA Member State. The ordinary principle that the moratorium lacked extra-territorial effect, recognised in Re Oriental Steam Co LR 9 Ch App 557 and Harms Offshore AHT Taurus GmbH v Bloom [2010] Ch 187, did not apply to a credit institution governed by the Regulations.
4. Permission was refused for similar proceedings in England because no provable debt could result. Permission was granted to continue the Icelandic proceedings because they could affect set-off in KHF’s Icelandic liquidation and involved reserve defendants. The permission was conditional on KHF not enforcing any order against KSF, save by way of set-off in KHF’s Icelandic liquidation.