Marconi Corporation Plc (now Telent Limited), Re

When giving directions under a complex commercial scheme, the court must construe the scheme as a whole and in its commercial context. Detailed wording should yield to business common sense where a literal construction would frustrate the scheme’s purpose. A residue arising from unsuccessful attempts to distribute scheme consideration should ordinarily be applied consistently with the scheme’s express distribution principles. Where creditors were treated as a single class and the scheme incorporates pari passu distribution, the residue should generally be distributed equally among known and traceable creditors in proportion to their claims. Prolonging administration to preserve possible claims of untraceable creditors is inappropriate where exhaustive enquiries have been made and termination of the scheme was contemplated.

The supervisors of schemes of arrangement sanctioned in 2003 applied for directions under section 425 of the Companies Act 1985. The schemes concerned the restructuring of Marconi Corporation Plc and Marconi Plc and the distribution of approximately £9.9 billion of creditor claims.

A small residue remained because some bondholders had not submitted valid Account Holder Letters or had supplied incomplete or inaccurate payment details. The court had to decide how that residue should be distributed before the schemes were terminated. The principal issue was whether it should be shared among all eligible creditors or only among bondholders whose designated recipients had satisfied the relevant conditions.

1. The court directed that the residue be distributed to eligible recipients under Option 1: non-bondholder admitted scheme creditors and designated recipients satisfying the relevant conditions were to share it pari passu according to their claims.

2. The court adopted the ordinary principles of commercial construction. The language, background and natural meaning of the instruments had to be considered as a whole. An over-literal construction was inappropriate where it defeated business common sense or the commercial purpose of the arrangements. The court applied the principles discussed in Rainy Sky SA v Kookmin Bank [2011] UKSC 50, Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, Antaios Compania Naviera S.A. v Salem Rederierna A.B. [1985] AC 191 and Re Sigma [2009] UKSC 2.

3. The relevant scheme provisions gave the court an unfettered discretion concerning the residue. The express incorporation of liquidation distribution principles, particularly pari passu distribution, supported applying equality at the level of the individual creditors actually receiving distributions. Treating the residue as available only to qualifying bondholders would give them an unmerited advantage over non-bondholder creditors who formed part of the same class.

4. Payment to the companies, the trustees, the Crown, or into court was rejected. The residue was intended for scheme creditors, not the companies, and the trustees acted only in their fiduciary capacity. A Re Benjamin [1902] 1 Ch 723-type solution was inappropriate in this commercial context because exhaustive tracing efforts had been made, valid account-holder information had long been required, and the schemes were intended to end once distributions were completed.