Lomas & Ors v Burlington Loan Management Ltd & Ors

Releases in insolvency agreements require clear words before they will be construed as surrendering significant rights, particularly rights not connected with the agreements’ commercial purpose. Claims Resolution Agreements and Claims Determination Deeds did not release creditors’ currency conversion claims or statutory interest claims. Currency conversion claims remained claims arising from the underlying foreign-currency debts, despite contractual amounts being expressed in US dollars or sterling for administrative purposes. The mandatory conversion regime under rule 2.86 of the Insolvency Rules 1986 could not be displaced by agreement. If the agreements had released currency conversion claims, enforcing those releases would have been unfair and the administrators would have been directed not to enforce them under the principle in Ex parte James and paragraph 74 of Schedule B1 to the Insolvency Act 1986.

The joint administrators of Lehman Brothers International (Europe) sought directions on the effect of post-administration agreements with creditors. The agreements comprised a multi-lateral Claims Resolution Agreement and bilateral Claims Determination Deeds. The application concerned whether those agreements released or modified creditors’ claims to statutory interest and currency conversion claims arising from foreign-currency debts.

The administrators adopted a largely neutral position. The respondents advanced competing submissions on behalf of senior and subordinated creditors. The central issues were the construction of the agreements, the mandatory effect of rule 2.86 of the Insolvency Rules 1986, and whether any release should be unenforced as unfair.

1. Currency conversion claims. Neither the Claims Resolution Agreement nor any Claims Determination Deed released currency conversion claims. The agreements were intended to accelerate and simplify the ascertainment of claims and distributions. Releasing currency conversion claims was unrelated to those purposes and would create unjustified discrimination between creditors. Clear words would have been required.

2. The use of US dollars in the Claims Resolution Agreement and the use of sterling in some Claims Determination Deeds were currencies of account for determining net positions or admitted claims. They did not replace the underlying foreign-currency obligations. Rule 2.86 of the Insolvency Rules 1986 was mandatory and required debts incurred or payable in a foreign currency to be converted into sterling at the date of administration. The unsatisfied balance of the foreign-currency obligation therefore remained claimable from any surplus.

3. Statutory interest. Neither agreement released claims to statutory interest under rule 2.88. Creditors were entitled to interest at the higher of judgment rate and the rate applicable to the debt apart from the administration. The contractual rate identified the applicable statutory rate; it did not constitute the enforcement of a continuing contractual right.

4. Alternative relief. If any release of currency conversion claims had been established, its enforcement would have been unfair. The agreements were made by administrators performing statutory functions for creditors as a whole; the release was irrelevant to their purposes, unintended on the evidence, and would discriminate between creditor groups without principled justification. Relief would therefore have been available under the principle in Ex parte James and paragraph 74 of Schedule B1 to the Insolvency Act 1986.

5. The CRA did not itself create a new currency conversion claim. It preserved claims which arose from the underlying foreign-currency obligations. The court accordingly answered the issues in accordance with these conclusions.

First-instance decision. The judgment refers to earlier Waterfall decisions, including [2014] EWHC 704 (Ch), [2015] Ch 1 and [2015] EWCA Civ 485, but those decisions formed part of the same litigation and are not treated as appellate history for this judgment.