Lomas & Ors v Burlington Loan Management Ltd & Ors

Interest on a non-provable claim is determined by the creditor’s actual contractual or other rights, including rights accruing after administration when the relevant contractual event occurs. The creditor cannot rely on a hypothetical step that it did not take.

Insolvency set-off operates retrospectively at the date of administration for these purposes, so set-off does not generate a currency conversion claim. Statutory interest on a proved debt is separate from contractual interest on an unsatisfied currency conversion claim and does not reduce it.

Agreements compromising proved claims may release further interest claims. The construction of the particular agreement determines whether contractual interest on currency conversion losses is released.

The judgment determined six supplemental issues arising from earlier directions judgments concerning post-administration interest, currency conversion claims and standard-form compromise agreements entered into by Lehman Brothers International (Europe) in administration.

The issues concerned: interest accruing after administration on non-provable claims; the calculation of statutory interest on future and contingent debts; whether insolvency set-off could create currency conversion claims; whether statutory interest reduced contractual interest on currency conversion losses; and the effect of the agreements on interest claims.

The central questions were how the Insolvency Rules 1986 operated in relation to contractual rights, set-off and currency conversion, and whether the agreements released contractual interest claims.

1. Supplemental issue 1b. A non-provable claim exists independently of the administration. If, after the date of administration and before full discharge, a contractual event occurs which gives the creditor an accrued right to interest, that interest is recoverable as part of the creditor’s actual contractual rights. The creditor cannot be treated as having taken a step which it did not take. The court declined to determine the separate question of interest on foreign judgments obtained after administration without reasoned submissions from all parties.
2. Supplemental issue 1c. For a future or contingent debt, the contractual rate is not applicable during a period when the contract imposed no interest obligation. The rate applicable apart from the administration must be assessed by reference to the periods during which it actually applied. Statutory interest under Rule 2.88(9) is nevertheless calculated by comparing the alternative rates over the whole period from the date of administration to the dividend payments.
3. Supplemental issue 2. No currency conversion claim arises from insolvency set-off under Rule 2.85. Although the set-off account is taken later, the statutory machinery operates retrospectively. The creditor’s claim is discharged, to the extent of the set-off, as at the date of administration, with foreign currency sums converted at the exchange rate then prevailing. This applies even where the claim and cross-claim were originally denominated in the same foreign currency.
4. Supplemental issue 3. Statutory interest under Rule 2.88 is payable by law on the proved debt and is separate from contractual interest on the unpaid part of a currency conversion claim. Statutory interest therefore does not reduce the creditor’s contractual interest claim. The position may ultimately depend on the proper law of the contract, but no evidence established a different result under foreign law.
5. Supplemental issue 4. The CRA and CDD provisions released putative further interest claims on debts compromised by those agreements. The administrators would not be directed to pay such interest under the principle in Ex parte James or paragraph 74 of Schedule B to the Insolvency Act 1986.
6. Supplemental issue 5. The CRA released contractual interest on currency conversion claims arising from financial contracts, because its provisions calculated the entire contractual amount without further interest except under Rule 2.88. The CDD provisions did not release currency conversion claims, and their general words concerning interest did not extend to contractual interest on those claims. The parties were directed to prepare an order giving effect to the judgment.

First-instance judgment determining supplemental issues arising from earlier directions judgments in the Lehman Brothers International (Europe) administration.