Heis & Ors (Administrators of the Mf Global UK Ltd) v Financial Services Compensation Scheme Ltd & Anor

A company voluntary arrangement has contractual effect, and its terms are interpreted by ordinary contractual principles. A condition precedent referring to disputed claims after the challenge period did not require a broad value judgment about whether an unexpected claim had altered the commercial bargain. It addressed whether the claim prevented the binding terms of the arrangement from coming into effect, including through a late statutory challenge. A material impediment to implementation likewise concerned practical difficulty in carrying out the specified implementation steps, not a materially different economic outcome. Fairness jurisdiction under paragraph 74 of Schedule B1 to the Insolvency Act 1986 and the principle in Ex parte James should not ordinarily be used to rewrite or unsettle contractual rights freely agreed by creditors.

The joint special administrators and supervisors of MF Global UK Ltd sought directions concerning implementation of a company voluntary arrangement approved by creditors on 12 December 2017. Before the implementation date, Deutsche Bank submitted a contingent indemnity claim exceeding €126 million in connection with potential German tax liabilities. The claim was rejected and remained disputed.

The application concerned three issues: whether the disputed claims prevented the CVA becoming effective under clause 3.1(e); whether the supervisors should waive that condition; and whether the disputed claims constituted a material impediment requiring termination under clause 27.1(c). Attestor opposed implementation, while the FSCS supported it.

1. Clause 3.1(e). The condition required the administrators to confirm that the continuing existence of disputed claims after the challenge period should not prevent the CVA from coming into effect. “Preclude” naturally meant prevent or make impossible. The provision did not require an assessment of whether an unexpected claim had materially altered the wider economic bargain described in section 1 of the CVA.
2. The court rejected Attestor’s proposed construction because it required inserting an unexpressed value judgment, an undefined commercial standard, and restrictions on the supervisors’ express waiver power. The better construction was that clause 3.1(e) principally addressed the risk of a late statutory challenge, including one under section 6(3)(b) of the Insolvency Act 1986.
3. The contingent claim did not prevent the catch-up distribution under clause 4. That distribution concerned creditors with Allowed Claims at the Final Claims Date, and had already been declared. The statutory scheme was consistent with rule 150(2) of the Investment Bank Special Administration (England and Wales) Rules 2011.
4. Clause 27.1(c). “Material impediment” concerned something making it difficult, though not necessarily impossible, to take the implementation steps required by clauses 4 to 9 and 13. It did not extend to an economic outcome different from that anticipated in the CVA proposal. No such impediment had been identified.
5. The court declined to intervene under paragraph 74 of Schedule B1 or the principle in Ex parte James. Those jurisdictions require cautious use and should not ordinarily control contractual rights or provide an alternative route around statutory challenge periods. The CVA had been approved by approximately 97% of creditors and should be implemented according to its proper construction.
6. Issue 1 was answered “Yes”. The court did not require waiver under Issue 2 and did not direct termination under Issue 3.