The Law Debenture Trust Corporation Plc, Re

When trustees seek the court’s blessing for a momentous decision within their powers, the court does not substitute its judgment for theirs. It must be satisfied that the trustees have formed the relevant opinion, that a reasonable body of properly instructed trustees could have reached it after considering relevant matters and excluding irrelevant matters, and that the decision is free from disabling conflict of interest.

The court must examine the evidence with caution because approval may deprive beneficiaries of a later claim for breach of trust. Full and frank disclosure is therefore required. On the evidence, the Trustee was justified in not interfering with a settlement ending extensive litigation and producing a substantial distribution.

The Trustee applied under Part 8 for directions concerning five bond trusts connected with the insolvencies of companies in the Bell Group. It sought a declaration that it was acting properly and was justified in not taking steps to prevent or interfere with a settlement concluded in December 2019.

The settlement was conditional upon the declaration. It would resolve long-running Australian and Curaçao disputes, facilitate distributions and bring the bond trusts towards winding up. Certain bondholders objected, principally on the grounds of allegedly excessive recoveries by other parties, the operation of a bankruptcy estate agreement, conflicts of interest and the absence of a bondholder meeting.

The central issue was whether the Trustee’s proposed course was a proper exercise of its powers and was in the interests of the bondholders.

1. Declaration granted. The Trustee was justified in not taking steps to prevent or interfere with the 2019 Settlement. The court also approved consequential directions concerning discontinuance of related proceedings, a payment shortcut, continuation of confidentiality orders and costs out of the trust estate.
2. The application fell within the second category of trustee application described in Public Trustee v Cooper [2001] WTLR 901: the trustees had decided how to exercise an existing power, but sought approval because the decision was particularly momentous.
3. Following Richards v Mackay (1987) [2008] WTLR 1667 and the approach summarised in Cotton & Moore v Brudenell-Bruce [2014] EWCA Civ 1312, the court had to be satisfied that: (i) the Trustee had formed the relevant opinion; (ii) that opinion was one which a reasonable body of properly instructed trustees could reach, having considered relevant matters and excluded irrelevant matters; and (iii) the opinion was not vitiated by a conflict of interest. The rationality aspect was supported by Airways Pension Scheme Trustee Ltd v Fielder [2019] EWHC 3027 (Ch).
4. The court’s role was supervisory rather than substitutive. It was nevertheless required to examine the evidence carefully and ensure full and frank disclosure. The court was not a rubber stamp, as emphasised in Tamlin v Edgar [2011] EWHC 3949 (Ch). Caution was especially necessary because approval could deprive beneficiaries of a later claim for breach of trust, and affected beneficiaries may be disadvantaged in the approval proceedings, consistent with X v A [2006] 1 WLR 741.
5. The Trustee’s administrative and ministerial role under the trust deeds was consistent with Elektrim SA v Vivendi Holdings 1 Corp [2008] EWCA Civ 1178. The Trustee had formed the view that the settlement was in the best interests of the relevant bondholders. The evidence of experienced insolvency professionals supported that view. The alternative involved many years of uncertain and expensive litigation, with no realistic prospect of another settlement.
6. The objections did not provide a sufficiently cogent reason to refuse approval. The court found no present conflict of interest affecting the decision. A bondholder meeting was unrealistic within the settlement timetable. The court expressed no view on whether a presently constituted turnover trust existed, because the settlement did not affect any rights which unsubordinated creditors might have against the Trustee.
7. The proposed payment shortcut was within the Trustee’s powers and contained an adequate safeguard allowing an interested party to challenge the amount after payment.