Vol 10 (2013) - Issue 2

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Re Kaupthing Singer & Friedlander Ltd (in administration) [2012] EWHC 2235 (Ch)

Summary
The High Court of England and Wales has held that the moratorium on proceedings against companies in administration in England under paragraph 43, Schedule B1 of the Insolvency Act 1986 has extra-territorial effect when the company in administration is a UK credit institution subject to the Credit Institutions (Reorganisation and Winding Up) Regulations 2004 (SI 2004/1045).

Background
European council directive on the reorganisation and winding up of credit institutions (2001/24/EC) (the 'Directive') provides that insolvency proceedings commenced with respect to a credit institution incorporated in an European Economic Area member state (a 'Member State') should be recognised without further formalities between the courts of the relevant Member States. The Directive is implemented in the UK by Credit Institutions (Reorganisation and Winding Up) Regulations 2004 (SI 2004/1045) (the 'CIR') and in Iceland by the Financial Undertakings Act No. 161/2002.

Facts
Kaupthing HF ('KHF') was a company incorporated in Iceland. KHF was the holding company of the English incorporated Kaupthing Singer & Friedlander Ltd ('KSF'). In 2004, KHF issued EUR 4,500,000,000 bonds (the 'Bonds'). The Bonds were governed by English law and the terms provided KHF with an option to repurchase Bonds prior to their final maturity date. In May 2008, KHF and KSF entered into two transactions (the 'Transactions') pursuant to which KHF purchased (a) EUR 5,000,000 Bonds for EUR 4,409,369 from KFS; and (b) EUR 5,000,000 Bonds for EUR 4,313,316 from KFS.
On 8 October 2008, KSF went into bank administration in the UK. KHF was placed into Icelandic liquidation by an order of the District Court of Reykjavik made on 22 November 2010 with a reference date of 15 November 2008.
KSF and KFH are both credit institutions incorporated in Member States for the purposes of the Directive.
The liquidators of KHF considered that the payments made by KHF to KSF pursuant to the Transactions should be ‘rescinded’ and repaid to KHF pursuant to ss134 and 142 of the Icelandic Bankruptcy Act No. 21/1991 (the 'IBA').
KHF had previously made an application to the English court for permission to commence proceedings against KSF (which was in administration in the UK) in both Iceland and the UK. Arnold J. in the English court granted the liquidators of KHF with permission to commence proceedings in Iceland, and bring a parallel claim in the UK by an order dated 15 June 2012. These permissions were limited to the commencement of proceedings only.
KHF subsequently commenced proceedings against KSF in Iceland and the UK.

Issues
KHF and the administrators of KSF sought various permissions and directions from the English court in relation to potential clawback of the amounts paid by KHF to KSF pursuant to the Transactions.
In particular, the High Court was asked to consider two primary issues.
1. Whether, if KHF was successful in either the Icelandic or UK claims which it had commenced, it would be entitled to prove in the administration of KSF for any judgment amount received in relation to a rescission of the Transactions (the 'Provable Debt Application'); and
2. Whether KHF should be granted permission to continue its claims against KSF in either Iceland or the UK for recovery of payments made by KHF to KSF pursuant to the Transactions (the ‘Permission Application’).

Decision
Sir Andrew Morritt sitting in the High Court of England and Wales held as follows.