Vol 3 (2006) - Issue 2

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Identifying ‘Creditors’ for Schemes and CVAs

Introduction
In recent years, the unusual characteristics of asbestos-related diseases have given rise to a number of difficult legal issues: the role of causation in the assessment of culpability;1 the significance of minimal damage in tort;2 and, in David Richard J’s recent decision in Re T&N Limited & Ors,3 the meaning of the word ‘creditor’ in section 425 of the Companies Act 1985 and Part 1 of the Insolvency Act 1986.
The problem
The companies in the T&N group (‘T&N’) were for many years engaged in the mining of asbestos and the manufacture and distribution of asbestos products. In the course of these activities a large number of people were negligently exposed to asbestos dust. Although many of these people will never experience any adverse effects, a significant proportion will suffer from various asbestos-related diseases. The period between exposure to asbestos and the suffering of material harm commonly straddles a number of decades, and it is not currently possible to predict whether or not a particular individual will develop an asbestos-related disease.
If the people exposed to asbestos were employees of T&N at the time of the negligent exposure, T&N’s negligence will have constituted a breach of contract. Since a cause of action in contract is complete upon breach and does not depend upon the suffering of any damage, these former employees will have obtained completed causes of action at the moment of exposure. The rights of those who never entered into a contractual relationship with T&N, such as the spouses of former employees, however, will be governed exclusively by the law of tort. Since a cause of action in tort is not complete until the suffering of legally recognised damage, a person who was not a former employee of T&N will not possess a completed cause of action unless and until he develops a sufficiently serious asbestos-related condition.
The administrators of T&N planned to propose a scheme of arrangement under section 425 of the Companies Act 1985 or a company voluntary arrangement (‘CVA’) under Part 1 of the Insolvency Act 1986 which would bind every person who had been negligently exposed to asbestos by T&N, whether or not that person had yet developed an asbestos-related disease. Accordingly
they applied, inter alia, for directions as to whether persons who had been negligently exposed to asbestos but did not have contractual claims and had not yet suffered damage capable of giving rise to a cause of action in tort (described in David Richard J’s judgment and below as ‘future asbestos claimants’) were ‘creditors’ within section 425 of the Companies Act 1985 and Part 1 of the Insolvency Act 1986.