Vol 6 (2009) - Issue 5

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In re Golden Key Ltd (in receivership) [2009] EWCA Civ 636

In re Golden Key Ltd (in receivership) [2009] EWCA Civ 636, the Court of Appeal determined the proper order of payment to holders of commercial paper (‘CP’) issued by Golden Key Ltd (‘Golden Key’).

The case turned on the true construction of the terms of issue. Golden Key was required to redeem CP on its maturity date, but a new redemption date – the Acceleration Redemption Date (‘ARD’) – would supervene after the occurrence of a Mandatory Acceleration Event (‘MAE’), which (if also an Insolvency Event) would cause CP to become immediately due and payable upon receipt by Golden Key of an Acceleration Redemption Notice (‘ARN’) issued by the Security Trustee.

The facts can be summarised shortly:

(1) Golden Key was subject to a Mandatory Acceleration Test which required an asset value equal to or exceeding 92 per cent of the face value of its secured obligations.
(2) On 20 August 2007, Golden Key breached that test, which it confirmed on 23 August 2007.
(3) The Security Trustee gave notice of an MAE – which was treated by the parties to the litigation as an ARN – on 24 August 2007.
(4) Golden Key did not specify the redemption date and so, in accordance with certain deeming provisions, the ARD was fixed at 24 September 2007.
(5) In the period 23 August to 24 September 2007, CP matured such that an issue arose as to the proper order of payment, specifically whether CP maturing and unpaid on or after 23 August 2007 was now postponed and repayable on 24 September 2007.

Parties C and D (the ‘Longs’) – appointed as representative respondents on the application of the receiver of Golden Key – contended that such CP was now repayable on 24 September 2007. In effect, a pari passu distribution. Parties A and B (the ‘Shorts’), by contrast, argued that acceleration only affected CP whose maturity date had not arrived by that date and they were entitled to repayment on the basis of first come, first served. In effect, a ‘pay as you go’ construction.

The Court of Appeal upheld the ‘pay as you go’ construction favoured by Mr Justice Henderson, but differed as to the proper effect of the delivery of an ARN.

The case is, on one view, of no general importance whatsoever because it turned on the terms of issue, but, on another view, it represents a refinement of the principles applicable to the construction of sophisticated commercial documents. This division is reflected in the judgments of Lord Clarke MR (paragraph 148) and Lady Justice Arden (paragraph 2). Lord Justice Lloyd did not comment on this point.

This case note outlines the judgments in the Court of Appeal and considers whether there has in fact been (or should be) any refinement to the proper approach to construction.

Henderson J

Before Henderson J, the Shorts had submitted that holders of CP which matured in the intermediate period acquired an immediate right to repayment in full and that this was not affected by either the occurrence of a MAE or the delivery of an ARN. In reply, the Longs had submitted that because a MAE had occurred all outstanding CP fell due to be repaid pro rata and pari passu on the ARD.