Vol 13 (2016) - Issue 4

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Lockston Group Inc v Nicholas Stewart Wood [2015] EWHC 2962 (Ch)

A dispute arose between the creditors of Boris Berezovksy over the appointment of trustees of his insolvent estate. The dispute hinged upon the date on which the creditors’ foreign currency debts should be converted into sterling and the date up to which creditors could prove for interest. At the first creditors’ meeting the chairman, Nicholas Wood, had used the date of Mr Berezovsky’s death for both purposes. Lockston Group Inc ('Lockston') contended that the correct date was instead that on which the insolvency administration order ('the IAO') was made. The effect of the different date on the value of the various creditors’ claims was such that had it been used at the creditors’ meeting, different trustees would have been appointed.
The resolution of the dispute turned on the construction of the Insolvency Act 1986 ('the Act') as amended by the Administration of Insolvent Estates of Deceased Persons Order 1986 ('the Order'). Following careful consideration of the relevant provisions, Mr Justice David Richards held that, consistent with a cardinal principle of insolvency law that there should be a single date for ascertainment of liabilities, the correct date was the date of Mr Berezovksy’s death.

Background
Mr Berezovsky died on 23 March 2013. Following his death, it became apparent that there was a deficit of around £40 million between the assets in Mr Berezovksy’s estate and the sums owed to creditors. On 10 April 2014, Nicholas Wood and Kevin Hellard were appointed as General Administrators of Mr Berezovksy’s estate. By a petition dated 22 October 2014 Mr Wood and Mr Hellard applied for the IAO and an order that they, together with a Mr Leeds, be appointed as trustees of the insolvent estate. On 26 January 2015, Mr Justice Morgan made the IAO.
The first meeting of creditors took place on 26 January 2015. At this meeting a vote was held to determine whether or not Mr Wood, Mr Hellard and Mr Leeds (together, 'the GT nominees') would be appointed as trustees or whether instead two partners in KPMG (‘the KPMG nominees’) would be. Mr Wood, as chairman of the meeting, valued the creditors’ provable claims as at the date of Mr Berezovksy’s death. This meant that foreign currency claims were converted to sterling at the exchange rate prevailing on 23 March 2013 and interest on debts was provable only up to this date. A resolution was passed by £128,986,545 to £116,364,421 appointing the GT nominees as trustees of the insolvent estate.

Administration of insolvent estates
The three ways of administering the insolvent estate of a deceased person were set out at paragraph 10 of the judgment:
1. If a bankruptcy petition has been presented, or a bankruptcy order has been made, before the date of death then proceedings continue as if the debtor were alive, subject to the order of the court. The Act is modified in accordance with Schedule 2 to the Order.
2. If death occurs before a bankruptcy petition has been presented, an IAO may be made. In this situation there are significant modifications made to the Act, as set out at Article 3 of the Order.
3. The estate may be administered otherwise than in bankruptcy, in which case Article 4 of the Order applies.

Since the IAO had been made, the provisions in Article 3 of the Order applied. These are as follows:
(1) The provisions of the Act specified in Parts II and III of Schedule 1 to this Order shall apply to the administration in bankruptcy of the insolvent estates of deceased persons dying before presentation of a bankruptcy petition with the modifications specified in those Parts and with any further such modifications as may be necessary to render them applicable to the estate of a deceased person and in particular with the modifications specified in Part I of that Schedule, and the provisions of the Rules, the Insolvency Regulations 2006 and any order made under section 415 of the Act (fees and deposits) shall apply accordingly.
(2) In the case of any conflict between any provision of the Rules and any provision of this Order, the latter provision shall prevail.