This case arose from the ongoing administration of Lehman Brothers International (Europe) (‘LBIE’). The appeal considered the proper ranking of certain subordinated debt in the insolvency ‘waterfall’, among other matters.


The first issue concerned the construction of debt instruments subordinated to amounts ‘payable in the insolvency’. It was held that such amounts included statutory interest and non-provable debts, and accordingly those liabilities must be met before any balance could be used to pay off the subordinated loans.

The second issue concerned debt in foreign currencies. Rule 2.86 of the Insolvency Rules 1986 operates to convert such debt into sterling at the date of the administration. A majority of 4:1 of the justices rejected an argument that losses caused by exchange rate fluctuations after that date are recoverable as non-provable debt.

The third issue concerned whether a creditor of LBIE who had been entitled to, but had not been paid, statutory interest could claim such interest in a subsequent liquidation. The Supreme Court concluded that if a creditor had proved for a debt and been paid on his proof in a distributing administration, but had not been paid interest, his contractual right to interest for the post administration period did not revive or survive in any subsequent liquidation.

The final issues arose because LBIE is an unlimited company, meaning its members could be called upon to make contributions to meet its liabilities if LBIE is in liquidation. The justices concluded that such contributions could be sought for non-provable liabilities of LBIE, but no contributions could be sought in respect of liability for statutory interest.

They also held that LBIE could not prove in the liquidation of other group companies in respect of those companies’ contingent liabilities to make contributions to LBIE’s prospective liquidation, nor could LBIE exercise a right of set off against those contingent liabilities.

Lastly, the ‘contributory rule’ which applies in liquidation (that a person cannot recover as a creditor until he has discharged his liability as contributory) should be extended to distributing administrations.