The English Court of Appeal has recently outlined the methodology for calculating interest when a surplus remains following full payment of debts by a company in administration.

Burlington Loan Management Limited was one of a representative group of unsecured creditors of Lehman Brothers International (Europe) Limited (LBIE). Following the collapse and eventual pay-out of the debts of LBIE a surplus remained, so its administrators sought court direction as to the statutory interest payable under the Insolvency Rules 1986 (UK). The appeal concerned when interest accrued following administration, and the correct approach to calculating that interest.

The Court decided that the Rules constituted a code, which stated that any interest could only be paid once all proven debts had been paid in full. Compound interest was not capable of accruing following payment of the principal amounts. Interest was however capable of accruing on contingent debts, since they could be proved in administration.

Creditors were unable to rely on a foreign judgment rate of interest if in fact they did not obtain a foreign judgment, and were also not able to claim compensation for late-payment of interest. However, they were able to potentially rely on contingent rates of interest on proven debts.

Based on the Court's interpretation of the Rules, it rejected the creditors' appeal.

A copy of the decision can be found here.