In a comprehensive judgment arising out of the collapse of Lehman Brothers, the UK Supreme Court recently determined the ranking of creditors.

Principally, the Court held that Lehman Brothers International (Europe)'s subordinated debt holders were "at the bottom of the waterfall", behind statutory interest and non-provable debt claimants.

In addition, the Court, by a majority, overturned the Court of Appeal in holding that foreign-currency creditors cannot claim as a non-provable debt the difference in value between the sterling value of the debt at the administration date and the sterling value at the date the debt was paid. 

The Court further held that the rights of those creditors are restricted to the rights provided comprehensively under the statutory scheme.  The Court favoured a strict application of the Insolvency Act 1986 (Act) and Rules.  For example, the Court highlighted a gap in the legislation in confirming that statutory interest that accrues during an administration cannot be recovered in a later liquidation.

The Court also found that:

  • A claim under section 74 of the Act for contribution from shareholders does not include a liability to meet statutory interest
  • A section 74 claim is provable only by a liquidator
  • Section 74 liabilities may not be set off against proofs filed by shareholders as creditors in an administration.

See the Court's full decision here.