Gold Fields Mining LLC v Tucker & Anor

THE CHANCELLOR:

1. This is an application by Gold Fields Mining LLC as assignee of Peabody Energy Ltd., a creditor of the company Energy Holdings (No.3) Ltd (“EH3”). It is made under s.7(3) the Insolvency Act, 1986. It seeks (1) an order that the decision of the Supervisors of a Creditors’ Voluntary Arrangement in relation to EH3, made on 16 ^th October, 2007, to reject the applicant’s claim dated 21 ^st June and submitted on 9 ^th July, 2007 because it was out of time be reversed; and (2) it seeks an order that the Supervisors do proceed to adjudicate on the claim.

2. I shall refer to the applicant as “GFL” or “Gold Fields” and any such reference will, where the context so requires, include a reference to the original creditor, Peabody Energy Ltd.

3. The company in question, EH3 was put into creditors’ voluntary winding up in December 2002. On 31 ^st March, 2005 its creditors approved a voluntary arrangement under which the respondents were, and are, the supervisors. GFL did not receive notice of the meeting and did not attend it.

4. The CVA is one of a number of CVAs that were made in respect of a number of companies in the group which I will explain later. It is a long and complicated document. It is divided into two sections. Section 1 contains the explanatory statements and the provisions relating to obtaining creditors’ approval. It contains amongst other things in Part B, para. 4, a broad scheme for claimants to establish a right to attend and vote at the meeting; it also foreshadows what is provided later in relation to distributions. I refer to the material passages in it.

Paragraph 4 of Part B of Section 1 provides in sub-paragraph (1) that,

“CVA Claims will only rank for Distributions to the extent that they are Allowed Claims”

That is a defined term that is self-explanatory. Sub-paragraph (2) provides for

“A CVA Claim to become an Allowed Claim if a CVA Creditor completes and submits a Claim Form in accordance with the instructions detailed in it on or before the Claims Date”.

The claims date was defined as being forty-five days after approval of the CVA and, in the events that happened, was 16 ^th May, 2005.

5. In sub-paragraph (3) creditors were requested to submit the claim forms. It provided in the second sentence,

“Claim Forms must be lodged with the Officeholder/CVA Supervisor on or before the Claims Date which will be forty-five days after the Creditors’ Meeting”.

Sub-paragraph (4) provides,

“A CVA Creditor who submits a Claim Form more than forty-five days after the Creditors’ Meetings will not have any right to payment by any CVA Company, whether under the CVAs or otherwise, unless he can establish exceptional circumstances (see Part G, para. 4.3) in which case the CVA Supervisor has a discretion to accept his claim as a CVA Claim”.

6. I go then to Part G, para. 4. This appears under a heading ‘Distribution’ and provides in para. 1 that,

“A CVA Creditor’s entitlement to a Distribution in respect of his CVA Claim will be determined on the basis as set out below”.

Paragraph 4.2 deals with the claims date as being the date falling forty-five days after the approval of the CVA. Then, in para. 4.3,

“In order for a CVA Creditor who has lodged a Claim Form after the Claims Date to be entitled to Distributions, the relevant CVA Supervisors or the Court must determine that the failure to lodge the Claim Form earlier did not result from a wilful default or lack of reasonable diligence on the part of the CVA Creditor. Alternatively, the CVA Creditor must demonstrate to the CVA Supervisor or to the court that:

(a) the CVA Creditor did not have notice of the Creditors’ Meeting of the relevant CVA Company; and

(b) within twenty-eight days of becoming aware that the Creditors’ Meeting of the relevant CVA Company had taken place the CVA Creditor lodged its claim form with the CVA Supervisor”.

Paragraph 4.4 dealt with allowed claims. Paragraph 4.5 indicated that a claim would only rank for distribution to the extent that it was an Allowed Claim.

7. There were then provisions for dealing with disputed claims and for reserves which I do not need to refer to.

8. The substantive part of the CVA with which I am concerned is contained in Section 2. Paragraph 1 of that section imported definitions, set out in Annex 1. So far as relevant, they provided that EH3 is included in the expression ‘CVA Company’. The claim form referred to is the form set out in Annex 10. A CVA Creditor includes a creditor’s assigns. The claims date, as defined, is forty-five days after the creditors’ approval of the CVA, which as I have indicated was 16 ^th May, 2005.

9. Paragraphs 14 to 16 provides for the realisation of assets and distribution to creditors. Part 4 deals with the adjudication of claims, including the provisions for the submission of claims in para. 23 with which this case is primarily concerned.

10. I turn then to Part IV, headed ‘Adjudication of CVA Claims’. Paragraph 23 is headed ‘Submission of CVA Claims’. Paragraph 23.1,

“Distributions under the CVA shall only be payable on CVA Claims to the extent that such CVA Claims are Allowed Claims. Any CVA claim which is not an Allowed Claim shall be treated as a Disputed Claim”.

“Disputes in relation to CVA Claims, or purported CVA Claims, shall be determined in accordance with the Dispute Resolution Procedure which is set out in Annex 9 [as imported by para. 30]. The amount of any disputed claim which is determined pursuant to the Dispute Resolution Procedure or is agreed by the CVA Supervisors will become an Allowed Claim.

Subject to 23.4 below and Clause 29, Specific Provisions applicable to adjudication of CVA Claims under bond issues, CVA Creditors who wish to claim for Distributions must submit a Claim Form”.

I omit 23.4 and come to the material paragraph at 23.5,

“Claim forms must be lodged with the CVA Supervisors of the relevant CVA Company on or before the Claims Date. If a Claim Form is lodged after the Claims Date a CVA Claim will not rank for Distributions unless the CVA Supervisor of the relevant CVA Company or the Court determines either that the failure to lodge the Claim Form earlier did not result from a wilful default or lack of reasonable diligence on the part of a CVA Creditor, or that the CVA Creditor; (a) did not have notice of the Creditors’ Meeting of the relevant CVA Company and (b) within twenty-eight days of becoming aware that the Creditors’ Meeting of the relevant CVA Company had taken place it lodged its claim with the CVA Supervisors”.

11. I have referred already to para. 30 which deals with disputed claims and imports the provisions for dispute resolution set out in Annex 9. They do not, I think, in the circumstances apply to this application, but there is no doubt that s.7 of the Insolvency Act does. Therefore the jurisdiction of the court is properly activated.

12. The relevant facts can be shortly stated. On 19th June, 2007 Peabody Energy Corporation, which claimed to be a creditor of EH3, assigned the benefit of its debt to its subsidiary, the applicant, Gold Fields Mining Ltd. On 21 ^st June, 2007 Gold Fields Mining Ltd. completed and dated its claim in the appropriate form set out in Annex 10 and submitted it to its solicitors in England with a view to it being sent to the supervisors of the scheme. It covered present, future and contingent liabilities under a deed of indemnity made in 1998 in the total sum of $230 million. The claim form was duly submitted to the Supervisors on the form required by Annex 10, and contained the requisite particulars of the claim. Those particulars indicated that the claims in respect of present, future and contingent liabilities arose from an indemnification agreement dated 19 ^th May, 1998.

13. On 16 ^th October, 2007 the Supervisors rejected the claim on the ground that it was submitted out of time – that is to say, the time allowed by para. 23 of s.2 of the CVA, which limited the primary period to that which fell before 16 ^th May, 2005 unless para. 23 of s.2 provided for an extension. There followed correspondence between the parties’ solicitors. GFL was not satisfied with the response that it received, and issued this application on 5 ^th November, 2007. It raises more than merely the point of construction on which I am presently giving judgment, and depending which way I conclude the point of construction there will be subsequent issues to which substantial witness statement evidence has been directed.

14. The question of construction is quite simply whether on the true construction of para. 23 of s.2, Part 4 of the CVA relating to EH3, this claim is excluded if it is not made within twenty-eight days of the creditor becoming aware of a creditors’ meeting approving the CVA, as the Supervisors claim, or whether time is extendable thereafter if the Supervisors are satisfied that the default is not due to wilful default or lack of reasonable diligence, as the creditor claims.

15. It is clear that the claim was not lodged before 16 ^th May, 2005. Accordingly, para. 23 applies. GFL accepts that it knew in general terms of the creditors’ meeting of EH3 and approval of the CVA by 30 ^th March, 2007. The Supervisors contend that it was earlier – namely, 29 ^th January, 2007 – so that, on either view, the claim was submitted outside the alternative and secondary period of twenty-eight days after becoming aware of the creditors’ meeting of the relevant CVA Company.

16. In those circumstances the question is whether the period for submitting a claim is capable of extension if the failure to lodge the claim form was not due to wilful default or lack of reasonable diligence on the part of the CVA Creditor as well in the case of a creditor who did not have notice of the meeting as in the case of one who did.

17. GFL contends that it is on the following grounds: the contention of the supervisors is contrary to the normal position in a liquidation. For that purpose I have been referred to various statutory provisions and to certain authorities indicating that generally speaking creditors under a CVA or scheme of arrangement should not be dealt with less favourably than the treatment they would have received in the liquidation. I do not need to refer to those cases. This is a pure point of construction on which I do not think authority is of any help. They submit that the construction of para. 23 should be coloured by the comparable provision contained in para..4.3 in Part G in s.1, which clearly permits an extension in all cases in which the primary date, that is 45 days after approval of the proposals, was not observed, and that para.23 should be given a similar interpretation.

18 The relevant part of para.4.3, to which counsel has referred is the part which is a separate sentence beginning with the word “Alternatively”. That has been transmuted in para.23 to a continuous sentence by omitting the full stop and by substituting the word “or” for the word “alternatively”. Counsel submits that this should not rise to any significant change in meaning.

19 He submits that the Supervisor should have addressed the due diligence issue first, but did not; and he also observes that the contrary construction, that favoured by the Supervisors, would lead to injustice and arbitrariness. He asks rhetorically, “Why should those who receive notice of the meeting, have a more beneficial regime than those who did not”.

20 The contentions of the Supervisors are effectively the converse of those. They submit that para.23.5 provides for two exceptions from the general rule which requires claim forms to be lodged on or before the claims date as defined. They submit that these two exceptions are mutually exclusive so that it is necessary to imply into the first alternative an excluding provision for those who are within the second. Accordingly, it would read something like this:

“If a claim form is lodged after the claims date a CVA claim will not rank for distributions unless, in the case of a Creditor who did have notice of the Creditors’ Meeting, the CVA Supervisors or the court determines that the failure to lodge the claim earlier did not result from wilful default or lack of reasonable diligence …”

thereby excluding from the first alternative those who come within the second.

21 It is suggested that the implication is necessary. It is pointed out that the second exception mirrors the provisions of s.6(3)(b) of the Insolvency Act. Section 6(3)(b) enables a late application challenging a decision of the creditors in the case of a person who was not given notice of the creditors’ meeting before the end of the period of 28 days beginning with the day on which he became aware that the meeting had taken place.

22 It is suggested by the Supervisors that their construction is confirmed by the use of the word “earlier” in the first alternative, but its omission from the second.

23 To my mind, the point of construction is clear. Paragraph 23.5 is dealing with late claims. It deals with two different categories, those who received notice of the creditors meeting and those who did not, but the two exceptions from the primary rule that claims have to be lodged within 48 days of the proposal, are alternatives. That is made absolutely clear by the comparable provisions in Part G, s.4, and I see no reason why 23.5 should be given any different meaning.

24 The Supervisors’ construction requires, as they recognise, the interpolation into the first alternative of some words requiring the exclusion of those who come within the class of the second. But if that interpolation is made it would give rise to a significant difference between the treatment of one class of creditor and the other. I think there is much force in the submission made by counsel for the CVA creditor, why should those who did have notice of the meeting have a more favourable treatment than those who did not. It seems to me that para.23.5 should be construed in accordance with its terms, no interpolation is appropriate and that the first alternative applies to all creditors who did not submit their claim within the time provided by the definition of the claim date. Thus those who might otherwise have taken advantage of the second alternative are not excluded from the first alternative by the fact that they did not have notice of the meeting.

25 Accordingly, in my view, the Supervisors were wrong to have excluded from consideration the claim form that was lodged on the ground that it was out of time. It was out of time in relation to the primary date, but it was not out of time unless and until somebody had determined (either the Supervisors or the Court) whether the late submission was due to wilful default or lack of reasonable diligence on the part of the creditors. That is the second issue which is raised by this application, on which I will now hear argument.