England and Wales High Court (Chancery Division) Decisions

Hamilton and Ors v. Law Debenture Trustees Ltd and Ors [2001] EWHC Ch 407 (18th June, 2001)

Case No: 006303 of 1996

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: Monday, 18th June 2001

B e f o r e :

Mr. Simon Mortimore QC and Ms Hilary Stonefrost (instructed by Messrs Slaughter and May for the Liquidators)
Mr. Brisby QC, Mr. Robert Miles and Mr. Richard Hill (instructed by Messrs Cadwalader, Wickersham & Taft for the Law Debenture Trust)
Mr. Stuart Isaacs QC and Ms Sandra Bristoll (instructed by Messrs Allen & Overy for Perpetual Trustee)
Mr. Ewan McQuater (instructed by S J Berwin & Co) for Litigating Perpetuals

1. By 27th February 1995, at the latest, Barings plc ("Barings") was insolvent. An administration order was made by this court on that day. The administration order was discharged on 26th November 1996 when an order for the compulsory winding up of Barings was made instead. The administrators and liquidators were and are three partners in Ernst & Young, Ms Mills and Messrs Hamilton and Bloom ("the Liquidators").
2. At the time the winding up order was made, and now, Barings had three classes of principal creditor. The first class comprised the holders of US$150m Floating Capital Rate Notes repayable in 2001 issued by Barings BV in January and October 1986 and guaranteed by Barings ("the 1986 Notes"). The terms of the issue are contained in a Trust Deed dated 15th January 1986 made between Barings BV, Barings and the Law Debenture Trust Corporation plc. The obligations of Barings BV and Barings in respect of such notes is due to the Law Debenture Trust Corporation plc as trustee for the holders of the notes. The powers and duties of the Trust Corporation have been lawfully delegated to Law Debenture Trustees Ltd ("the 1986 Trustee").
3. The second class of principal creditor comprises the holders of £100m 9.25% Subordinated Notes issued in global bearer form by Barings in January 1994 ("the Perpetual Notes"). The terms of the issue are contained in a Trust Deed dated 31st January 1994 and made between Barings and Law Debenture Trust Corporation plc. The obligations of Barings thereunder are due to the Trust Corporation as trustee for the holders of the Perpetual Notes ("the Perpetual Trustee") and have not been delegated. As the name suggests the rights of the Perpetual Trustee and the holders of the Perpetual Notes are subordinated to the rights of all other creditors.
4. The third class of principal creditor is a sub-set of the holders of the Perpetual Notes. In May 1996 holders of Perpetual Notes to the approximate face value of £57m ("the FSA Claimants") instituted proceedings against Barings, its directors at the time of issue and four others who had allegedly authorised the contents of the relevant listing particulars set out in the Offering Memorandum dated 25th January 1994. They claimed that the listing particulars contained false and misleading statements. The relief sought is compensation under s.150 Financial Services Act 1986 including interest pursuant to s.35A Supreme Court Act 1981. Mr Nicholas Mandell ("Mr Mandell") is one of the FSA Claimants and has appeared in the proceedings before me as the de facto representative of the others.
5. The assets of Barings at the date of winding up were estimated in the Statement of Affairs dated 25th May 1995 to realise £8.6m. In January 1996 Barings, through its administrators, instituted proceedings against its auditors claiming damages for negligence to the face value of £1bn. Similar proceedings were instituted in Singapore by a subsidiary company and subsequently transferred to England. The hearing of these combined actions against Coopers & Lybrand, London, Deloitte & Touche, Singapore and Coopers & Lybrand, Singapore ("the Auditors Action") was fixed to start before Evans-Lombe J on Monday 18th June 2001.
6. On 16th May 2001 the 1986 Trustee served on the Liquidators a requisition notice, as permitted by s.168(2) Insolvency Act 1986, requiring them to convene a meeting of creditors of Barings for the purpose of replacing the Liquidators with two partners in KPMG. The solicitor's letter accompanying such notice indicated that the 1986 Trustee considered that the Perpetual Trustee was not entitled to vote because the relevant rights were subordinated to those of ordinary creditors and that the claim of the FSA Claimants was so speculative that its minimum value for voting purposes should be estimated at nil pursuant to Insolvency Rule 4.67(3). The Liquidators did not agree and the two applications now before me were issued on 18th May 2001.
7. The first application is that of the Liquidators. The respondents are the 1986 Trustee, the Perpetual Trustee and Mr. Mandell. The Liquidators seek an order directing them not to comply with the requisition for a meeting to be convened. If no such order is made then, in the alternative, they seek the directions of the Court as to whether the Perpetual Trustee is entitled to vote at the meeting and whether the Liquidators should estimate a minimum value of the FSA Claims and allow the FSA Claimants to vote to that extent. The second application is that of the 1986 Trustee. The respondents to that application are the Liquidators, Mr Mandell and the Perpetual Trustee. The 1986 Trustee seeks directions as to the conduct of the meeting it has requisitioned, whether the Perpetual Noteholders or FSA Claimants are entitled to vote at the meeting and, if so, in respect of what respective amounts. In addition it seeks an order that Mr Mandell be appointed to represent all FSA Claimants.
8. The parties agreed that as entitlement to vote might affect the question whether to direct the Liquidators not to convene the meeting such entitlement should be determined first. Accordingly the issues are (1) whether the Perpetual Trustee would be entitled to vote at the meeting requisitioned by the 1986 Trustee and, if so, in what amount, (2) whether the FSA Claimants would be entitled to vote at such meeting and, if so, in what amount, (3) for how much would the 1986 Trustee be entitled to vote at such meeting, and, in any event (4) whether the court should order the Liquidators not to convene the meeting requisitioned by the 1986 Trustee.

The Insolvency Rules

9. I will deal with the issues in that order. But, first it is necessary to explain the Insolvency Rules which deal with meetings of creditors and the entitlement of creditors to vote at such meetings. IR 4.54 confers on the liquidator power to summon and conduct meetings of creditors or contributories for the purpose of ascertaining their wishes in all matters relating to the liquidation. Such a meeting may be requisitioned by creditors entitled to 10% by value of all the company's debts. If it is then it is the duty of the liquidator to convene it. S.168(2) Insolvency Act 1986. A resolution put to such a meeting is passed if a majority in value of those present and voting have voted in its favour. IR 4.63.
10. Entitlement to vote is dealt with in IR 4.67 which, so far as material provides as follows

"(1) Subject as follows in this Rule and the next, at a meeting of creditors a person is entitled to vote as a creditor only if -

1. there has been duly lodged (in a winding up by the court by the time and date stated in the notice of the meeting) a proof of the debt claimed to be due to him from the company, and the claim has been admitted under Rule 4.70 for the purpose of entitlement to vote, and
2. there has been lodged, by the time and date stated in the notice of the meeting, any proxy requisite for that entitlement.

[(2)]

(3) A creditor shall not vote in respect of a debt for an unliquidated amount, or any debt whose value is not ascertained, except where the chairman agrees to put upon the debt an estimated value for the purpose of entitlement to vote and admits his proof for that purpose."

11. Rule 4.70 provides

"(1) At any creditors' meeting the chairman has power to admit or reject a creditor's proof for the purpose of his entitlement to vote; and the power is exercisable with respect to the whole or any part of the proof.

(2) The chairman's decision under this Rule, or in respect of any matter arising under Rule 4.67, is subject to appeal to the court by any creditor or contributory.

(3) If the chairman is in doubt whether a proof should be admitted or rejected, he shall mark it as objected to and allow the creditor to vote, subject to his vote being subsequently declared invalid if the objection to the proof is sustained."

12. IR 4.73(3) provides that a creditor who claims is referred to as "proving" for his debt and a document by which he does so is called a "proof". By IR 4.75(3) the liquidator may call for more evidence for the purpose of substantiating the claim made in the proof. The proof may be admitted for dividend in whole or in part and any creditor dissatisfied with the decision of the liquidator may apply to the court. IR 4.82 and 4.83. If the debt is "subject to a contingency or for any other reason does not bear a certain value" then the liquidator is required to estimate its value. That value is the amount provable for the time being. IR 4.86. Rule 4.91 requires a debt payable in a foreign currency to be converted into sterling at the official rate prevailing at the date the company went into liquidation. IR 4.93 allows a proof for a debt bearing interest or due by virtue of a written instrument to include interest for any period up to the time the company went into liquidation but not thereafter. IR 4.94 allows proof of a debt payable in the future, but subject to a discount calculated in accordance with IR 11.13 when a dividend is declared before the debt was payable.
13. It is also necessary to have in mind the definitions of "debt" and "provable debt". "Debt" is defined in IR 13.12 in the following terms

(1) "Debt", in relation to the winding up of a company, means (subject to the next paragraph) any of the following -

1. any debt or liability to which the company is subject at the date on which it goes into liquidation;
2. any debt or liability to which the company may become subject after that date by reason of any obligation incurred before that date; and
3. any interest provable as mentioned in Rule 4.93(1).

Paragraph (2) provides that in the case of a liability in tort the company is deemed to have become subject to that liability at the time the cause of action accrued. Paragraph (3) confirms that it is immaterial whether the debt is present or future, certain or contingent, in a fixed or liquidated amount or "is capable of being ascertained by fixed rules or as a matter of opinion....and references...to owing a debt are to be read accordingly". Paragraph (4) defines liability as

"a liability to pay money or money's worth, including any liability under an enactment any liability for breach of trust, any liability in contract, tort or bailment, and any liability arising out of an obligation to make restitution."

14. IR 12.3(1) provides that

"Subject as follows, in both winding up and bankruptcy, all claims by creditors are provable as debts against the company or, as the case may be, the bankrupt, whether they are present or future, certain or contingent, ascertained or sounding only in damages."

Paragraph (2) excludes from proof certain fines and other specified obligations. Paragraph (3) provides, in respect of certain liabilities arising under the Financial Services Act 1986, the Banking Act 1987 or other claim the payment of which is postponed by any enactment, that they

"are not provable except at a time when all other claims of creditors in the insolvency proceedings (other than any of a kind mentioned in this paragraph) have been paid in full with interest under section 189(2).."

Paragraph (3) provides that nothing in that rule

"prejudices any enactment or rule of law under which a particular kind of debt is not provable, whether on grounds of public policy or otherwise."

The debt due to the Perpetual Trustee

15. I turn then to the first of the issues to which I referred in paragraph 8 above, namely whether the Perpetual Trustee is entitled to vote and if so for how much. As I have already pointed out the debt due to the Perpetual Trustee is subordinated. It is noteworthy that neither the Insolvency Act 1986 nor the Insolvency Rules contain any provision to deal specifically with the treatment of subordinated debts. Such debts are not of recent origin. Seemingly it was envisaged by the legislature that the courts would mould and apply the existing rules so as to give proper effect to such rights as the subordinated creditor has. This is what has occurred. See Re British and Commonwealth Holdings plc [1992] 1 WLR 672 and Re Maxwell Communications Corporation plc [1993] 1 WLR 1402.
16. The first step must be to ascertain what the rights of the subordinated creditor are. That depends on the terms of the Trust Deed executed in January 1986 to which I have already referred. It provides for the issue of £100m Perpetual Notes on the terms and conditions of the Deed. By clause 2 Barings, as the issuer, covenanted with the Perpetual Trustee to pay the amount of the Perpetual Notes as and when they fell due. Clause 2(B)(iv) contains a proviso that if Barings goes into liquidation it should pay to or to the order of the Perpetual Trustee "amounts in respect of principal and interest in accordance with the provisions of Condition 2". It is common ground that the reference to Condition 2 is a reference to the condition set out in the Perpetual Note which corresponds to Clause 7 of the Trust Deed. Accordingly it is only necessary to refer to the latter. So far as relevant clause 7 provides

SUBORDINATION

(1) (A) THE rights of the Holders and, where applicable, the Couponholders are subordinated to the claims of Senior Creditors in that payments of principal and interest in respect of the Securities are conditional upon the issuer being solvent at the time of payment by the Issuer and in that no principal or interest shall be payable in respect of the Securities or, where applicable, the Coupons except to the extent that the Issuer could make such payment and still be solvent immediately thereafter. If such conditions as to the solvency of the Issuer are not satisfied, no principal or interest in respect of the Securities or, where applicable, the Coupons which under any other Clause hereof would otherwise fall due for payment shall fall so due, and, instead, such payment shall become due for payment only if and when and to the extent that the Issuer could make such payment in whole or in part and still be solvent (whether or not it is in winding up) immediately thereafter. Interest will continue to accrue on any Securities payment of which is suspended under this Clause subject to and in accordance with the provisions of Clause 2(B) and the Conditions.

(B) For the purposes of paragraph (A) of this sub-clause (1), the Issuer shall be solvent if (i) it is able to pay its debts as they fall due and (ii) its Assets exceed its Liabilities (other than its Liabilities to persons who are not Senior Creditors).

[(C)-(E)]

(2) If at any time an order is made or an effective resolution is passed for the winding up in England of the Issuer, there shall be payable on the Securities (in lieu of any other payment, but subject as provided in sub-clause (2) of this Clause) such amounts, if any, as would have been payable to the Holders if, on the day prior to the commencement of the winding up and thereafter, they were the holders of preference shares in the capital of the Issuer having a preferential right to a return of assets in the winding up over the holders of all issued shares for the time being in the capital of the Issuer on the assumption that such preference shares were entitled to receive on a return of capital in such winding up an amount equal to the principal amount of the Securities together with interest accrued to but excluding the date of repayment (as provided in Clause 2(B)) and Arrears of Interest, if any.

17. Also relevant are the provisions for enforcement and litigation to be found in Clauses 8 and 9. Clause 8(A) provides that

"AT any time following an Event of Default the trustee may institute proceedings in England (but not elsewhere) for the winding up of the Issuer. For the purposes of this Clause a payment shall be deemed to be due or compulsory even if the condition set out in condition 2 is not satisfied."

Clause 9(B) deals with the position of the Perpetual Noteholders. If the Perpetual Trustee fails to perform his duties then the individual noteholder may, subject to conditions, proceed in the name of the trustee. The independent rights of the Perpetual Noteholders are restricted by the concluding sentence in these terms

"No remedy against the Issuer, other than the institution of the proceedings referred to in Clause 8(A) or (B) or proving in the winding up of the Issuer, shall be available to the Trustee or the Holders whether for the recovery of amounts owing in respect of these presents or in respect of any breach by the Issuer of any of its obligations under these presents."

18. On 26th May 1998 the Perpetual Trustee lodged a proof for £118m. It was broken down in Schedule 1 to £100m. as the principal amount of the notes, the balance being interest and costs down to the date of the winding up order. At a meeting of creditors of Barings held on 29th September 1998 the Chairman of the meeting purported to apply IR 4.70 and admitted the proof at its face value for voting purposes but marked it

"as objected to on the grounds that the respective creditors have claims which are either subordinated or disputed and are consequently contingent claims."

19. On these applications counsel for the Liquidators and for the Perpetual Trustee, in effect, supported the views of the Chairman of that meeting. They invite me to direct the Chairman of any meeting I might allow to be convened to do likewise. They submit that the Perpetual Trustee is entitled to vote for the full amount. They submit that the Auditors Action is not bound to fail and, subject to how much is recovered, may well generate sufficient recoveries to enable a dividend to be paid to the Perpetual Trustee. They contend that the proof submitted by the Perpetual Trustee is for a liquidated and ascertained amount with the consequence that IR 4.70 applies and IR 4.67(3) does not. They suggest that the marking of the proof as objected to pursuant to IR 4.70(3) is sufficient recognition of the facts that the claim is subordinated and its value is dependent on the outcome of the Auditors Action.
20. These submissions and the treatment of the rights of the Perpetual Trustee by the Chairman of the meeting to which I have referred were challenged by counsel for the 1986 Trustee. He accepts that the Perpetual Trustee is entitled to submit a proof because, in accordance with IR 4.73, it is no more than a written record of his claim. He contends that such proof does not give rise to the right to vote for which the Perpetual Trustee contends and the Liquidators accept. He gives two reasons. The first is that the claim is such that it cannot give rise to any right to vote or share in a distribution unless and until the Auditors Action has been finally determined in an amount sufficient to provide a fund for the satisfaction of the subordinated liability due by Barings to the Perpetual Trustee. The second, and more limited, submission is to the effect that the liability of Barings to the Perpetual Trustee comes within IR 4.67(3) and, given the uncertainties surrounding the Auditors Action, no minimum value can be attributed to the claim of the Perpetual Trustee.
21. The starting point must be an analysis of the rights of the Perpetual Trustee under the 1994 Trust Deed. Only when they have been ascertained is it possible to determine the voting rights of the Perpetual Trustee in respect of his proof. I have no doubt that the Perpetual Trustee is a creditor. By clause 2 Barings covenanted to pay the sums set out in that clause. That gave rise to a liability within IR 13.12 which is a provable debt within IR 12.3. The primary obligation is to pay the principal amount of the notes as and when they become due with interest at the contractual rate in the meantime. The effect, in the events which have happened, of the proviso contained in clause 2(B)(iv) is to substitute for the principal amount of the notes the amounts in respect of principal and interest ascertained in accordance with the provisions of Clause 7.
22. The amount payable in the event of a winding up is prescribed by clause 7(2). In summary it is that amount, if any, as would have been payable if the Perpetual Notes had been preference shares in the same amount having a preferential right to a return of assets with interest down to the date of repayment over the holders of all other shares. In my judgment that amount is not liquidated nor is its value ascertained as at the date of winding up. It depends on the value of the available assets and the amounts due to the other creditors. It is the purpose of the winding up to ascertain what those are. Until that process is completed the amount due to the Perpetual Trustee must be uncertain.
23. The sum so identified is payable in accordance with clause 7(1)(A). Thus nothing is payable unless and until all other creditors have been paid in full and then only to the extent that Barings would be solvent, as defined in clause 7(1)(B), after such payment. Given that Barings is insolvent and the amount of the fund available for the payment of other creditors uncertain, the amount payable to the Perpetual Trustee is neither liquidated nor ascertained as at the date of the winding up.
24. In my view it is clear that the consequence of the provisions of both Clause 7(2) and Clause 7(1)(A) is that the rule applicable to the debt due to the Perpetual Trustee is IR 4.67(3), not IR 4.70. It follows that I do not accept the submissions of counsel for the Liquidators or of counsel for the Perpetual Trustee. In those circumstances it is unnecessary to deal with the wider submission of counsel for the 1986 Trustee or to decide whether a contingent debt for a liquidated sum falls within IR 4.67(3).
25. The submission of counsel for the 1986 Trustee also accords with economic reality and with the evident purpose of the rules. The question which arises under IR 4.67(3) is the "value" of the debt. It is obvious that a debt of £100 payable out of a fund of uncertain value (£x) only after the payment to the other creditor of the £500 due to him is worth less per £1 than the debt of £500. It may be worth anything between zero and its face value depending on what x turns out to be.
26. It is true that debts due to ordinary unsecured creditors are not given different values according to whether or not they are preferential. Preference is conferred by statute by reference to the identity of the creditor and the period in which they arose, but the Insolvency Rules treat them alike for voting purposes as, subject to the statutory preference, they are. But in this case the relevant debts enjoy different priorities from and by virtue of the terms of their creation. Their economic values are always different by reason of the different priorities alone. It would, in my judgment, be wrong, unless forced by the rules so to do, to accord to the Perpetual Trustee the right to vote for the face value of his debt in direct competition with the face value of the debt due to the 1986 Trustee.
27. For the reasons I have given I do not consider that the rules require such a result. In addition to the express terms of IR 4.67(3) it is to be noted that the Insolvency Rules are throughout looking to the value of the claim. (see IR 4.63(1)(2A), 4.67 and 4.86). Real, not face, value, is what determines the interest in the company of a creditor or contributory to which the court customarily pays regard. Cf Re British and Commonwealth Holdings plc [1992] 1 WLR 672, 679 and cases there cited.
28. These considerations lead directly to the second issue regarding the right of the Perpetual Trustee to vote. Given that IR 4.67(3) applies he is not entitled to vote at all "except where the chairman agrees to put upon the debt an estimated minimum value". Counsel for the 1986 Trustee submits that the minimum value must be zero or at least nominal. Counsel for the Perpetual Trustee did not invite me to direct what minimum value the Chairman should put upon the debt. He submitted that it should be left to the Chairman, as prescribed by the rules, even though his decision, whatever it might be, is likely to give round to a further outbreak of litigation.
29. I am not in a position to make any assessment as to the minimum value of the debt due to the Perpetual Trustee. It may be, but I do not so decide, that the Chairman of the meeting will not be able to either. In that event the Perpetual Trustee will not be entitled to vote at all, notwithstanding that his debt would appear to have some value beyond the nominal. In those circumstances I make no determination of what, if anything, is the minimum value of the debt due to the Perpetual Trustee. That will be a matter for the chairman of the meeting if I allow one to be convened. Also I leave to a later stage of this judgment the questions whether any and if so what amounts should be deducted from any value so ascertained. Nevertheless the dilemma regarding the value of the debt due to the Perpetual Trustee is relevant to the question whether the meeting should take place at all. I will consider it in that context later.

The debt due to the FSA Claimants

30. Proofs on behalf of FSA Claimants who also claim to be ordinary creditors because of their alleged rights to compensation under s.150 Financial Services Act 1986 have been lodged from time to time. At the creditors' meeting held on 29th September 1998 to which I have already referred votes of such creditors were deducted from the votes cast by the Perpetual Trustee so as to avoid double proof; on other occasions they have been permitted to vote but their votes have been marked as disputed. Hitherto the rights of the FSA Claimants have not required any more detailed consideration.
31. It is common ground that IR 4.67(3) applies to the debts due to the FSA Claimants. In argument counsel for the Liquidators suggested that there is no difficulty in agreeing a minimum value. This was a reference to the evidence of the Liquidators in which it is suggested that if the FSA Claimants are permitted to vote then it should be in respect of an amount equal to the principal amount due in respect of the note with interest to the date of the winding up or the amount (if any) obtained on the sale of the note. The Liquidators also suggest that the problem of double proof may be surmounted by deducting the amount of the vote of the FSA Claimants from the amount of the vote, if any, tendered by the Perpetual Trustee. The 1986 Trustee objects to this approach on the ground that it adopts the maximum value of the FSA claims not, as required by IR 4.67(3), the minimum.
32. The 1986 Trustee invites me to direct the chairman of the meeting, if I permit one to take place, that the minimum value of the FSA claims is zero. Counsel for the 1986 Trustee submits that the claims are stale, speculative, defensible and likely to fail. This is disputed by counsel for the FSA Claimants. He suggests that the claims have good prospects of success. He referred me to passages in the report of the Board of Banking Supervision and the amended statement of claim to demonstrate how the claim arose. He explained why the claims have not been pursued against Barings or its directors but have been settled vis a vis certain independent advisers.
33. I am satisfied that the FSA claims have a value. Equally I am satisfied that the value must be less than the amount for which the Liquidators suggest that the FSA Claimants should be permitted to vote. But I am not in a position to determine what lower amount might represent their minimum value. It may be, but I do not so decide, that the Chairman of the meeting will not be able to either. The position is, in my judgment, the same as that of the Perpetual Trustee in that if the chairman of the meeting cannot arrive at a minimum value then the FSA Claimants will not be able to vote at all even though their claims evidently have some value. Once again that appears to me to be a factor to be considered when deciding whether to permit the meeting to be convened.

The debt due to the 1986 Trustee

34. On 5th February 1997 the 1986 Trustee lodged with the Liquidators a proof in the sum of £104.7m. The amount represented the principal, interest and costs due in respect of the 1986 Notes down to the date of winding up. There appears to be some dispute as to the costs included within that figure, £7.2m, but that is a matter for the Liquidators to resolve. The 1986 Trustee now accepts that the amount of his proof should be reduced by the amount he received from Barings BV as the principal debtor, namely £13.2m. Subject to the outstanding dispute as to costs the present amount to which the 1986 Trustee is prima facie entitled and for which he has proved is £91.5m.
35. In addition the 1986 Trustee seeks, in one way or another, to vote in respect of post-liquidation interest of £34.5m and post-liquidation Exchange Rate losses of £19.4m. I say "in one way or another" because his submission is that either the 1986 Trustee is entitled to prove for those amounts or, as they must be paid before the Perpetual Trustee is paid anything, they must be deducted from the amount (if any) in respect of which the Perpetual Trustee is entitled to vote. Whilst not abandoning the first submission, counsel for the 1986 Trustee did not pursue it. Equally I did not understand counsel for the Perpetual Trustee to contend that the amounts in question did not have to be paid to the 1986 Trustee before the Perpetual Trustee was paid anything.
36. In each case the amounts are due under a provision in the 1986 Trust Deed. The interest is not provable because of the terms of IR 4.93. The Exchange Rate losses arise from the discrepancy between the requirement to convert the non-sterling debt into sterling for the purposes of proof under IR 4.91 and the contractual entitlement to payment in US$. Thus proof for the exchange rate loss may be considered to be inconsistent with the statutory regime and so unenforcable. It is unnecessary to pursue the point.
37. In my view the alternative submission for the 1986 Trustee is correct. The consequence is that if and to the extent that the Perpetual Trustee is entitled to vote in respect of any amount the sum of £53.9m should be deducted therefrom. Thus the 1986 Trustee is entitled, subject to the dispute as to £7.2m in respect of costs, to vote in respect of £91.5m. In addition he is entitled to require the deduction from any vote of the Perpetual Trustee of £53.9m. If the value of the claim of the Perpetual Trustee is taken at its present maximum of £118m its voting value must be reduced by £53.9m to £64.1m. Accordingly the difference between the votes of the 1986 Trustee and the maximum attributable to the Perpetual Trustee is £27.4m (or £20.2m) (£91.5m (or £84.3m) - £64.1m).

The Meeting

38. As I have already indicated the notice to convene a meeting for the purpose of replacing the Liquidators was served by the 1986 Trustee on 16th May 2001. It was served without prior warning barely a month before the commencement of the Auditors Action. The Liquidators make it plain both in their evidence and through their counsel that their application was issued on 18th May 2001 not for the sake of clinging to office but through a genuine concern whether it could be in the interests of all those interested in the assets available in the winding up of Barings for the liquidators to be changed at this stage. The Perpetual Trustee and Mr Mandell agree. All of them ask why this notice was served when it was.
39. It is instructive to have regard to the sequence of the evidence relevant to this question now before me. The application of the 1986 Trustee was supported by the first witness statement of Mr Alan Wilkinson made on 18th May 2001. He gave no explanation why the notice had been served. In his second witness statement made on 23rd May 2001 he responded to the suggestion made by Mr Bloom on behalf of himself and his co-liquidators that, for the reasons he gave, the Court should direct the Liquidators not to convene the meeting. In that witness statement Mr Wilkinson invited the court not to make such direction. Again he gave no indication why the notice had been served in the first place. On 24th May 2001 Ferris J gave directions with regard to the service of evidence by the parties to the two applications. He ordered that evidence of the 1986 Trustee in respect of the Liquidators' application be served by 4th June and in reply in respect of its own application by 7th June.
40. The third witness statement of Mr Wilkinson was made on 4th June. In that witness statement he pointed out that the 1986 Trustee acts on the advice of a Steering Committee representative of the 1986 Noteholders comprising commercial men with extensive experience of major insolvencies in the United Kingdom and with the benefit of advice from Cadwalader, Wickersham & Taft of which he is a partner. He commented

"All these parties are well able as the senior creditors to assess what course is in their best interests and will achieve the maximum realisation of the estate."

He then stated that the Liquidators no longer had any credibility with the Steering Committee and "this had led to the need to remove them". He indicated in general terms that the grounds of such loss of credibility arose from the Liquidators alleged failure to control costs, "significant failings in relation to the CDP itself and in particular conduct subsequent to the CDP". (The CDP was a compromise of the Auditors action brokered by the City Disputes Panel. It failed because the 1986 Noteholders rejected the proposals at their class meeting held in November 1998.) He confirmed that the decision to remove the Liquidators was based on the Steering Committee's commercial judgment following careful and detailed consideration of the available options. No further information of any particularity was vouchsafed because

"For reasons of confidentiality, it is not possible for me to articulate in an open witness statement the detailed reasons for that decision."

41. On 7th June 2001 the 1986 Trustee applied to Patten J and obtained an order enabling it to adduce evidence as to the reasons for its dissatisfaction with the Liquidators on terms that it remained confidential as between the 1986 Trustee, the Liquidators and the Court and was not shown to any other party. Patten J accepted that the 1986 Trustee had no option but to comply with the obligation of confidentiality to which Mr Wilkinson had referred. He made a provisional order in the terms sought but directed that it be served on the Perpetual Trustee and Mr Mandell.
42. The following day the Perpetual Trustee and Mr Mandell applied successfully to Patten J to discharge the order he had made. With regard to the obligation of confidentiality he observed that

"The inhibition which is imposed on the use of that material is not one which lies within the control of the court, or for that matter within the control of [the 1986 Trustee] and just has to be regarded as part of the realities of this litigation."

Though further witness statements were made by Mr Wilkinson on 5th and 9th June no further light was shed on the reasons why the 1986 Trustee wished to remove the Liquidators or why the notice was served when it was. However the witness statements which the 1986 Trustee sought to adduce pursuant to the terms of the first order of Patten J were provided to the Liquidators. In his fifth witness statement made on 11th June 2001 Mr Bloom comments that the confidential reasons would not, in his view, justify the removal of the Liquidators.

43. It is in these circumstances that I have to consider whether to direct the Liquidators not to convene the meeting requisitioned by the 1986 Trustee. It is common ground that, though s.168(2) Insolvency Act 1986 imposes a duty on the liquidator to whom a requisition is addressed, the Court has jurisdiction to override that duty by directing the liquidator not to comply with it. cf. Re Sayer (1887) 19 QB 679 and Re Burn [1932] 1 Ch.247. In the former case the court restrained the holding of the meeting because it considered that the object of the attempted removal of a trustee in bankruptcy was to obtain the appointment of one who would regard the particular creditor's claim more favourably. Lord Esher MR considered that the injunction was justified because "the holding of the meeting would work injustice". In the latter case the holding of the meeting would have served no useful purpose and would merely waste the available assets of the bankrupt's estate.
44. The 1986 Trustee relies on the prima facie duty of the Liquidators under s.168(2) to comply with the requisition. It points out that it is inhibited from placing before the court all the reasons why it wishes to remove the Liquidators by the obligation of confidentiality on which Patten J commented in the terms I have described. It emphasises that the decision has been reached by the experienced and reputable members of the Steering Committee on commercial grounds, having considered the available alternatives and on the best advice. The 1986 Trustee suggests that a meeting at which creditors may express their views and vote in accordance with their interests is the appropriate forum for resolving any differences between them as to who should be the liquidator. The 1986 Trustee points out that the conduct of the Auditors Action should be unaffected because it has no intention of procuring any change in the legal team or the expert witnesses acting for Barings. In addition pursuant to the Costs Settlement Agreement dated 23rd December 1999 the Steering Committee of the 1986 Noteholders is represented on the Litigation Committee which is responsible for managing the co-ordination of advice to the Liquidators in respect of the Auditors Action and all settlement negotiations relating to it.
45. The Liquidators, the Perpetual Trustee and Mr Mandell all invite me to direct the Liquidators not to convene the meeting. They suggest that a Meeting in the near future at which the creditors vote in accordance with the Insolvency Rules will not do justice to the interest of either the Perpetual Trustee or of the FSA Claimants in the assets of Barings. They suggest that to change the Liquidators at this stage of the Auditors Action is bound to have an adverse effect on its single-minded conduct even if the existing legal team remains in place. They are concerned that the 1986 Trustee is seeking to remove the Liquidators in the interests of the 1986 Noteholders not those of the creditors as a whole. They point to the fact that for partners of KPMG to take office as liquidators will involve some conflict of interest in the light of their firm's present involvement as auditors with ING Bank and that KPMG refused to provide an expert witness to the Liquidators when asked to do so in April 1999.
46. The process for the administration of the assets of an insolvent has two parts. First it is necessary to realise the assets for the best price reasonably obtainable. Second the resulting fund must then be divided between the creditors in accordance with their respective priorities and pari passu between those of the same priority. In the case of companies in liquidation the first group of Parts of the Insolvency Act 1986 and of the Insolvency Rules are designed to facilitate those objectives. The duty of implementing both parts of the process rests primarily on the liquidator. But at any stage either the liquidator or any person aggrieved by any act or decision of his may apply to the court for directions. Insolvency Act 1986 s.168(3) and (5). In the latter case the court is expressly directed by the subsection "to make such order in the case as it thinks just". Such an injunction is plainly implicit in the former subsection too.
47. Accordingly, in my judgment, I must consider whether if the meeting requisitioned by the 1986 Trustee is held it will be conducive to both the proper operation of the process of liquidation and to justice as between all those interested in the liquidation. Such a twofold test appears to me to be appropriate both because of the obvious purpose of the statutory provisions and the guidance afforded by Re Sayer (1887) 19 QB 679 and Re Burn [1932] 1 Ch.247 to which I have already referred. In my view the answer to both those questions is in the negative.
48. With regard to the proper operation of the process of liquidation it is inevitable that a change in the ultimate direction of the claim in the Auditors Action will unsettle some of those involved in its prosecution. Instead of devoting all their available time and attention to advancing the claim at least some of them are bound, metaphorically, to be looking behind them. There has been no explanation why the requisition was served on the Liquidators just one month before the hearing was due to commence. It is not self-evident that the obligation of confidence, whatever it may be, accounts for the lack of prior warning or an explanation of the timing. Further if a change of liquidator will not have any adverse effect on the conduct of the Auditors Action, as the 1986 Trustee suggests, why, I wonder, is it thought necessary to hold the meeting now? What prejudice will the 1986 Trustee sustain if the court directs that no meeting be held for the time being? None is suggested.
49. If a meeting is held now it will be at the time, chosen by the 1986 Trustee, when those opposed to the removal of the Liquidators are at their weakest. I have no doubt that the interests of both the Perpetual Trustee and of the FSA Claimants are of more than nominal value. But at this time the problems of estimating their respective minimum values for the purposes of IR 4.67(3) are the greatest. If a meeting is held now there is a real risk that the Perpetual Trustee and the FSA Claimants will be unable to vote at all or will be denied a vote in an amount which fairly reflects the value of their respective interests. At the conclusion of the trial of the Auditors Action it should be possible fairly to value the interest of the Perpetual Trustee. If the recovery is sufficiently substantial to give rise to a surplus available for the Perpetual Trustee then it will also have generated a fund in which the FSA Claimants can share pari passu with the 1986 Trustee if they establish their claims. Given the face value of the claims of the FSA claimants and the figures I have set out for illustrative purposes in paragraph 37 above, even allowing for the avoidance of double proof, it is by no means self-evident that the result of a resolution to remove the Liquidators proposed at a meeting held in 9 months time would be the same if the meeting was held now.
50. The 1986 Trustee accepts that the partners in KPMG it proposes should be appointed liquidators in place of the partners in Ernst & Young will face a conflict of interest. In paragraph 31.1 of his third witness statement Mr Wilkinson accepts that there are potential conflicts but records the views of KPMG that none of them is considered to be unmanageable. Mr Peers of ING in paragraph 7 of his witness statement also expresses the view that the conflicts are not considered by ING to be unmanageable. Both of them point out that similar conflicts face the present Liquidators as partners of Ernst & Young.
51. Neither of these considerations has satisfied either the Perpetual Trustee or Mr Mandell. The fact that the present Liquidators may face conflicts of interest comparable to those which would face the partners of KPMG if appointed liquidators in their place is no consolation to those such as the Perpetual Trustee or the FSA Claimants who have not been informed of the reasons why the 1986 Trustee requisitioned a meeting at the time it did. Indeed the time may be approaching when, to deal with the conflicts faced by all the major firms of insolvency practitioners in liquidations such as this, serious consideration will have to be given to leaving the Official Receiver as the liquidator and authorising him to employ as his agents insolvency practitioners of his choice and to requiring him to monitor their costs and expenses.
52. The Perpetual Trustee and Mr Mandell are concerned that the 1986 Trustee is acting only in the interests of itself as representing the 1986 Noteholders. I share their concern. The only evidence to which counsel for the 1986 Trustee could point when asked to make good the assertion that it was acting in what it considered to be the best interests of all the creditors was the passage from Mr Wilkinson's third witness statement I have quoted first in paragraph 40 above. In my view that evidence is insufficient. The conflict of interest between the different classes of creditor is obvious. If the Steering Committee and hence the 1986 Trustee had considered that the commercial decision at which they had arrived was in the best interests of all the creditors the circumstances required a clear statement to that effect. Not only is such a statement lacking but the whole tenor of the first two witness statements made by Mr Wilkinson is to the effect that the 1986 Trustee is entitled to require the meeting to be convened and to vote to the full value of its proof whilst at the same time excluding any votes from the other creditors irrespective of the interests of those other creditors.
53. For all these reasons, in my view, the proper operation of the process of the liquidation of Barings and justice to all those interested in its assets require me to direct the Liquidators not, until further order, to convene a meeting of the creditors of Barings on the requisition of any creditor.

Conclusion

54. In relation to the application of the Liquidator I will make an order under paragraph 1 in the sense indicated in paragraph 52 above. In these circumstances, although I have expressed my views in relation to paragraphs 2 and 3 of that application, paragraphs 2 to 4 do not arise. I make no order under any of those paragraphs. Paragraphs 5 and 6 have already been dealt with by Ferris J. I will dismiss the application of the 1986 Trustee. I will hear further argument as to the costs of both applications. I invite junior counsel for the Liquidators to prepare and junior counsel for all other parties to agree a minute of my order.
55. Finally I should record that a message was left for my clerk after the conclusion of the oral argument on Friday 15th June 2001 to the effect that Evans-Lombe J had deferred the hearing of the Auditors' Action, due to start at 10.30 am on Monday 18th June, for 7 days to enable settlement discussions to take place. It appeared to me, when I received it, that this information merely confirmed the conclusion at which I had already arrived but did nothing to reduce the urgency with which I should prepare my judgment. I am grateful to all counsel for their considerable assistance in that respect, not least in agreeing and keeping to a time-table which enabled the oral argument to be concluded at a time which made the delivery of this judgment at 10 am on Monday 18th June 2001 possible.