England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		24 November 2008

Mr Justice Blackburne :

Introduction and background

1. This application, issued on 3 October 2008, arises out of the recent, well publicised collapse of the Lehman Brothers banking group ("the Lehman Group"). It seeks an order that the respondents, who are the administrators of Lehman Brothers International (Europe) ("LBIE"), provide, by a statement in writing, information in respect of certain securities held for the applicants. Although there is a difference of opinion between the applicants and the administrators as to the value of the securities, it is not in dispute that at the time of LBIE's entry into administration their collective worth was very considerable.
2. Owing to the commercially sensitive nature of some of the information relating to the applicants disclosed by their evidence, not least the impact on them if the fact should become public knowledge that a substantial part of their investments was placed with the Lehman Group and is not immediately recoverable, I acceded to a request by them, when the matter was before me on 21 October, which the administrators did not oppose, that this application should be heard in private and that inspection of any documents relating to this application should be restricted. In order to preserve the confidentiality of these matters, including the identity of the applicant, I have avoided naming them in this judgment and taken steps to ensure that references to the evidence are suitably anonymous.
3. The applicants, which are loosely connected with one another and are private investment funds managed in the USA, were customers of Lehman Brothers Inc ("LBI"). LBI, which is a United States company and operated from New York, is a member of the Lehman Group. Until its collapse, the Lehman Group was one of the four biggest investment banks in the United States. It operated globally, providing financial services to corporations, governments and municipalities, institutional clients and high net worth individuals around the world. Its main headquarters were in New York with regional headquarters in London and Tokyo and with many offices in other parts of the world. The ultimate parent company is Lehman Brothers Holdings Inc ("LBHI"), a United States company. LBHI filed for bankruptcy protection on 15 September 2008 in the United States under Chapter 11 of the US Bankruptcy Code. LBI is a subsidiary of LBHI and has itself been made the subject of an insolvency procedure and a trustee appointed.
4. The principal trading company of the Lehman Group in Europe was LBIE which is an unlimited company incorporated in this country. Its business was the provision of a wide range of financial services. It had its headquarters in London. It was authorised and regulated by the Financial Services Authority and was a member of the London Stock Exchange and of other exchanges.
5. As LBIE relied on LBHI for funding, the collapse into insolvency of LBHI had the consequence that LBIE and other companies within the Group which relied on LBHI for funding were forced into insolvency. As a result, prior to the opening of the markets in this country on Monday 15 September 2008, LBIE and three other companies went into administration. The relevant orders were made by Henderson J at 7:56 am that morning. Since then other companies in the Group have entered administration.
6. Each of the applicants is party to a prime brokerage agreement with LBI and LBIE (and other companies in the Lehman Group) and also a margin lending agreement with LBIE, arranged by LBI as agent. Both agreements are governed by New York law. LBI maintained the prime brokerage account under the prime brokerage agreement while LBIE maintained the lender's account under the margin lending agreement. Under those contractual arrangements the applicants lodged securities with LBI as their "prime broker" as security for the payment and performance of their obligations and liabilities to any Lehman Group entity. LBI in turn transferred the securities to LBIE which was authorised under the contractual arrangements to make loans to the applicants and provide other services. The securities served as collateral to secure any obligations thereby arising. Under clause 5 of the margin lending agreement, LBIE was authorised to lend the securities to itself or others, and to pledge, re-pledge, hypothecate and re-hypothecate them. Its power to do so was on terms that, unless otherwise agreed, the client would continue to be entitled to any distributions made on or in respect of the securities in question.
7. On 7 October 2008, which was only shortly after this application was issued, I made an order on the administrators' application for directions concerned with property held in the name or to the order of LBIE that may be subject to trust or proprietary claims (described in the order I made as the "Trust Property"), in particular how such property should be identified and dealt with by the administrators and what steps they should take to identify and deal with claims by counterparties to that property. I ordered that, pending the approval of proposals by LBIE's creditors or further order, the administrators were authorised to continue the management of LBIE's affairs, business and property, as such management related to proprietary claims by third parties, by implementing and/or giving effect to the processes set out in a schedule to that order. The schedule provided for the establishment of a team ("the Trust Property Team") to take responsibility for dealing with the matter. It also provided for the establishment of a sub-committee to "review the principles applicable to prioritising the determination of the claims of the particular counterparties by identifying, where appropriate, high profile problems or hardship issues, to ensure that the overriding objective of treating all counterparties fairly is not prejudicial to the interests of a minority or that there is not otherwise a problem which requires specific and accelerated attention." The sub-committee was charged to meet periodically, initially daily, to review the prioritisation and refine the process as events developed. The schedule then identified a series of key steps that the Trust Property Team were to undertake in order carry forward this task and the factors, among others, which the administrators should take into account when identifying what principles should apply when considering what claims should be prioritised for determination.
8. The hearing of the current application began on Thursday 13 November and resumed and was concluded on the following Monday 17 November. In the meantime, on Friday 14 November, the initial creditors' meeting took place as required by paragraph 51 of Schedule B1 to the Insolvency Act 1986 at which the administrators' proposals were considered and voted on as provided for by paragraph 53. The application of insolvency rule 2.38(4) which governs the calculation of votes at a meeting such as the initial creditors' meeting was, given the number and persons attending the meeting, a complicated and substantial task. The outcome of the voting was not known until the following Wednesday. In the event, the proposals, subject to one modification, were approved.
9. Proposal (ii) provides, so far as material, that:

"The Administrators will identify and return Trust Property in accordance with the Order of the High Court dated 7 October 2008."

In effect the proposal constitutes an endorsement of the processes set out in the schedule to that order for the identification and treatment of Trust Property and claims by counterparties to that property. Section 4 of the document issued to LBIE's creditors which contains the proposals sets out, in a part entitled "Trust Property", the background and so-called "workstream issues" concerned with the identification of trust property. It does so in the following terms:

"LBIE held many classes of assets on behalf of its clients. It had provided significant financing to many clients, especially hedge funds, and under the terms of these agreements LBIE had rights over certain assets. Additionally, under the terms of some custody arrangements, there was a right of set off where clients owed amounts to LBIE.

The identification of unencumbered client assets is therefore complex and considerable data is needed to establish an accurate position on a client by client basis. This is further complicated as LBIE's systems booked trades on a 'contractual settlement' basis rather than an 'actual settled' basis. As such, postings in the systems need to be reversed to reflect the position at 15 September 2008. The reconciliation steps that are required to be undertaken include, for example, amending the LBIE books and records for some 140,000 failed trades, pending transactions that have been contractually settled and corporate events that have not been recorded; adjusting LBIE's books and records to reflect market participants' actions post Administration and analysing the impact on the client assets if applicable; determining the location of the assets (custodian, counterparty, loaned, re-hypothecated) and obtaining statements, analysing assets from a legal perspective and determining final positions.

Additionally, it is essential that the physical inventory of securities is reconciled to the book inventory for both House and Client assets. ...

In addition to addressing the issues of those Client Assets that in principle should be available to be returned to clients, the Administrators are aware of the issues faced by all of LBIE's unsecured creditors and the Administrators' responsibility to them. We have sought to adopt a system for dealing with Client Asset claims in an orderly and efficient manner and one which, while recognising the importance of dealing with Client Asset claims, enables us to act with proper regard to the interests of all creditors."

The section then describes the work of the Trust Property Team and the sub-committee, referred to in the schedule to the order of 7 October, and to the fact that the administrators may from time to time need to seek further directions from the court on particular issues arising with respect to trust property. There are then set out what are described as "workstream objectives". They are grouped into three phases: "control and assimilation" (including obtaining an understanding of the extent of client assets and monies, identifying who all the counterparties are who have claims rights or other interests in trust property, identifying a methodology for managing such assets, and so forth); "systematisation" (including determining legal issues that impact upon the validity of trust claims) and "run off", namely agreeing and implementing a procedure for making interim distributions of trust property to counterparties with valid trust claims.

The applicants' case

10. The applicants maintain that on or by Friday 12 September 2008 they had agreed with LBI that most of their securities would be transferred to a third party bank on terms of delivery of the securities against payment by the third party bank of all amounts outstanding to the Lehman Group. The settlement date, they say, was to be two working days later, namely 16 September 2008. As a result, it would seem, of LBIE's entry into administration, the transaction was never completed. The applicants' evidence examines, by reference to voicemail messages and e-mail correspondence between the applicants' managers and employees of LBI (all of them based in the USA), the events leading up to what they say was the agreement (or "trades") entered into on 12 September. A purpose of the evidence is to demonstrate that by that date the securities, or most of them, were available for transfer and that any outstanding loans and other obligations would have been discharged by the third party bank immediately upon transfer of the securities on the settlement date. The evidence seeks to demonstrate that there was no reason why the securities should not have been transferred on the settlement date and, in particular, that if and to the extent that any of them had been earlier re-hypothecated, either they had been already released from hypothecation or they would have been freed from hypothecation and thus, in either case, available for transfer on the settlement day.
11. The applicants say that the purpose of their application is to require the administrators to provide further and better information of the state of their securities than has so far been provided in response to requests to be supplied with such information. They emphasise in their evidence that their aim is not to obtain the immediate transfer of the securities but to obtain more information about them. They complain of what they describe as "a marked reluctance" of the administrators to assist, adding that:

"…The Administrators must have the information the Applicants seek, or at least a large part of it, available to them and … the excuses they have given for not providing it are not good. The information is necessary to enable the Applicants to be properly informed about the fate of their property in order to decide what, if anything, to do next in the best interests of their investors. Naturally this may entail steps to bring legal proceedings in an effort to force the transfer of the positions if the information the Applicants seek shows or tends to show their property is in fact available even if only to some extent."

12. Elsewhere in their evidence, the applicants point out that, unlike some Lehman Group clients, the level of their borrowing was low relative to the size of their overall assets and that they were not counterparties to any sort of derivative transaction needing to be unwound. As it is put: "All the Applicants had were portfolios of securities, two loans and one small short position."
13. The applicants' evidence spells out in the following terms the consequences to them of the failure by Lehman Brothers to transfer their securities:

"25.1 The funds specialise in investing in companies, restructuring them and creating value in them. To do this they must be able to vote securities from time to time, to have securities available for exchange into other classes of security or equity, and ultimately to be able to sell the securities…

25.2 Because of the confusion in Lehman Brothers caused by the bankruptcy, the insolvency proceeding, and the administration, the funds cannot exercise their voting rights, cannot be sure to have securities available for exchange and cannot sell the securities. Furthermore dividends, interest paid periodically on the securities and proceeds on maturity (the 'Fruits') are… being paid to Lehman Brothers …they are not being paid to the Applicants…

25.3 The funds are accountable to their investors and have a duty to be in control of their underlying assets, that is to say the securities and their Fruits, and the opportunity to maximise their value. The realisation of such opportunity entails having the ability to influence the structure and management of the companies in which investments have been made. In the circumstances now prevailing, the Applicants cannot do so with confidence …

25.4 If the present situation continues for very much longer the funds are virtually certain to lose the confidence of their investors so that they will suffer revenue impairment; the confidence of the boards of the companies in which they have made their investments; and the confidence of other investments in the same companies. Moreover some of those companies …may face collapse in direct consequence of the funds' inability to raise capital and confidently engage in restructuring caused by the immobilisation of their securities …

25.6 In summary, the funds will suffer economic loss, and so will their investors unless their positions are transferred soon."

The evidence also raises the prospect of mounting financial obligations insofar as the applicants owe money to Lehman Brothers on which interest may continue to be claimed.

14. In a subsequent witness statement served very shortly before this hearing, the applicants have sought to spell out what the consequences will be for two of the applicant funds in the event that the information order being sought is not made or "no substantial progress can be shown by mid-December 2008 towards the recovery of their property from LBIE". The statement explains that on mid-December the managers of the two funds will be providing a plan to those funds relating to their future management. It states that if there is a realistic prospect that all or nearly all of the property belonging to those funds will be returned within a reasonable time then the funds may continue to be viable in the interim, but if by mid-December the managers are not in the position to provide the funds with substantially more information than is currently available and they are unable to give assurances as to the likelihood of and time by when the funds will have recovered all or nearly all of their property at LBIE "it is likely that the funds will be wound down forthwith". The statement then states that the consequences of a decision to wind down the funds will be that the funds' property at LBIE will have to be treated as irrecoverable for the purposes of active management, the managers will have to cease charging management fees for that portion of the funds' assets, personnel will lose their jobs, and the funds' inability to engage in restructuring will probably lead to the collapse of at least four companies in which securities are held.

The relief claimed

15. As originally formulated when this application was issued, the order sought was one requiring the administrators, by sworn statement, to state in respect of each of the securities where and by whom the security was being held, whether, within the meaning of the applicable prime brokerage and margin lending agreements, LBIE or any other Lehman Group entity had lent, pledged, re-pledged, hypothecated or re-hypothecated the security or used it as collateral for a general loan and, in the case of any security which had been so lent etc, whether any third party claimed to be entitled to or had sought to realise any interest in it (and if so giving details of each such claim and exhibiting copies of all relevant documents) or whether the security was being used as collateral for any loan or loans made by LBIE or any other Lehman Group entity to any of the applicants (and if so giving details of the amount so lent and any interest accrued). The proposed order also contained a proviso ("the qualifying proviso") that if and to the extent that the administrators should be unable to obtain the information sought, there should be an explanation in the statement that the administrators were being required to make, setting out what steps had been taken to procure the information and why the information could not be given.
16. In the light of evidence served on behalf of the administrators by Ian Davis of PricewaterhouseCoopers to which I shall shortly come and in the light of points which arose during argument on the first day of the hearing the order sought has been refined and, in some respects, more clearly focused than it was when the application was first issued. By paragraph 2 the re-drafted order requires the administrators, by reference to passages in the witness statements of Mr Davis, to provide further information in amplification of what Mr Davis has already supplied. It does so under four main headings. Thus, in the case of what it describes as "the Commonly Held Securities", a reference to sixteen of the applicants' securities which, as Mr Davis's evidence indicates, are held in common with 45 other LBIE clients securities in custodian accounts, it requires the administrators to state:

"(a) The identify of the custodian or custodians and the location of each of the accounts;

(b) Which of the Commonly Held Securities are held in which accounts and the numerical quantity held in each of those accounts;

(c) The numerical shortfall, if any, between the aggregate quantities of each of the Commonly Held Securities attributed to other clients and the quantity of the said Securities in each account;

(d) The evidence on which the information given under this sub-paragraph …is based;"

The other parts of paragraph 2 seek a similar degree of detail under the other headings.

17. By paragraph 3, the re-drafted order seeks the same general information about the applicants' securities as was sought by the original draft order except insofar as the information has already been provided in answer to paragraph 2. Paragraph 4 seeks, in a slightly modified form as compared with what appeared in the original draft order, information as to the amount of each loan LBIE has made to each applicant, including the amount of interest accrued in respect of each security, and paragraph 5 seeks to establish in respect of each security details of what interest, dividend or maturity payments have been received by LBIE since it went into administration and what future such payments will be received, and where and by whom, and on what terms they will be held. Paragraph 6 repeats what I have referred to as the qualifying proviso.

The administrators' case

18. The administrators' general position, as set out in their evidence, is that they are content to provide the applicants, and have provided them, with information which is readily available to the administrators in relation to the securities to which the applicants' information request relates but warn that the information supplied is, for reasons explained, subject to a number of qualifications going to its accuracy and completeness. They say, however, that they are not willing to divert resources into making further investigations in relation to the applicants' securities except in accordance with an approach to claims taken on what they describe as a generic basis. They say that they have already provided the applicants with a great deal more information than most (if not all) of LBIE's other counterparties and that they and their advisers have spent more time and resources on dealing with the applicants (including this application) and investigating their positions than on almost any other of LBIE's clients. They point out that LBIE had more than a thousand prime brokerage clients, many with a similar relationship to that between LBIE and each applicant, and that the applicants' position is not unique.
19. Against that general approach, they say that in order to determine whether to accede to a client request for the re-delivery of securities and monies provided by way of collateral, they must carry out a variety of tasks: (1) investigate and obtain definitive information on closing, reversing, unwinding or otherwise dealing with any unsettled trades which may affect the client's account, (2) ascertain the client's holding of securities and monies in accordance with the LBIE database once it has been fully updated, (3) conduct a reconciliation of LBIE data and records held by LBIE's custodians and resolve any differences or disparities, (4) establish whether and how securities may have been re-used, (5) establish whether and how monies provided by way of collateral are held, (6) determine the extent of any indebtedness of the client to LBIE and any other Lehman Group entity and whether there are other reasons for the exercise of LBIE's lien over the securities, and (7) establish whether other clients had interests in the stocklines of the securities held in each custodian account in case there should be a competing client claim to the securities in the event of a shortfall.
20. They explain that they have supplied the applicants with a series of statements setting out details of the applicants' accounts but point out that the accounting information is subject to qualification. They state that, like many other LBIE prime brokerage clients, the applicants held long and short market positions, had borrowed securities to cover short positions and had long assets which were re-hypothecated. They explain that, under the contractual arrangements entered into with the applicants, LBIE was entitled to use the applicants' assets as collateral for loans to its clients, to lend the securities to cover the settlement of short sale transactions, to pledge securities to market counterparties in order to collateralise obligations and to lend the securities to other market counterparties. They state that from the data available it would appear that as at 12 September 2008, being the last available date at which information from the LBIE database is available, LBIE had extensively exercised its right to re-use as collateral securities that the applicants had provided and that, from enquiries made, some of those securities may have been transferred to LBI with whom the applicants had their main prime broking relationship and that other securities may have been provided to other third parties as collateral for other transactions. They also explain that LBIE holds, in segregated client accounts with third party custodians, securities which have been provided to it by way of collateral and that the client account in question is simply a pooled fund of assets which may belong to a number of different clients. They explain that that it is segregated only in that it contains assets beneficially owned by clients rather than by LBIE itself.
21. The administrators then take issue with the applicants' contention that by 12 September, the date by which instructions were given for the transfer of the applicants' securities, steps had been taken to ensure the availability of the relevant securities for settlement of the transaction on 16 September. They explain, by reference to the management structure in operation at the time, why, even though the applicants may have understood that the securities were in place, this may not in fact have been so.
22. At a more general level, the administrators explain that there are approximately 140,000 failed or pending trades shown in LBIE's system to which LBIE is a party which need to be reviewed, reconciled with external data and then either settled, unwound, cancelled or otherwise addressed in order to bring LBIE's trade database system up to date. They explain that LBIE's accounts and licences with many exchanges, clearing houses and third party custodians remain suspended or frozen and that, as a consequence, LBIE has limited access to up to date information from those entities concerning the status of its accounts with them. They explain that this makes it impossible fully to reconcile LBI's own records with those of the exchanges and other bodies through which it conducts trades and other transactions but that they are actively working with all market participants in order to obtain the required information. In particular they describe how US securities traded, received or held by LBIE for its clients or for its own account were generally held in a single "omnibus" account at the Depositary Trust Company (the "DTC") in the United States managed by LBI. They believe that this account would have included most of the securities claimed by the applicants since nearly all of them were US bonds. They point out that since the start of the administration LBIE has not been able for a variety of reasons to access information concerning securities held on that account but that steps were being taken, in discussions with LBI's trustee and the trustee's advisers, to access the information. They point out that all of this will take time and that they will need to reconcile the positions at the time LBIE entered administration.
23. They go on to explain that clients' securities which had not been re-used were held in pooled client custody accounts with third party custodians, that, as a result, other clients may also have claims on the pool and that until all client claims have been received and a reconciliation effected with the relevant custodians and other depositories, they are not able to say with certainty whether securities can be returned in full to any given client or whether a shortfall exists which must be shared pro rata across all client holdings. In particular, they explain that investigations indicate that the applicants share custodian accounts in common with 45 other clients on sixteen stocklines so that a reconciliation must be carried out of the holdings and stocklines, adjusting for failed trades and pending transactions, in order to determine the overall position and enable LBIE to return the relevant securities. (It is this disclosure which has prompted the applicants' request for information under the rubric "Commonly Held Securities" - referred to above - in the redraft of the order now sought.) They explain that until the reconciliation of each stockline or each custodian-held client account is carried out, a process which they say will take a long time, it will not be possible for them to return assets to clients.
24. They emphasise that the information which has been provided to the applicants is the information readily available to the administrators "without the making of specific and very time intensive bespoke enquiries to exchanges, clearing houses and custodians". They point out that "necessarily these need to be made in respect of the affairs of clients generally rather than diverting resources to the making of such enquiries for individual clients." They express concern that they should not be required to devote a disproportionate amount of time to one particular counterparty (or small group of associated counterparties) which is seeking to have its case put to the top of the queue by commencing legal proceedings and by exerting pressure on the administrators in this way. They point out that if they were to attempt at this stage of the administration to produce, for each counterparty which would wish them to do so, the type of information sought by the applicants, the task of returning client assets would take far longer than if conducted in the methodical ordered manner outlined in the evidence (the redacted form of which has been made publicly available) which led to the making of the court order on 7 October 2008.
25. The administrators then explain the difficulties they face in supplying the information sought by paragraph 3 of the re-drafted order. They say that the information is not readily available from the LBIE database and would need to be subject of a specific investigation. They explain that it would be necessary to investigate particular records held by LBIE and to obtain data and records from relevant third party custodians, depositaries and other parties. They explain the difficulties that this process faces, not least the refusal of a number of custodians and others to comply with demands for information and that, in the meantime, the administrators are only able to call upon limited LBIE resources. In particular, they explain that they would not be able properly to discharge their statutory functions if they were to divert resources to conduct the type of investigations which would be necessary in order to obtain the information requested by the applicants and by other clients in a like position who have made, or will in the future make, similar requests.
26. Addressing the applicants' expressions of concern over the very serious consequences to their funds if the further information sought is not provided, the administrators state that, although conscious of the seriousness of the situation, the applicants' predicament is shared by many other clients with funds at LBIE. They quote in an anonymised form from a number of examples and state that there are likely to be numerous others. They mention that there are many different teams within PwC and Linklaters (the solicitors retained by the administrators) dealing with the hundreds of counterparties making claims for the return of assets and that it would be difficult to produce a comprehensive list of the funds which have made points similar to those made by the applicants.

Counsel's submissions

27. For the applicants, Mr Francis Tregear QC who appeared with Mr Marcus Staff, submitted that a balancing exercise was involved between the administrators' wish to deal with the administration in a comprehensive and systematic way and what he described as the "real world": the very pressing need of his clients for information about their securities in time for the meeting fixed for mid-December to which the latest evidence referred. He submitted that the applicants had no wish to appear hostile in the stance they have taken or to subject the administrators to a burdensome fact-finding investigation in order to supply the further information that was sought. Nor were the applicants seeking to put themselves in a better position than other former LBIE clients. Essentially, he said, their objective was a "reporting to investors" exercise. There was certainly no wish to subvert the administration.
28. Mr Tregear pointed out that the information sought under paragraph 2 of the revised form of proposed order was directed to the clarification and amplification of matters arising out of information which the administrators had already supplied. He submitted that the information was presumably already available to the administrators or easily obtainable. He said that if, as the evidence strongly suggested, the further information sought by the paragraph was available or readily available to the administrators there could be no good reason why they should not supply it, if necessary under compulsion of the court. He referred to a short statement obtained from a partner in his instructing solicitors based in the USA who had approached the attorney acting for LBI's trustee. According to that statement, the attorney had informed the solicitor that Deloittes, who were assisting the trustees, were working on tracking the applicants' securities and that a response would be available shortly. Mr Tregear submitted that if applicants were able to make such progress in tracking down their securities, it was surprising that the administrators had not already done the same. He submitted that their failure was suggestive of a "can't do" mentality. He accepted that other parts of the proposed order might entail a more extensive exercise but the obligation would be subject to the qualification contained in paragraph 6. He submitted that, in all the circumstances, there was no good reason why the administrators should not supply the further information which his clients were seeking, at the very least the further information required by paragraph 2.
29. For the administrators, Mr William Trower QC, who appeared with Mr Daniel Bayfield, examined the extent to which the administrators had attempted to respond to the applicants' wish for further information and submitted that they had supplied as much information as in the circumstances could reasonably be expected, indeed more information than was warranted. He examined the difficulties outlined in the administrators' evidence in establishing what the position was concerning the applicants' assets and that of LBIE's clients generally. He questioned the applicants' need for the further information and submitted that their object, having been supplied with the further information, was to bring proceedings to compel a transfer to them of their securities and, if this was necessary to bring that about, have any legal issues determined by the court by recourse to the prioritisation of claims issues envisaged by the schedule to the 7 October order. He submitted that this was evident from the extensive treatment in Mr Tregear's skeleton argument contending that the applicants' case should be treated as "high priority" in that it fulfilled most of the factors for establishing priority set out in that schedule, and that the facts were straightforward and the case was urgent.
30. He submitted that the hardship of which the applicants complained was, sadly, one shared by many others and that their claim was no more urgent than those of many other prime brokerage clients and, factually, far from straightforward. He submitted that although the court had jurisdiction to make the order sought it was not appropriate that the court should do so but, instead, should allow the administrators to get on with their many tasks. He submitted that an order requiring the supply of the further information was not consistent with the scheme and spirit of schedule B1, not least because the court was reluctant to interfere with the conduct of an administrator except for good cause. He submitted that no good cause had been shown.

Conclusions

31. Should then the court make the order sought? I have to be satisfied that there is both jurisdiction and a sufficient case on the facts before I can do what the applicants seek. Sympathy alone with their plight is not an adequate basis.
32. Mr Tregear submitted that the court had jurisdiction to make the desired order either in exercise of its jurisdiction with respect to trusts, or under paragraph 68(2) of Schedule B1 to the Insolvency Act 1986 or under paragraph 74(1)(b) of that Schedule. I propose to deal with the three bases of jurisdiction in reverse order.
33. Paragraph 74, so far as material, provides as follows:

"(1) A creditor or member of a company in administration may apply to the court claiming that -

(a) the administrator is acting or has acted so as unfairly to harm the interests of the applicant (whether alone or in common with some or all other members or creditors), or

(b) the administrator proposes to act in a way which would unfairly harm the interests of the applicant (whether alone or in common with some or all other members or creditors).

…

(3) The court may -

(a) grant relief;…

(4) In particular, an order under this paragraph may -

…

(b) require the administrator to do or not to do a specified thing;…"

The applicants, by seeking to invoke paragraph 74(1)(b), contend that the administrators' refusal to supply the further information which they seek "…would unfairly harm the interests …of them (whether alone or in common with some or all other members or creditors)".

34. This raises what is meant by "unfairly harm". Two things are apparent. First, the action complained of must be shown to have caused the complainant to suffer harm to his interests or, in the case of a proposed action of the administrator, would cause the complainant to suffer harm. In short, the applicant must show that the action complained of is or will be causative of harm to its interests.
35. Mr Trower questioned whether the administrators' unwillingness to supply the further information sought could be said to be causative or potentially causative of any harm to the applicants. By the terms of the order sought any further information which the administrators might be able to provide would be subject to the qualifying proviso that the administrators are only to be obliged to supply it insofar as they are able. The evidence suggests, he said, that any further information would not materially assist the applicants and would be most unlikely to avoid the consequences, assuming them to be well founded, referred to in the applicants' evidence if the further information is not provided.
36. I am not in the position to gainsay what the applicants have stated in this regard. I proceed therefore on the footing that the refusal of the administrators to provide the further information which they seek, even though the requirement to supply the information is subject to the qualifying proviso, would be harmful to one or more of the applicants.
37. The second aspect of the statutory requirement is that the harm must be "unfair"; harm alone is not enough. What is the ingredient implied by the need to show unfairness?
38. In the case of the concept of unfair prejudice, as it appears in what is now section 994 of the Companies Act 2006, Lord Hoffmann in O'Neill v Phillips [1999] 1WLR 1092 considered (at page 1099) that the unfairness might consist in a breach of the rules regulating the basis on which it had been agreed that the affairs of the company should be conducted or in using those rules in a manner which equity would regard as contrary to good faith. The context of an administration is, however, different. By paragraph 3(1) the administrator is obliged to perform his functions with the object of achieving the purpose of the administration. In the present case that is to achieve a better result for LBIE's creditors as a whole than would be likely if LBIE were wound up without first being in administration. By paragraph 3(2) the administrator is obliged to perform his functions in the interests of the company's creditors as a whole. By paragraph 4 he must perform his functions as quickly and efficiently as is reasonably practicable. By paragraph 59(1) he may do anything necessary or expedient for the management of the affairs, business and property of the Company. By paragraph 68(1) he must manage the affairs, business and property of the company in accordance with any proposals approved by the creditors under paragraph 53, subject to any directions which the court may give under paragraph 68(2).
39. Where, as here, where there is no suggestion that the administrators are acting other than in accordance with their obligations under Schedule B1 and the order made on 7 October it is exceedingly difficult to see how the unwillingness of the administrators to devote more time and resources than they have already to answering questions put to them by a particular group of creditors (as I shall assume the applicants to be) directed to eliciting information about assets which the creditors claim are theirs can be said to be unfair even if it can be said to be causative or likely to be causative of harm. If, as they assert and their evidence strongly suggests, the administrators are seeking in good faith to carry out their functions in the interests of LBIE's creditors and asset claimants (as I shall for want of a better expression describe former clients such as the applicants) as a whole and are endeavouring to avoid being deflected from this course by devoting what they fairly regard as a disproportionate amount of time and resources to dealing with requests for information from a particular group of former clients, such as the applicants, I feel quite unable to conclude that any case of unfair harm is established within the meaning of paragraph 74(1). The material for contending that it is is simply not to hand.
40. This brings me to the applicants' reliance on paragraph 68(2). Paragraph 68 provides as follows:

"(1) Subject to sub-paragraph (2), the administrator of a company shall manage its affairs, business and property in accordance with -

(a) any proposals approved under paragraph 53,

(b) any revision of those proposals which is made by him and which he does not consider substantial, and

(c) any revision of those proposals approved under paragraph 54.

(2) If the court gives directions to the administrator of a company in connection with any aspect of his management of the company's affairs, business or property, the administrator shall comply with the directions.

(3) The court may give directions under sub-paragraph (2) only if -

(a) no proposals have been approved under paragraph 53,

(b) the directions are consistent with any proposals or revision approved under paragraph 53 or 54,

(c) the court thinks the directions are required in order to reflect a change in circumstances since the approval of proposals or a revision under paragraph 53 or 54, or

(d) the court thinks the directions are desirable because of a misunderstanding about proposals or a revision approved under paragraph 53 or 54."

41. In contrast to paragraph 63 which states that the administrator of a company may apply to the court for directions in connection with his functions, paragraph 68 does not identify who may apply to the court for directions under sub-paragraph (2). I nevertheless accept that any person with a genuine and legitimate interest in the directions sought may apply. I accept also that such a person would not necessarily be confined to a creditor or member of the company in administration. It was not suggested that the applicants do not so qualify.
42. It was also not suggested that because the initial creditors' meeting had not taken place or its outcome was unknown, the applicants were not eligible to make their application for directions under paragraph 68(2). Paragraph 68(3)(a) in terms provides that the court may give directions under that sub-paragraph if, as was the case at the time of the hearing, no proposals have been approved under paragraph 53.
43. Now that the proposals have been approved, any direction which I give on this application must be consistent with those proposals and, as it seems to me, take account of the administrators' approach to the management of LBIE's business, affairs and property, including in particular the Trust Property, as described in the background information laid before creditors (and summarised earlier). It was against that background that the proposals were approved.
44. Sympathetic though I am to the applicants' plight, just as I am to the plight of others who have assets locked up in LBIE, I am firmly of the view that it would be quite wrong to accede to this application and make the order sought, or any part of it. I am of this view whether the application is brought for directions under paragraph 68(2) or by recourse to the court's equitable jurisdiction in respect of trusts and trustees.
45. The scheme of the legislation affecting administrations is to vest the management of the company's affairs, business and property in the administrator and require him to perform his functions so as to achieve the statutory purpose. The administrator is required on his appointment to take custody and control of the property to which he thinks the company is entitled. It is very frequently the case that the company holds or has control of property in which others, rather than the company, have a proprietary interest. For example, a chargee. The administrator's powers and duties extend as much to such property, to ensure that it is properly secured and accounted for to those entitled to it, as they are to property to which the company is beneficially entitled. There is no inconsistency between the two. It is simply that the company or its creditors cannot expect to share in such property before satisfying the claims of those who are able to establish a proprietary interest in it.
46. Parliament has deliberately imposed a moratorium on insolvency proceedings and other legal process against a company or its assets for the duration of the period that the company is in administration. This is to enable the administrator to achieve the purpose of administration. He is required to manage the company's affairs business and property in accordance with any proposals approved under paragraph 53. He is required to perform his functions in the interest of the company's creditors as a whole.
47. It is plain in my view that within the confines of his duties and subject to whatever proposals are approved by the creditors under paragraph 53, the administrator must be accorded a wide measure of latitude in the way he goes about the exercise of his powers so as to achieve the statutory purpose. His task would become quite unmanageable, particularly in an administration as immense and complex as LBIE's, if he is to be at the beck and call of each and every creditor or each and every asset claimant wishing to be informed about his claim or asset and who expects the administrator to turn aside from the general conduct of the administration and devote time and resources to responding to his enquiries.
48. Where, as here, there is no suggestion that the administrator is acting improperly, it would, in my judgment, run flat contrary to the nature and purpose of an administration if the court were to interfere in the detailed day to day management of the administration in the way that this application seeks. Of course, the administrator must seek to balance the need to proceed with the administration in the interests of creditors as a whole against the desirability of responding to legitimate enquiries from individual creditors and others. But, in the absence of some plainly wrongful conduct on the administrator's part, it is for him to decide where the balance lies. The fact that another administrator might have gone further than these administrators have done in responding to the applicants' request for information or that, if left to itself, the court might feel that the enquiry should be answered, is beside the point. As it happens, having very carefully reviewed the evidence that has been filed and listened to the arguments that have been addressed to me, I see no grounds for criticising the course that the administrators have taken and no reason to require them to go further than they have in seeking to meet the applicants' requests for information. The fact that the applicants' evidence, coupled with Mr Tregear's measured submissions, have pinpointed areas in the administrators' evidence where some further explanation could usefully be provided, for example, to explain an apparent inconsistency between paragraphs 36 and 38 of Mr Davis's second witness statement - a matter highlighted by paragraph 2.6 of the re-drafted proposed order - does not mean that I should order the information to be supplied. It must, in my view, be left to the administrators to decide whether to take up time and therefore resources to deal with the points. Their failure to do so will not justify the court's intervention requiring them to respond.
49. I would only add that recourse by the applicants to the court's equitable jurisdiction in respect of trusts and trustees as a basis for requiring the administrators to provide the information sought does not assist the applicants. The context of this application is the exercise by the administrators of their functions in the administration of LBIE. If the court is not willing to exercise its power under paragraph 68(2) by giving directions which require the administrators to respond to the applicants' wish for further information, recourse to some wider jurisdiction in order to secure the same objective will not put the applicants in a better position.

Result

50. I propose therefore to dismiss this application.