New Judicial Precedent: Conditional Approval for Debt Trading by Committee Members under Enhanced Safeguards

Introduction

The judgment in GTLK Europe Designated Activity Company [In Liquidation] v Companies Act 2014 (Approved) ([2025] IEHC 105) marks a significant development in insolvency and corporate liquidation law in Ireland. At its core, this case addresses the complex interplay between a liquidator’s committee members’ fiduciary obligations and their desire to trade in debt instruments (the Notes) arising from a liquidated company. The Companies – GTLK Europe DAC and GTLK Capital Europe DAC – were part of a group under Russian control whose operations and asset trading were severely disrupted due to international sanctions following Russia’s invasion of Ukraine. With the imposed sanctions freezing the companies’ assets and halting international trade, significant default occurred subsequently leading to the winding-up process.

The Applicants in the case, Trinity Investments DAC and Attestor ICAV, are creditors holding substantial interests in the Notes and are also serving as members of the committee of inspection under the Companies Act 2014. Their application sought either a determination that trading would not conflict with their committee duties or, alternatively, an order permitting such trading on the condition that they adhere to a carefully constructed information control protocol (the Protocol). The case features multiple intertwined legal issues, including statutory restrictions on self-dealing and profit-making, fiduciary duties, and compliance with market abuse regulations.

Summary of the Judgment

In his judgment, Mr Justice Rory Mulcahy examined the statutory framework under the Companies Act 2014, comparative case law from jurisdictions such as England and the United States, and the intricacies of fiduciary and equitable duties. The key findings are as follows:

The court held that trading in the Notes does not contravene section 629(6) of the 2014 Act because the Notes are debt obligations and do not constitute the property of the company.
However, the court recognized a potential conflict with section 668(9) (the statutory profits rule), which prohibits committee members from making a profit from the liquidation without prior court sanction. The risk is heightened by the possibility that committee members may be privy to inside information.
Drawing from equitable principles and analogous U.S. bankruptcy cases, the court emphasized that if adequate safeguards are put in place – particularly the proposed Protocol ensuring strict information barriers – then the Applicants should not be prevented from trading in the Notes.
Finally, the court expressed that while the Protocol is generally acceptable, certain aspects, such as the effective date, reciprocal information blocks, and the obligation for a cleansing statement by the Joint Liquidators, may require further refinement.

Analysis

Precedents Cited

The judgment discusses several important precedents and practice notes which assist in shaping the interpretation of the statutory and equitable rules:

Section 629(6) and Section 668(9) of the Companies Act 2014: The statutory provisions serve as the backbone of the regulatory framework governing conflicts of interest for committee members. Section 629(6) addresses self-dealing while section 668(9) prohibits members from deriving profit from the liquidation without court approval.
Re Gallard [1896] 1 QB 68: The case underscored the necessity for pre-court approval when a fiduciary stands to gain a profit during liquidation work, reinforcing the principle that any profit must be made “under the sanction of the Court.”
Re Bulmer [1937] Ch. 499 and Re FT Hawkins & Co. [1952] 1 Ch. 881: These decisions elaborate on the fiduciary limitations and the equitable profits rule imposed on committee members, stressing the importance of avoiding conflicts and the abuse of confidential information.
U.S. Cases – Re Federated Department Stores Inc and Re Adelphia Communications Corp: The U.S. practice set a precedent for permitting trading by creditors' committees in Chapter 11 bankruptcies, provided robust ethical walls are established. These cases were particularly persuasive in highlighting how the implementation of information barriers can balance competing interests.
Practice Note 2023 by a U.S. Law Firm: This note consolidated numerous cases where ethical walls have been used successfully to sanction debt trading under similar circumstances.

Legal Reasoning

The court’s reasoning is anchored in a delicate balancing act between the statutory prohibition on making profits during winding-up and the economic reality and practical considerations in complex liquidations. In dissecting the case, the court focused on several key points:

Statutory Interpretation: While the prohibition in section 668(9) is clear in its intent to restrict profits derived from liquidations, the court recognized the neutral impact of trading the Notes from the Company’s perspective. Nevertheless, since the Applicants, as committee members, are in a position to benefit from inside information, the court deemed that the rule would be breached without explicit court sanction.
Fiduciary Duty and Equitable Principles: By applying the equitable profits and conflicts rules, the court reaffirmed the broader fiduciary responsibilities that extend beyond the literal statutory text. The judgment draws on both established English trust principles and commentary from Lewin on Trusts. The court’s focus on ensuring that the fiduciary duties are not diluted by allowing trade underscores its commitment to preserving integrity in the liquidation process.
Comparative Analysis: The judgment benefits from a comparative review of U.S. bankruptcy practices, where similar applications have been granted on condition that robust information blocking measures – often termed “ethical walls” – are put in place. This informed the court’s comfort in permitting the Applicants to trade provided that the Protocol serves as an effective safeguard.
Regulatory Safeguards: Central to the reasoning is the detailed Protocol, which seeks to impose clear restrictions on the flow of inside information. The Protocol is designed to satisfy three main concerns: ensuring compliance with market abuse regulations (under the EU Market Abuse Regulations), safeguarding the confidentiality of nonpublic information, and mitigating any conflict of interest arising from the Applicants’ dual role as committee members and prospective traders.

Impact

The judgment is expected to have substantial impact on future liquidations and restructuring cases where creditors or committee members seek to engage in transactions that might otherwise be seen as profit-making from their position. Key potential impacts include:

Enhanced Use of Ethical Walls: The decision reinforces the viability of employing comprehensive protocols to mitigate conflicts of interest. Future cases may rely on similar safeguards to reconcile fiduciary duties with trading opportunities in debt instruments.
Broader Application in Liquidation Practice: By drawing inspiration from U.S. Chapter 11 practices, the judgment may encourage a more flexible yet controlled approach in Irish liquidations, enabling committee members to participate in trading under strictly monitored conditions.
Judicial Discretion in Complex Financial Matters: The case highlights the judiciary’s willingness to balance rigid statutory rules with the practical necessities of insolvency practice. This flexible judicial discretion may come into play in other sophisticated financial restructurings.
Clearer Guidance on Fiduciary Profits: The ruling provides much-needed clarification on what constitutes “making a profit from the winding up,” potentially setting a new precedent for how similar cases are evaluated in the future.

Complex Concepts Simplified

The judgment contains several legal concepts that deserve clarification:

Statutory Self-Dealing vs. Profits Rule: Section 629(6) prevents committee members from buying company property, but the court clarified that since the Notes are a liability (i.e., a debt obligation) rather than property, this statutory provision does not apply. In contrast, section 668(9) prohibits committee members from profiting from the liquidation process – a rule that requires specific court approval to be bypassed.
Fiduciary vs. Equitable Duties: Beyond the explicit statutory duties, committee members are also bound by broader fiduciary obligations, similar to trustees, which prevent them from taking advantage of confidential or inside information. This dual layer of duty ensures that even if the statute does not directly preclude certain actions, equity may still impose restrictions.
Ethical Walls (Information Barriers): An ethical wall refers to robust internal controls designed to prevent the flow of sensitive, nonpublic information between different groups within an organization. In this case, they ensure that the Applicants’ trading team does not benefit from the inside information available to those serving on the committee.
Cleansing Statement: This is a public disclosure intended to remove the “inside” nature of confidential information. Once information is released publicly, it no longer gives an unfair advantage and thus does not count as insider information under market abuse rules.

Conclusion

In summary, the judgment in GTLK Europe DAC [In Liquidation] v Companies Act 2014 (Approved) ([2025] IEHC 105) establishes a significant new legal precedent. It confirms that while committee members’ access to sensitive information could potentially enable them to make profits from insider knowledge during a liquidation, such opportunities are not categorically barred. Instead, the court is prepared to allow trading in the liquidated company’s debt instruments provided that strict information control measures – encapsulated in the Protocol – are adopted and adhered to.

This decision not only clarifies the boundaries of the statutory profits rule and the equitable restrictions imposed on committee members but also signals a more flexible approach in complex insolvency scenarios. By carefully balancing fiduciary duties with practical trading considerations, the court’s ruling is likely to influence future cases in insolvency practice and may encourage similar arrangements where conflicted parties can participate in market transactions under controlled conditions.

Ultimately, this judgment stands as an instructive example of the judiciary’s willingness to adapt established legal principles to meet the challenges posed by modern international sanctions, complex financial instruments, and cross-border insolvency issues.