Factual and Procedural Background
Two Irish registered companies, referred to collectively as "the Companies," were part of a group owned and controlled by a foreign state, operating an international transport leasing business with assets primarily consisting of ships and aircraft. The Companies issued loan notes ("the Notes") valued at $3.25 billion, traded internationally including on exchanges in Dublin and Vienna, as well as over-the-counter.
Following international sanctions imposed after the foreign state's invasion of another country, the Companies' assets were frozen, trading in the Notes ceased, and the Companies defaulted on significant payments. A group of creditors holding the Notes applied to wind up the Companies, resulting in the Companies being placed in liquidation by the High Court on 31 May 2023. Four creditors were appointed to a committee of inspection ("the Committee") to oversee the liquidation.
This judgment concerns an application by two creditors ("the Applicants") who hold approximately $378 million in Notes and are members of the Committee. Due to ongoing sanctions, trading in the Notes remains prohibited. The joint liquidators have applied for the Companies to be de-listed from the sanctions, anticipating that trading in the Notes may resume upon obtaining a general licence from the relevant authorities.
The Applicants seek either confirmation that trading in the Notes does not conflict with their duties as Committee members or, alternatively, the court's approval to trade in the Notes subject to compliance with a proposed information control protocol ("the Protocol"). The application is supported by the other Committee members and the Joint Liquidators, who emphasize the Applicants' critical role in the liquidation process and express concern that restricting trading might lead to their departure from the Committee.
Legal Issues Presented
- Whether trading in the Notes by Committee members conflicts with statutory restrictions under the Companies Act 2014, specifically sections 629(6) and 668(9).
- Whether trading in the Notes breaches equitable fiduciary duties, including the equitable profits and conflicts rules.
- Whether trading in the Notes by Committee members contravenes the EU Market Abuse Regulations (MAR), particularly rules against insider dealing.
- Whether the court should grant prior sanction to the Applicants to trade in the Notes subject to safeguards such as the proposed Protocol.
Arguments of the Parties
Applicants' Arguments
- Section 629(6) of the Companies Act 2014, prohibiting purchase of company property by Committee members, does not apply because the Notes are debt obligations, not company property.
- Section 668(9), which prohibits making a profit from the winding up without court leave, may not apply because trading in the Notes is neutral from the Companies' perspective and does not impose new liabilities or expenses.
- Trading in the Notes does not breach equitable fiduciary duties if conducted in compliance with the Protocol, which establishes information barriers to prevent misuse of inside information.
- Compliance with the Protocol will also address potential breaches of the Market Abuse Regulations by ensuring that inside information is not shared with the trading team.
- The Applicants seek either a declaration that trading does not breach duties or prior court approval to trade subject to the Protocol.
Joint Liquidators' Arguments
- Agree that section 629(6) does not apply for the reasons stated by the Applicants.
- Advocate a broader interpretation of section 668(9) as a fiduciary profits rule restricting Committee members from profiting from their position without court leave.
- Support granting prior court sanction to trade in the Notes subject to safeguards, including the Protocol, to prevent breaches of fiduciary duties and market abuse rules.
- Emphasize the importance of retaining the Applicants on the Committee for effective liquidation and maximizing creditor returns.
- Express willingness to issue a public 'cleansing statement' to remove inside information from the Applicants before trading resumes.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Re Gallard [1896] 1 QB 68 |
Statutory profits rule requiring prior court sanction for profits made by committee members or trustees during winding up. |
Confirmed that prior court sanction is necessary before deriving profit, supporting the need for court approval before trading in Notes. |
| Re Bulmer [1937] Ch. 499 |
Equitable fiduciary duties of committee members, including prohibition on conflicts of interest and making unauthorized profits. |
Recognized fiduciary duties of committee members analogous to trustees, supporting the application of equitable profits and conflicts rules. |
| Re FT Hawkins & Co. [1952] 1 Ch. 881 |
Further authority on statutory profits rule and fiduciary duties of committee members. |
Supported the principle that court sanction is required to avoid breach of fiduciary duties when profiting from winding up. |
| Re Federated Department Stores Inc (1991) WL 79143 (US Bankruptcy Court) |
Approval of trading in debtor securities by committee members subject to strict information barriers to prevent breach of fiduciary duties. |
Used as persuasive authority to justify the Protocol and court approval for trading in the Notes under safeguards. |
| Re Adelphia Communications Corp 368 BR 140 (2007) (US Bankruptcy Court) |
Practice of establishing ethical walls to allow trading by committee members without insider dealing. |
Referenced to illustrate accepted US practice of permitting trading subject to information controls, supporting the Protocol. |
| In re Spiegel 292 BR 748 (2003) (US Bankruptcy Court) |
Concerns about potential breaches of fiduciary duties and appearance of impropriety when committee members trade debtor securities. |
Emphasized the need for full compliance with fiduciary obligations and adequate information barriers; used to caution but not preclude approval. |
| Re GTLK Europe DAC [2023] IEHC 486 and [2023] IEHC 743 |
Court’s broad discretion under section 631 of the Companies Act 2014 to make directions in liquidation. |
Supported the court’s jurisdiction to sanction transactions that might otherwise contravene equitable fiduciary rules. |
Court's Reasoning and Analysis
The court accepted that section 629(6) of the Companies Act 2014, prohibiting Committee members from purchasing company property, does not apply because the Notes are debt obligations and not company property. However, the court found that trading in the Notes could constitute "making a profit from the winding up" under section 668(9), as Committee members may possess inside information relevant to trading, thereby engaging the statutory profits rule.
Similarly, trading in the Notes by Committee members would breach equitable fiduciary duties, including the equitable profits rule, unless sanctioned by the court. The court recognized its broad discretion under section 631 of the Companies Act 2014 and its inherent jurisdiction to authorize transactions that might otherwise contravene fiduciary duties.
The court noted the importance of the Applicants’ membership on the Committee and the support of the Joint Liquidators and other Committee members for the application. It acknowledged the complexity of the liquidation due to international sanctions and the necessity of retaining active Committee members.
The Protocol, establishing information barriers ("ethical walls") between Committee members and their trading teams, was considered an effective safeguard to prevent misuse of inside information, aligned with practices approved by US Bankruptcy Courts. The court also emphasized the significance of a public "cleansing statement" to remove inside information from the Applicants before trading resumes.
The court identified some areas for improvement in the Protocol, including specifying an effective date for its implementation, establishing reciprocal information blocking to prevent information flow from traders to Committee members, and imposing an express obligation on the Joint Liquidators to issue the cleansing statement.
The court acknowledged the binding nature of the Market Abuse Regulations (MAR) and noted that it cannot sanction conduct that breaches those regulations. Compliance with the Protocol and MAR was deemed a significant safeguard supporting the approval of trading.
Holding and Implications
The court granted the Applicants leave to trade in the Notes, subject to strict compliance with the Protocol and potential amendments to it as indicated by the court. The court emphasized that prior sanction is essential under section 668(9) of the Companies Act 2014 to avoid breach of statutory and equitable fiduciary duties.
DISPOSED OF: The application for court approval to trade in the Notes was allowed on condition of adherence to the Protocol and the safeguards therein.
The decision facilitates the Applicants’ participation in trading upon de-listing of the Companies from sanctions, while safeguarding the integrity of the liquidation process and compliance with fiduciary and market abuse obligations. No new legal precedent was established; rather, the ruling applied existing statutory and equitable principles to the novel factual context, guided by analogous US bankruptcy practices.