T&N Ltd: UK Courts Intervene
With just weeks till a November 17 deadline1, Justices Richards and Patten, sitting in the English High Court, upheld the rights of the UK Administrators of T&N Ltd., Kroll Inc., and the Independent Trustee of the Pension Fund, Alexander Forbes Trustee Services Limited (the Trustees), to vote against the Reorganization Plan (the Plan) proposed by bondholders of Federal Mogul (FM), T&N's parent company. As disillusionment with US-backed plans to exit the company's Chapter 11(US) / Administration (UK) status has increased, UK advisers have sought judicial guidance on alternative courses of action with the most pressing issue being whether UK advisers are entitled to vote against a deal which has been characterized as structurally unfair.2
Submissions by the Administrators, the Trustees of the T&N Retirement Benefits Scheme (1989), Trustees of the Champion Pension Scheme, UK Asbestos Claimants and the Official Committee of Asbestos Property Damage Claimants were heard from October 5-11 in the London High Court before Mr Justice David Richards; his 142 point judgment was handed down on October 21. Notwithstanding the desirability of avoiding conflict between US and UK jurisdictions in this complex cross-border insolvency case, if provisions of the Plan were deemed unfair by the English Court, the matter of comity would not enable the court to alter or dispense with mandatory provisions of the law which it administers. Strong objections to the Plan by UK Asbestos Claimants were analysed by Richards who wrote:
they regard the value attributed to US asbestos claims as resulting in an unacceptable cramdown of recoveries for established and likely UK claims by giving unjustified weighting to speculative claims
they are concerned about differences in the treatment of US and UK claims they are concerned that they will be required to release rights to sue UK companies in the UK courts in respect of claims governed by UK law, and will instead have their rights adjudicated in the United States by US representatives of the trustees under procedures governed by US law.
The judge, supporting the Administrators' request for continued court interest, directed that no proposals be made for a Company Voluntary Arrangement or Scheme of Arrangement, as might be requested under the Plan, without a High Court order. Furthermore, Justice Richards endorsed the Administrators' decision not to convene meetings of creditors and gave leave for the Administrators to be represented at the (confirmation) hearings3 and to oppose confirmation. The Judge also instructed the Administrators to transmit a copy of the judgement given herein to the Honourable Judge Lyons of the US Bankruptcy Court under cover of a letter in the form of a draft approved by this Court. At a hearing on November 10, the High Court will seek an update on developments.
The judgment of Mr Justice Patten in the action brought by the Trustees and others in the matter of the T&N Retirement Benefits Scheme (1989) was handed down on November 2. The Court was asked to rule on:
whether the Trustees should be permitted to vote either for or against the plan (the Plan) for the rearrangement of the assets and liabilities of the Federal Mogul Group of companies (FMG), of which T&N is the principal English subsidiary; and in the event that the Trustees are given permission to vote against the Plan, whether they should be permitted to invite the Occupational Pensions Regulatory Authority (OPRA) pursuant to s.11(1)(c) of the 1995 Act to consider making a direction that the Scheme be wound up.
Satisfied that the Trustees were reasonably entitled to reject the Plan and to seek recovery of funds outside of it, Patten directed that the Trustees be permitted not to accept or support the Plan and gave them a wide discretion as to the manner in which they give effect to that. A press statement issued by the Trustees on November 2, welcomed the decision which was, they said, a vindication of the position they had taken during negotiations with the US Plan proponents. The statement mentions a new proposal by FM that the T&N companies should continue the T&N Pension Scheme and pay contributions to it. Although details remain to be worked out, this offer may signal a more flexible approach by FM's US negotiators who are increasingly anxious about the rapidly approaching deadline. Only time will tell.
November 9, 2004
1 The original deadline for voting on the Plan was November 3; a November 17 extension for certain creditors has been accepted.
3 The hearings referred to are those scheduled to begin in the US Bankruptcy Court on December 9, 2004 for confirmation of the Plan.