BNY Corporate Trustee Services Ltd v Eurosail-UK 2007-3BL Plc & Ors>

BNY Corporate Trustee Services Ltd v Eurosail-UK 2007-3BL Plc & Ors>

Section 123(2) does not create a purely mechanical balance sheet test; the Issuer is not deemed unable to pay its debts unless it has reached the point of no return, which was not established on the facts. The PECO does not alter this analysis for the purpose of determining an Event of Default under the contract.

Parties
Claimant: BNY Corporate Trustee Services Limited; Defendant/respondent/cross Appellant: Eurosail-UK 2007-3BL PLC; Defendant/appellant: Natixis; Defendant/appellant: Neuberger Berman Europe Ltd (on behalf of Sealink Funding Ltd); Defendant/appellant: Orpington Structured Finance I Ltd; Defendant/appellant: Municipality Finance PLC; Defendant/appellant: Carrera Capital Finance Ltd; Defendant/respondent/cross Appellant: Patron EMF S.A.R.L.; Defendant/respondent/cross Appellant: Pamplona Credit Opportunities Master Fund
Jurisdiction
England and Wales
Judgment Date
07 March 2011
Procedural Posture
Civil Appeal / Appeal and Cross Appeal From High Court (chancery Division)
Outcome
Appeal dismissed; cross-appeal dismissed.
Legal Topics
Interpretation of Section 123(2) Insolvency Act 1986, Balance Sheet Insolvency Test, Securitisation, Enforcement of Security, PECO (post Enforcement Call Option Agreement) Effect
Insolvency Law Banking and Finance Law Contract Law Interpretation of Section 123(2) Insolvency Act 1986 Balance Sheet Insolvency Test Securitisation Enforcement of Security PECO (post Enforcement Call Option Agreement) Effect

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Parties

BNY Corporate Trustee Services Limited

Claimant

Eurosail-UK 2007-3BL PLC

Defendant/respondent/cross Appellant

Natixis

Defendant/appellant

Neuberger Berman Europe Ltd (on behalf of Sealink Funding Ltd)

Defendant/appellant

Orpington Structured Finance I Ltd

Defendant/appellant

Municipality Finance PLC

Defendant/appellant

Carrera Capital Finance Ltd

Defendant/appellant

Patron EMF S.A.R.L.

Defendant/respondent/cross Appellant

Pamplona Credit Opportunities Master Fund

Defendant/respondent/cross Appellant

Procedural Posture

Civil Appeal / Appeal and Cross Appeal From High Court (chancery Division)

Legal Issues

  1. 1 Whether the Issuer is deemed unable to pay its debts under section 123(2) of the Insolvency Act 1986 as incorporated in the contract
  2. 2 Whether the existence of the PECO alters the insolvency analysis under section 123(2)

Ratio Decidendi

Section 123(2) does not create a purely mechanical balance sheet test; the Issuer is not deemed unable to pay its debts unless it has reached the point of no return, which was not established on the facts. The PECO does not alter this analysis for the purpose of determining an Event of Default under the contract.

Court Disposition

Appeal dismissed; cross-appeal dismissed.

Orders

  • The appeal by the holders of Class A3 Notes is dismissed.
  • The cross-appeal by the Issuer and Class A2 Noteholders is dismissed.