Home Information Cases Lehman Brothers Luxembourg Investments v Lehman Brothers UK Holdings Ltd (2016)

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Lehman Brothers Luxembourg Investments v Lehman Brothers UK Holdings Ltd (2016)


The UK subsidiary of a Luxembourg company was "solvent" for the purposes of a solvency condition in subordinated loan facility agreements between the companies. Accordingly, part repayments made, or expected to be made, by the subsidiary to the parent company were held by the parent company free from any trust.


The claimant parent company (L) sought an order to the effect that no trust existed over certain payments made, or expected to be made, to it by the administrators of its wholly-owned subsidiary (LUK).

L was an agreed creditor of LUK in the amount of £1.053 billion, being the total amount advanced by L to LUK under three subordinated loan facility agreements. L's rights to repayment of principal and interest on the loans were subject to "senior liabilities", namely all other liabilities of LUK apart from the subordinated liabilities arising under the loan agreements. In order to give effect to the principle of subordination, payment of any amount by LUK in respect of the loans was made conditional upon certain matters. The only condition that was relevant in the instant case was the "solvency" condition, which would be satisfied provided that LUK was "solvent" at the time of, and immediately after, any payment which it made to L. If the solvency condition was not satisfied, any payment received by L from LUK would be void for all purposes and would be held by L upon trust to return it to LUK.


(1) LUK was "solvent" and would remain so unless and until some further liability came to light. There were only two known creditors of LUK apart from L, and they had both been paid in full. Neither of them had a contingent claim to statutory interest on its debt. Furthermore, it had been over seven years since LUK entered administration, and no further creditors had yet come to light. The possibility of any creditors emerging in the future was remote. Provided that LUK had no notice of any further liabilities when it made the proposed further repayments to L, the solvency condition would be satisfied, because the question had to be judged "at the time of, and immediately after" the payment. The mere theoretical possibility that a further liability might come to light in the future was irrelevant (see paras 21-23 of judgment).

(2) In the unlikely event of a further liability coming to light before the proposed repayments were made, LUK would have to settle that liability in full before the repayment was made. Otherwise, the solvency condition would not be satisfied at the relevant time, and the payment would be received by L upon trust to return it to LUK (para.24).

Judgment for claimant

Chancery Division
Henderson J
Judgment date
21 March 2016
LTL 29/3/2016 : [2016] 2 BCLC 244