Distribution waterfall meaning

Re Avanti Communications Ltd [2023] EWHC 940 (Ch) This marks the first substantial judgment on the divide between fixed and floating charges since the House of Lords’ landmark ruling in Re Spectrum Plus [2005] UKHL 41, which reclassified an apparent fixed charge over book debts as floating because the chargor could freely deploy the charged assets and the security holder therefore lacked the requisite control to constitute a fixed charge. The designation of security as ‘fixed’ or ‘floating’ under English law now carries even greater weight given HMRC (the UK tax authority) ranks as a preferential creditor for certain taxes in insolvency—ie those taxes sit behind fixed charge realisations but ahead of floating charge realisations. That characterisation had a decisive effect on the order of payments in Avanti’s administration: as the charge was properly treated as fixed, the secured creditors recovered in full; had it instead been treated as floating, part of the proceeds would have been payable to HMRC (as preferential creditor) and to unsecured creditors up to...

Original news Re Lehman Brothers Europe Ltd (in administration) [2017] All ER (D) 44 (Aug), [2017] EWHC 2031 (Ch). In a significant ruling, the court endorsed a plan by the joint administrators to appoint a director to LBEL, already in administration, so that surplus monies could be paid to its sole member, Lehman Brothers Holdings plc (LBH), rather than to a creditor. The proposal was found to be lawful, practical and advantageous. The application outlined a pragmatic route to unlock value for the member once unsecured debts had been met. How, then, did the administrators approach distributions to members? The principal entities were LBEL, its parent LBH, and an associated company, Lehman Brothers Limited (LBL), each in administration. After paying LBEL’s unsecured creditors 100 pence in the pound, LBEL’s administrators retained a substantial surplus. They were, however, unable to distribute that balance, in part due to an unresolved LBL claim against LBEL’s estate. A settlement of the Waterfall III proceedings was proposed. Under that compromise, LBL would withdraw its...

In both corporate and personal insolvency, office-holders chiefly gather the company’s or individual’s assets, realise them and distribute the proceeds to creditors in accordance with the statutory waterfall. For more detail, consult the following Practice Notes: Waterfall of payments—a comparative guide Waterfall of payments in administration Waterfall of payments in liquidation Waterfall of payments in bankruptcy Waterfall of payments in administrative receivership Pari passu distribution Pari passu, a Latin term, translates as ‘with an equal step’ or ‘on equal footing’. In insolvency, it captures the principle of proportionality and is used to describe how creditors are treated relative to one another. Where claims rank ‘pari passu’, all creditors within the same class are paid alike, with no one preferred. If funds are insufficient to satisfy debts in full, distributions are made pro rata on a pari passu basis, so each receives a proportionate return. For instance, unsecured creditors (ie creditors in the same category) might receive 10p...

Although every litigation funding agreement (LFA) and its related papers will differ based on the funder and the nuances of the case being backed, there are core matters that must be tackled during the stages of negotiation. This Practice Note forms part of a concise series by Tanya Lansky and Tets Ishikawa, Managing Directors of LionFish Group Ltd, designed to give those negotiating or evaluating LFAs and their accompanying documents a clearer grasp of the considerations involved and the factors at play... Priorities agreements A priorities agreement (often also called the waterfall) is the instrument that expressly determines the order in which the returns from the funded claim are distributed if the case succeeds. Though it only bites upon a positive result, differing models adopted by funders and bargained for by funded parties over time have created fertile ground for disagreement. Accordingly, having a transparent, consistent and carefully negotiated priorities agreement is essential. Clear drafting here mitigates the risk of avoidable disputes... Agreement included in the LFA...

Background The purpose of an intercreditor agreement—also called a deed of priority—is to manage and resolve the conflicts that will inevitably emerge between different classes of secured lender during a restructuring. Waterfall of payments Such an agreement commonly details a distribution waterfall instructing the security trustee on how to deploy any funds it receives (including sale proceeds, litigation recoveries, or amounts originally paid in error by a debtor to a junior creditor and then transferred under turnover provisions). The waterfall may apply either: (i) universally in all situations; or (ii) by distinguishing between ordinary operations (pre-enforcement) and post-enforcement, namely via a ‘flip’ clause. Ordinarily, the waterfall requires the security trustee’s fees to be settled first, after which monies are distributed to creditors in line with their ranking (with secured lenders typically at the top of the order), and any remaining balance is ultimately returned to the debtors...

This limited partnership Agreement is entered into on [ insert day and month ] 20[ insert year ] Parties [ insert name of general partner ] of [ insert address ] (the General Partner); and Each of the persons named in Schedule 1, Part B. BACKGROUND The Limited Partnership is registered as a limited partnership and designated as a private fund limited partnership in England under the LPA 1907 with number LP [ insert number ]. The General Partner has agreed to act as the general partner of the Limited Partnership and to manage the business of the Limited Partnership, and the Limited Partners have agreed to make Contributions to the Limited Partnership on the terms set out below. The General Partner and the Limited Partners intend that the Limited Partnership will carry on the Business and agree to regulate the affairs of the Limited Partnership on the terms set out below. ...

This Limited Partnership Agreement is entered into on [ insert day and month ] 20[ insert year ] by and between the parties set out below. Parties [ insert name of general partner ] of [ insert address ] (the General Partner); and Each of the persons whose names are listed in Schedule 1, Part B. BACKGROUND The Limited Partnership has been registered in England as a limited partnership under the LPA 1907 with number LP [ insert number ]. The General Partner has agreed to act as the general partner of the Limited Partnership and to manage, operate and administer the business of the Limited Partnership, and the Limited Partners have agreed to make Contributions to the Limited Partnership on the terms set out below. The General Partner and the Limited Partners wish the Limited Partnership to carry on the Business and agree that the affairs of the Limited Partnership shall be regulated in accordance with...