Payment waterfall meaning

Galapagos Bidco Sarl v Kebekus [2023] EWHC 1931 (Ch) What are the practical implications of this case? This decision offers useful clarification on the interpretation of familiar provisions and expressions found in the ‘distressed disposals’ clause of English law intercreditor agreements. The court scrutinised the distressed disposal mechanics in an English law-governed intercreditor to decide whether the restructuring had been properly implemented. A central question was whether the sale of the insolvent group could be treated as being ‘for cash’, notwithstanding that creditors of the insolvent group subscribed for notes in the newly reorganised group and set off the subscription monies against their entitlements under the payment waterfall. The court also considered whether that investment meant the relevant creditors’ claims had not been unconditionally released at the same time as the sale, as the intercreditor required. The court concluded that the restructuring was validly carried out, providing reassurance to senior creditors and companies that such terms do not prevent creditors from investing in the new group after a...

Mayfair Capital Residential 2 LLP v Reim Katch Securities Ltd [2024] EWHC 1920 (Ch) What are the practical implications of this case? In Mayfair Capital, the court concluded that an intercreditor deed permitted ongoing ‘permitted payments’ to the junior lender, notwithstanding the appointment of a receiver. The application of proceeds clause, which directs amounts received by the lenders to be applied first in discharge of the senior debt and then the junior debt, was held, by necessary implication, to operate subject to the permitted payments provision. Accordingly, the permitted payments regime prevailed over that clause to this extent. The decision is a helpful reminder to practitioners to ensure intercreditor agreements and deeds of priority contain express payment stops (where this is commercially agreed). Further, where the parties intend the way in which proceeds are applied to differ before and after enforcement, this should be made clear within the agreement. What was the background? The focus of the dispute was the proper interpretation of particular provisions in...

Banking & Finance—December 2023 and January 2024 case round-up The Joint Administrators of Lehman Brothers Holdings plc (In Administration) v LB GP No 1 Ltd (In Liquidation) and others [2023] EWHC 3056 (Ch) Intercreditor—ranking of statutory interest on subordinated debt The High Court examined whether statutory interest owed to a subordinated creditor should be met before principal due to another subordinated creditor sitting lower in the payment waterfall. This required construing the contractual priority provisions and how they interact with IR 14.23, which regulates the payment of interest. The court held that statutory interest due to the higher-ranking subordinated creditor must be paid ahead of principal payable to the lower-ranking subordinated creditor. The judge noted that, when provable debts are in competition, priority turns on the parties’ contractual arrangements, in particular the subordination terms governing the junior claim. IR 14.23(7) does not override such arrangements and falls to be read subject to the contractual subordination. The wording “liabilities in respect of the Notes” was interpreted broadly...

Liquidation Following enforcement of security by fixed charge creditors for their own benefit, the order of distributions in a winding up is: if liquidation commences within 12 weeks of a moratorium, any unpaid moratorium debts and ‘priority pre‑moratorium debts’ to which no payment holiday applied during the moratorium expenses properly incurred in the winding up (including the liquidator’s remuneration) ordinary preferential debts secondary preferential debts the prescribed part for unsecured creditors (where not disapplied) debts secured by floating charges unsecured debts statutory interest postponed debts (i.e. non‑provable liabilities) return of any surplus to members (subject to adjustment between members) For further details, see Practice Note: Waterfall of payments in liquidation...

Software development—in brief A software development agreement applies when a customer retains or commissions a software developer to design, build, test and, at times, install and maintain tailor-made software. Development activity is also commonly a core element of systems integration agreements as well. These contracts deal with the acquisition, development and integration of an entire IT system, comprising both hardware and software components. The software strand often entails the developer or integrator producing a substantial share of bespoke or modified software. In each scenario, the payment mechanism that sets out which fees the customer must pay (and when those payments fall due) is a crucial feature which—together with other contractual terms, including limits and exclusions on the developer’s liability for contract breach, the calculation of liquidated damages for late delivery by the developer, and the warranties and indemnities the developer gives to the customer—shapes how risk is allocated between the parties involved. The extent to which risk shifts from the customer to the developer will be determined by the...

This Practice Note outlines the role and functioning of the Financial Services Compensation Scheme (FSCS), and explains how deposits protected by it are ranked within the waterfall of payments to creditors should a relevant firm become insolvent. For further information on the FSCS, see the following Practice Notes: The Financial Services Compensation Scheme Financial Services Compensation Scheme (FSCS)—the qualifying conditions for compensation Financial Services Compensation Scheme (FSCS)—automatic assignment or subrogation of rights Financial Services Compensation Scheme (FSCS)—payment or rejection of compensation Financial Services Compensation Scheme (FSCS)—funding Role and operation of the FSCS What is the FSCS? The FSCS was created by the Financial Services and Markets Act 2000 (FSMA 2000) as an independent body that safeguards customers when a financial institution or financial services firm is unable, or likely to be unable, to meet claims against it—namely, when it is in default. Operating as a statutory fund of last resort, it offers a level of compensation where no...