Interesting decision

Nature of statutory interest payable to creditors

Lehman Brothers International (Europe) had been in administration since September 2008. There was a substantial surplus in the administration that was to be used to pay statutory interest to creditors under Insolvency Rules SI 1986/1925  reg 2.88 para 7. The value of that interest was estimated to be £5bn.

The question arose as to whether the interest would be yearly interest for the purposes of ITA 2007 s 874 as contended by HMRC. If it did the administrators would be required to deduct income tax from the payments made and account for it to HMRC.

Mr Justice Hildyard in the High Court said the statutory right to interest arose only if a surplus was established. It did not accrue over the period between the beginning of the administration and the payment of dividend or dividends on the proved debts.

He...