Nature of interest paid to creditors

Lehman Brothers International (Europe) went into administration in September 2008. This generated a surplus in the region of £7bn to be used to pay statutory interest to creditors. It was estimated that about £5bn was payable as statutory interest.

The question on appeal was whether interest payable under rule 14.23(7) of the Insolvency Rules 2016 was yearly interest for the purpose of ITA 2007  s 874 as contended by HMRC. If so the administrators would have to deduct income tax before paying interest to creditors.

The High Court held that it was not but the Court of Appeal disagreed so the administrators appealed to the Supreme Court. 

Lord Briggs gave the lead judgment with which all members of the court agreed. He said rule 14.23(7) required a surplus after payment of debts in an administration to be used for payment of statutory interest. ITA 2007 s...