CR-2025-005034 - [2025] EWHC 2625 (Ch)

The OTM customers, represented by Mr Fisher KC, take no position in relation to clause (1)(b). He submits that the issue does not affect the OTM customers because, put simply, their position is one, potentially of being debtors of Argentex and therefore it is difficult to imagine that OTM customers have any claim against Argentex which would engage the administration expenses principle. I agree. The ITM customers assert that their liabilities under the relevant contract will be administration expenses by reason of the JAs closing out the contracts.

On behalf of the ITM customers, Mr Haywood accepted the principles set out in paragraph 95 of Re Portsmouth and submits that the test effectively is whether the JAs have elected to continue the contract for the benefit of the administration. There is an election by the JAs which is for the benefit of the estate. Mr Haywood relies on what he submits is a positive election by the JAs pursuant to clause 13.5 of the general terms to close out a position. That clause provides the JAs with an election which he submits, according to their evidence, they seek to exercise.

This therefore involves a positive step being taken by the JAs under the terms of the contracts and that this engages the contractual mechanism to close out, effectively replacing the parties existing obligations with the close out obligations. He submits there is a distinction as between terminating the contracts and closing out the contracts and the JAs are electing to close out which is exercising a contractual right. He says what the JAs are doing goes beyond terminating the contracts because they are seeking to exercise a contractual right. He submits that the JAs do not need to take this step, but clearly this is the step they seek to take. This therefore falls into being a Lundy Granite scenario. He refers to Re Atlantic Computers where it is clear that Lundy Granite is not restricted to new debts incurred, but covers continuing obligations under existing obligations which the office holder chooses to continue for the benefit of the insolvent estate. The wording used in Powdrill v Watson ( p 450)

Mr Haywood submits that there is a benefit identified by the JAs in electing to close out by exercising the terms in the contracts. He refers me to the witness statements of Mr Daniel Conway dated 12 August 2025, 3 September 2025 and 11 September 2025 to close out and effectively crystallise the liabilities which are owing from the ITM customers by the Firm. It is stated that closing out all the customer contracts ( both ITM and OTM ) and terminating all of the service agreements between customers and the Firm will provide certainty for all customers and creditors.

Mr Boardman KC accepts that the JAs are seeking to take a positive step. He also accepts that they are electing to take that step. He disputes that there is in accordance with the contractual terms a difference between closing out and terminating the contracts. Clause 26 uses the word, ‘terminate’ and clause 13 utilises ‘close out’. Clause 26.3 states that Argentex may terminate [the Servies Agreement ]. That termination has no impact on the FX contracts in accordance with clause 26.5. Accordingly, the JAs need to terminate the FX contracts and closing out those contracts under clause 13.3 is effectively a termination. The netting provisions are contained in clause 13.6. Accordingly, he rejects the distinction between closing out and termination.

He submits that the JAs are not ‘continuing’ the contracts by termination but closing out in accordance with their terms. Mr Boardman submits that the authorities refer to ‘continuing’ the contract where the actions of the JAs here

He submits that the question relating to the benefit to the estate is an objective one, as is set out in Re Debenhams. In my judgment, there is clearly conduct by the JAs envisaged in seeking to close out pursuant to the contractual obligations. That is accepted on behalf of the JAs. In my judgment, the terms of the contracts do not assist the ITM Customers. There is no distinction as between the termination and closing out for the reasons provided by Mr

Mr Boardman also sought to argue that termination is not an affirmation of the contract, but in my judgment, that is not in itself an answer to whether the Lundy Granite principles apply. There may well be termination clauses in contracts which could be viewed as being beneficial to the administration, for example, being able to retain property or a more advantageous calculation of sums due. That is not what appears here and no submission was made by Mr Haywood that the elected termination was beneficial for the administration estate in terms, for example, of improving recovery or providing the prospect of improving recovery. Objectively viewed, the position of the ITM Customers is that of being unsecured creditors by reason of contracts entered into prior to the administration. The proposed conduct of the JAs does not extinguish their status

I note that the JAs state that they seek to close out to obtain certainty and to enable them to be able to pursue those who are debtors of the Firm. That is effectively what they assert is their intention, but viewed objectively, which is the correct test, the actions of closing out and terminating is not a benefit under the terms of the contracts for the purposes of the administration estate. At its highest, the ability to exercise the closing out and the netting provisions may enable the JAs to pursue what they consider are debtors of the firm with a precise crystallised sum being due. In my judgment, that does not fall under Lundy Granite and create a super priority in relation to the unsecured creditors claims arising under the ITM contracts. I reject Mr Haywood’s arguments in this respect. The answer to direction 1(b) is in the negative.