BNY Mellon Corporate Trustee Services Ltd v LBG Capital No 1 Plc & Anr 16/6/16 (SC)

The issue before the Supreme Court was whether LBG was entitled to redeem £3.3 billion of enhanced capital notes (‘ECNs’) before their maturity date. The ECNs had been issued in 2009 as a part of a recapitalisation to comply with regulatory requirements and to qualify as Core Tier 1 capital. The ECNs were intended to satisfy criteria and the trust deed provided that a ‘Capital Disqualification Event’ would occur if the notes ceases to be taken into account in the tests for assessing regulatory capital. Following the new capital requirements directive, the Core Tier 1 capital was replaced with Common Equity Tier 1 capital. The subsidiaries sought to redeem the notes on the basis that they were not longer to be taken into account in the tests. On its proper construction the reference to Core Tier 1 capital should be treated as a reference to its then regulatory equivalent. However the majority held that because the ECNs were no longer held to be taken into account by the PRA in assessing the regulatory capital levels the subsidiaries were permitted to redeem them.