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Upper Tribunal upholds nil valuation of Northern Rock


The Upper Tribunal has given judgment upholding the decision of Andrew Caldwell, the Independent Valuer of Northern Rock appointed by HM Treasury, that no compensation should be paid to former shareholders of Northern Rock, on the basis that their shares had no value as at the date Northern Rock was nationalised on 22 February 2008.

Following Northern Rock's nationalisation, the government set up a scheme under the Banking (Special Provisions) Act 2008 to determine the amount, if any, of compensation payable to shareholders upon the transfer of their shares to HM Treasury. The scheme required the appointment of an Independent Valuer to assess the value of their shares using a number of statutory assumptions, including an assumption that all "financial assistance" provided to Northern Rock by the Bank of England and the Treasury had been "withdrawn". As at the date of nationalisation, this assistance amounted to £27 billion by way of loan together with guarantees worth £29 billion.

The Independent Valuer found that had Northern Rock repaid this financial assistance by the Valuation Date, it would have had a negative net worth and its shares would have had no value. This finding was challenged by a number of former shareholders in Northern Rock, led by the hedge fund Harbinger Capital Partners. The main basis for the challenge was that the Valuer has misapplied the statutory assumptions and that the "withdrawal" of financial assistance should have been effected by assuming only that a demand for repayment had been made before the date of nationalisation, with actual repayment following over a 5-year notional administration. Challenges were also made to the Valuer's methodology and independence.  It was contended that the Tribunal should set aside the Valuer's decision and substitute a valuation of £1.6 billion.

The Upper Tribunal rejected these challenges, concluding that the valuer was correct in his interpretation of the statutory provisions, that his application of them to the facts was reasonable and professional, and that the nil valuation should stand.

The judgment is here.