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Administrator Ernst & Young turns to Commercial Court for ruling on conflicts
Allen & Overy (A&O) and Cadwalader Wickersham & Taft are facing a Commercial Court investigation over their controversial decisions to act for power group TXU Europe joint administrator KPMG as well as various competing creditors.
Ernst & Young (E&Y), the other joint administrator, has instructed its law firm Herbert Smith to apply to the Commercial Court for a ruling to stop the two firms from acting for more than one party, or alternatively, to make sure A&O's and Cadwalader's information barriers are sturdy enough.
Cadwalader has a dual role acting for KPMG and the bondholders, which are owed over £2bn by TXU. Meanwhile, A&O is acting for KPMG, the group of banks owed £780m by TXU, Barking, an energy company creditor of TXU, and the bankers for AES Drax, another power company on the TXU creditors committee, which is itself restructuring.
E&Y has taken particular issue with A&O advising Barking and Drax's bankers because of the strong element of competition between the energy companies fighting for proceeds of TXU's administration and TXU's banks and bondholders.
E&Y is looking after the energy creditors, Rugeley Power and Scottish and Southern Energy, as well as Barking and Drax.
While Drax has instructed Slaughter and May partner Miranda Leung to represent it as a creditor of TXU, A&O's clients, the bankers owed money by Drax, have a vested interest in Drax getting money out of TXU.
No other adviser is acting for energy company creditors alongside TXU's banks and bondholders.
A&O chose not to comment when contacted by The Lawyer.
Cadwalader London managing partner Andrew Wilkinson said he was not aware that E&Y was intending to make the application, but he was confident his firm had proper Chinese walls in place. London partner Christopher Kandel is supervising the information barrier.
"There are four or five associates allocated to James Douglas's team acting for the administrator, and myself and one associate are acting for the bondholders. The teams have separate administration staff and aren't sitting together, although they are on the same floor," commented Wilkinson.