“(1) There must be a sufficient connection between the company and England, but that does not mean that assets must be situate within the jurisdiction.
(2) There must be a reasonable possibility, if a winding up order is made, of benefit accruing to those applying for the winding up order.
(3) One or more persons interested in the distribution of the assets must be persons over whom the court could exercise jurisdiction.”
Re Mid East Trading Ltd .
The facts are that a Mid East, “the company”, was incorporated in Lebanon. The owner of the company managed much of his business through the London branch of LBI, a financial institution. In June 1995 the Lebanese court initiated winding-up proceedings against the company. It was subsequently put into liquidation in England in September 1995 pursuant to s.221 of the Act. In February 1997 LBI applied to the court for the winding-up order to be rescinded on the grounds that Mid East had insufficient connection with the jurisdiction.
Ancillary Winding Up and The Foreign Corporation:
A foreign corporation carries out all its business in England and has most of its shareholders and creditors in England and it may also have only few creditors and some handful of assets in England. Business activities of foreign corporation may base in the country of incorporation.
The English law may wind up a foreign corporation. Under the law of the place, a foreign corporation is in liquidation and its incorporation does not prevent the English court from exercising its winding up jurisdiction. The English court will do its very own proceedings as ancillary to the main liquidation. Particular circumstances of corporation are always considered, no unanimously applicable solution present itself in ancillary winding up of a foreign corporation.
Some general guidance, which are found in the judgment of Vaughan Williams J Re English, Scottish and Australian Chartered Bank:
“One knows that where there is a liquidation of one concern the general principle is-ascertain what is the domicil of the company in liquidation; let the court of the country of domicil act as the principal court to govern the liquidation; and let the other courts act as an ancillary, as far as they can, to the principal liquidation.”
The purpose of ancillary winding up is to secure assets within the jurisdiction of the English Court and by this means protecting English shareholders and creditors and it may involve matters more complicated than merely securing assets in England.
In Re Queensland Merchantile Agency Co. Ltd his Lordship considered the nature of the English liquidation, stating:
“It is true that there is a liquidation of the company also going on in Queensland, where the head office of the company was situate. To a certain extent I treat the winding up here as ancillary to the winding up there, but not to such extent as to make this court an agent for the courts in Queensland, and I must investigate the matter as far as I can here.”
Center of main interest: Primary jurisdiction
The courts with jurisdiction to open main insolvency proceedings are those of member state. The center of main interest should be a place where the debtor carry out his business on usual basis is therefore ascertainable by third parties. This place must be under the European Union. Center of main interest in case of a company is considered to be the place in which company’s registered office is found but this position can rebut if proof to the contrary is forth coming. In case of England and Wales Company’s place of incorporation would always be regarded as correct place to decide status of company. The significance of primary jurisdiction is to permit an appropriate court to start taking essential measures for the protection of the assets.
The regulation allows for two options:
- Giving the court ability under the fundamental test the right to instruct interim protective method covering assets located outside the jurisdiction of that court, which will themselves, is enforced in accordance with later Regulation provisions.
- By giving an official appointed, often on an ad hoc or temporary basis, prior to the opening of main insolvency proceedings, power to apply for preservation measures in other jurisdictions where assets are situated and proceedings may contemplate.
Cases:
In many cases the main issue that lies is that as to where do the ‘center of main interests’ lies.
Daisytek-ISA SAS
The French and German lower courts each concluded that the relevant company’s center of main interests was in France and Germany respectively, not the UK. Thus the English court had no jurisdiction to open main proceedings. Both decisions were overturned on appeal but there were delays and serious operational Uncertainties as a result. What can be seen from the reported cases so far is that the English courts have tended to spotlight on the place where administration and borrowing decisions are taken as being the location of the ‘center of main interests’, whereas continental European courts have focused more on the company’s physical presence and the site of its registered office.
Euro food IFSC Ltd,
The Advocate general, Sir Francis Jacobs gave his opinion before the European court of justice, which was related to the decision made by ECJ in 2006.The case, is related to issues in EC insolvency regulation.
An Irish company had its registered office in Ireland, where it carried on its business. It was a subsidiary company in the Italian Parmalat group. The Italian parent shareholder was in a position to appoint the directors and control policy of the Irish company. A petition was presented to the Irish courts for the winding-up of the company and a provisional liquidator was appointed. The Italian courts then decided to open insolvency proceedings. Finally, the Irish courts made a winding-up order against the company.
Keeping in view art 3(1) of the regulation, the court said that the center of main interests must be recognized by reference to criteria that were both objective and ascertainable by third parties. Accordingly, in this case, the company's center of main interests was Ireland, being the place of its registered office where it also carried on its business.
Article 16(1) of the Regulation provides that judgment opening insolvency proceedings in one EU Member State should be recognized in all other EU Member States from the time that the judgment becomes effective in the first mentioned State.
Art.17 provides for the effects of recognition.
BRAC Rent-A-Car
The company was incorporated in the US, but carried on business on a regular basis in the EU in such a way that the company and its products were associated with a particular EU state. It was successfully argued that, for the purposes of the Regulation, the US Company’s center of main interests was in fact in the UK, rather than in the US. As will be appreciated, numerous conflicts of laws issues arise in such cases.
The secondary jurisdiction:
In a member state secondary proceedings take place where the debtor has an establishment. For regulation the Establishment is defined as “where the debtor carries out a non-transitory economic activity with human means and goods”. This does not imply that there should be a branch office in the member state but only an element of permanence to the establishment. The main goal of the secondary proceeding is the protection of interest of creditor.
According to Article 3 Dawson (2005:
Secondary proceedings must be winding up proceedings. Though, in many cases this will not influence, as the most common form of insolvency procedure is liquidation.
Secondary proceeding exclusively relates to the assets of the debtor positioned in the territory of the EU member state in which the secondary proceedings started or for the revival of those assets removed from that state after the commencement of secondary proceedings. These proceeding run parallel with the main proceeding and are territorial (Franks and Sussman 2005).
Secondary proceeding not only defend the interest of the creditor positioned within that state but can also help the insolvency office holder in main proceeding in case where debtor’s estate is difficult to handle.
Case
Automold GmbH,
An English administration order had been made in respect of the company, on the basis that its center of main interests was in England. A couple of weeks later, the sole manager of the debtor company applied for the opening of insolvency proceedings in Germany. The German court declined to open main proceedings, on the basis that the English court had already done so and the German court was obliged to recognize them. However, it did permit the debtor’s application for secondary proceedings. There was a discussion as to whether the debtor, as opposed to the administrators, had the power to make the application, but the court concluded that it did. The case also focused on the nature of the secondary proceedings.
English Courts winding up of a company:
The provisions for winding up registered companies form a uniform pattern. Here the rules apply irrespective of the nationality of shareholders or the location of assets or liabilities. According to section 120 of insolvency act in case of Scotland the company registered gets wind up under the jurisdiction of Court of Session or the Sheriff court. Similarly the High court or the county court has the jurisdiction in case of company registered in England. Northern Irish companies are to be wound in Northern Ireland, however if they carried business in Great Britain they may be wind up under the section 225 of the Insolvency Act 1986 as a dissolved overseas company (Keay).
Foreign company:
It is surprising that s.221 of the insolvency act 1986 does not expressly mention foreign companies; although it has been re enacted on various occasions giving parliament an opportunity to make clear that section should apply to foreign companies. The section was enacted so as to allow winding up of companies which were not part of the system of incorporation by registration.
Section 221 Insolvency Acts 1986
Foreign companies are under unregistered companies(s 220). Powers to wind up unregistered company are provided by s 221(1).(Aird.R,1997) Further section 221(5) states the circumstances under which a company can be wound up and which are as follows:
(a) If the company is dissolved, or has ceased to carry on business, or is carrying on business only for the purpose of winding up its affairs;
(b) If the company is unable to pay its debts;
(c) If the court is of the opinion that it is just and equitable that the company should be wound up.
The above circumstances are to be read disjunctively so that if any one such circumstance is established, then an English court has jurisdiction prima facie to wind up an unregistered company. The Act contains no rules restricting the jurisdiction of the English courts to wind up a foreign company, thereby leaving uncurtailed this potentially excessive power. In response the English courts have established certain limitations on their jurisdiction.
The English courts have the power to wind up any foreign company that falls under the circumstances laid down in s.221 (5). Courts are more cautious in their approach to this discretion than the exact explanation of the Act would permit. The cases show that the courts will not automatically exercise their powers to wind up a foreign company. Moreover the courts today have moved away from the requirement that a foreign company must have a place of business in England before an order for the company's winding-up could be made (Wessels 2007).
Case:
Banque des Marchands de Moscou v Kindersley,
It was stated that there must be assets available for distribution and creditors in England to benefit from the winding-up.
After revision of the requirement of winding up by the courts it appears that there is no need for assets to be present in England at the time the winding-up petition is presented. The crucial requirement now is that there must be a sufficient connection between England and the foreign company.
Lazards brotherss& co v midland bank ltd
The courts starting point has been the common law principle, affirmed in this case that the governing law should be law of incorporation. In this principle is to be ignored and s221 applied there have been three main trends in deciding whether to exercise jurisdiction ancillary proceedings or where it is apparent the home jurisdiction will not do anything: where courts can find a ‘sufficient connection’ between the company and England and recently the doctrine of forum non convenient from international law
Re Real Estate Development Ltd
It was held by Knox J. that there was insufficient link with this country to enable the court to wind up a Kuwaiti company. In that case there were no assets in this jurisdiction, nor had the company traded here. The basis of the claim was a French judgment, in favor of a French bank and against the company, which was enforceable in England because the foreign judgment had been registered pursuant to the Foreign Judgments (Reciprocal Enforcement) Act 1933. The only other link to this country was the disposal of shares in an English company to another Kuwaiti company in circumstances where the transaction could be voidable under English law. Consequently there was no obvious connection between England and the company. This case is important because Knox J. stated the position of the English courts in relation to the liquidation of foreign companies in a passage accepted as accurate in later cases as follows
(1) There must be a sufficient connection between the company and England, but that does not mean that assets must be situating within the jurisdiction.
(2) There must be a reasonable possibility, if a winding up order is made, of benefit accruing to those applying for the winding up order.
(3) One or more persons interested in the distribution of the assets must be persons over whom the court could exercise jurisdiction.
Re Commercial Bank of South Australia (1886)
The reasoning for ancillary winding up was that employing a liquidator in England to liquidate the English assets would reduce the cost involved in the liquidation as a whole. Therefore in this case the bank had been incorporated in Australia in 1878 but suspended work as a bank in 1886. The bank had a branch in England and assets and creditors. The court was requested to make winding up order and presented with evidence that petition had been presented in Australia, although there was some question over whether such an order existed in Australia at that time. North J granted the winding up order declaring it ancillary to the Australian proceedings with Australian rules prevailing.
Re Mid East Trading Ltd .
The facts are that a Mid East, “the company”, was incorporated in Lebanon. The owner of the company managed much of his business through the London branch of LBI, a financial institution. In June 1995 the Lebanese court initiated winding-up proceedings against the company. It was subsequently put into liquidation in England in September 1995 pursuant to s.221 of the Act. In February 1997 LBI applied to the court for the winding-up order to be rescinded on the grounds that Mid East had insufficient connection with the jurisdiction.
The learned judge Evans-Lombe J. in the High Court concluded that LBI had no locus standi to apply for a rescission pursuant to r.7.47 and their application was out of time. He stated that the company was insolvent and the Lebanese liquidator and a large body of creditors supported the application.
International Westminster Bank plc v Okeanos
Even the fact that the company had no assets situated in England it did not stop the making of a winding-up order, so long as there is enough link with the jurisdiction and the order would be likely to bring about a benefit to creditors. Therefore, because Mid East's business was at least to a certain degree conducted in England and an investigation into its business affairs would probably improve the financial position of the creditors, Evans-Lombe J. said that there clearly were grounds for making the winding-up order.
.
Re Eloc Electro-Optieck and Communicatie BV (1982)
The benefit was that a number of a company’s employees had worked in England and could claim from Secretary of State’s redundancy fund if company were wound up here. The company also had an English agent.
From the cases it is clear that the court requires a clear connection between this jurisdiction and the company before winding-up proceedings will be commenced. There is no need for the connection to be in a particular form.
Assistance in foreign insolvency proceedings: Cross-border assistance
A structure is laid down by section 426 of insolvency act 1986 for international co-operation between courts exercising jurisdiction in relation to insolvency matters. This section create provision for insolvency courts in one part of the United Kingdom to give effect to the orders of, and loan assistance to, the insolvency courts in any part of the United Kingdom. Section 426 also instructs a court exercising insolvency jurisdiction in any part of the United Kingdom to give help following a request from a court having equivalent jurisdiction in any “relevant country or territory”. Where the possessions and liabilities are situated in two or more jurisdiction it follows under the meaning of cross border insolvency (Goode 2005)
United Kingdom which is made up of more than a few distinct jurisdiction like England and Wales;; Northern Ireland; Scotland offshore jurisdiction of the channels of islands and the Isle of man. In such a country it is possible for cross-border insolvency to happen even within a state's international frontiers. There can be many lawful and practical problems in ‘internal’ cases and the method of resolving them is basically an internal matter for the state in question. Moreover because of the wider deviation between the dissimilar legal systems involved, international cross-border insolvency provide rise to far more composite problems Dawson (2005.
Section 426 of insolvency act 1986;
Section 426 of the Insolvency Act 1986 corresponds in substance to s 213 of the Insolvency Act 1985.
The first two subsections are directed towards cross border enforcement of United Kingdom orders.
In s 426(1) An order made by a court in any part of UK in exercise of jurisdiction shall be enforced in any other part of UK as if it were made by a court exercising the corresponding jurisdiction in that other part.
S 426(2) where the subject matter concerned is property of any sort, the court making the decision has discretion whether or not to do so.
The Secretary of State, by S426 (3) may prescribe orders endowing any trustee or assignee with the same powers in relation to property situated in another part of the United Kingdom as a trustee or assignee in that part.
The broad effect of s 426 (4) and (5) is that courts of the United Kingdom shall assist upon a request being made to them and these requests may be made by courts in other parts of the United Kingdom or relevant countries or territories. These now comprise Channel Islands, Isle of Man, Anguilla, Australia, Bahamas, Bermuda, Botswana, Canada, Cayman Islands, Falkland Islands, Gibraltar, Guernsey, Hong Kong, Republic of Ireland, Malaysia, Montserrat, New Zealand, Republic of South Africa, St Helena, Turks and Caicos Islands, Tuvalu and Virgin Islands.
The Key issues under the section are:
1. S.426 (4) which states that a UK’ shall assist ‘ the court of a relevant country ‘having the corresponding jurisdiction’ in that country.
2. S.426 (5) states that the court request from a relevant country is authority for the UK court to ”apply…the insolvency law which is applicable by either court in relation to applicable matters falling within its jurisdiction.”
3. S.426 (10)(d) defines ‘insolvency law’ for the purpose of s.426 of the relevant country and s.426 (10)(a)-(c) defines insolvency law for the purposes of the UK.
The main outcome of S 426 (4) and (5) is the extent to which the court has a discretion to decline a requested remedy. Subsection (4) is obligatory and appeals to the phrase “shall assist”. “The proviso”created a problem to subs (5), which enjoins the court to have regard “in particular to the rules of private international law”.
Cases:
Re Focus Insurance Co Ltd [1996]
In this case the liquidators in Bermuda traced a former director to England and obtained a bankruptcy order against him. Later they obtained a request from the Bermudan court in terms of s 426 (4). That order was largely the same as the discovery and disclosure of information order which the trustee had obtained against the former director as part of the bankruptcy process. The court held the duplication of orders, which contained an element of potential oppression. Having decided to pursue an English bankruptcy as a means of recovery, the liquidators could not revisit the former director with similar remedies arising from the liquidation. The liquidators' application was conflicting with their earlier initiative in the bankruptcy courts.
Russell John Carman, Petr, 27 April 1995,
In this case unreported, an English insolvent settled a disposition of inherited subjects in Scotland without the permission of the court. Such a deal is void in terms of s 284 of the Insolvency Act 1986. The Nottingham county court was convinced to grant an order declaring that the disposition was null and void. The order of the English judge was registered with the Court of Session but the Keeper of Sasines refused to record the trustee's title. The court granted warrants registering the English order in the Books of Council and Session and granted warrant to the trustee to record a note of title in the Register of Sasines. Amongst the factors which enabled the court to exercise its discretion to grant the warrants were that the terms of the order of Nottingham county court were such as to protect all known third party interests such as banks and that the transaction was void under the laws of both England and Scotland.
There have been a few cases on both sides of the border, which provide some guidance upon the application of subs (4) and (5) of s 426. Scottish examples have included a request addressed to the High Court for the private examination of office holders resident in England (Liquidators of First Tokyo Index Trust Ltd v Morgan Stanley Trust Co, 21 February 1992, unreported; reported as to other matters The Times, 1 December 1993.) In BCCI, Petrs (Court of Session, 1991 and 1992, unreported), the Court of Session acceded to a request inter alia to appoint a joint liquidator who was resident in Scotland to an English ancillary winding up.
Three recent English decisions have illustrated the application of subs (4) and (5). In
Duke Group v Carver (2001)
In this case Australian court request for Australian judge to examine former directors in England under Australian law as to breaches of fiduciary duties to the company in liquidation. The court also stressed the savings in costs this would allow.
Re Dallhold Estates (UK) Pty Ltd [1992]
A request was made to the English courts for an administration order with respect to an Australian company. With respect to the Section 8 of the 1986 Act, which provides for administration orders does not apply to the companies registered overseas. Chadwick J held that the level of discretion available to the court once a request had been made in terms of s 426(4) was significantly less than for a purely domestic application in terms of s 8. The court is required to make the order unless there is some convincing reason why it should not be granted. In a domestic application for an administration order, even though the court is satisfied as to the insolvency of the company and that the statutory purpose would be likely to be achieved; the court still retains discretion as to whether or not to grant the administration. Chadwick J took the view that the obligatory words of s 426(4) had the effect of removing the discretion contained in s 8 of the 1986 act.
Conclusion:
In international commercial law Insolvency has become very important. There is no multinational structure to deal with the failure of multinational business. Indeed, there is a striking discrepancy between the internalization of business and the lack of international approaches to deal with the insolvency of a global enterprise.
For different countries and territories cross border help has been provided under section 426 of the insolvency act 1986, which has been discussed through cases. The vagueness in regulation affected the impact of European regulation on English courts.
The English courts faced little difficulty in applying the conception of the center of main interests further described through cases. References to the European Court of Justice are costly and time-consuming. Thus we can say due to such ambiguity it has been complicated for the English courts to pursue the regulation. The related laws to insolvency of foreign companies in English law were more exact and accurate and therefore had no great impact EU.
Reference:
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Finch, V. (2002). Corporate insolvency law: perspectives and principles, Cambridge University Press.
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Finch, V. and H. Street (2005). "The Recasting of Insolvency Law." Modern Law Review 68(5): 713-736.
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Goode, R. M. (2005). Principles of corporate insolvency law, Sweet & Maxwell.
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ELECTRONIC RESOURCES:
- http://www.westlaw.co.uk
- http://www.companyrescue.co.uk
- https://www.amazines.com
- http://www.insolvency.gov.uk