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This article was first published on Lexis速PSL Restructuring & Insolvency on 28 April 2014. Click here for a free trial of Lexis速PSL.
Are English courts comfortably applying the EC Regulation on Insolvency? 28/04/2014 Restructuring & Insolvency analysis: In what circumstances will the court be prepared to appoint provisional liquidators where the EC Regulation on Insolvency comes into play? Caroline Waterworth of Ten Old Square Chambers considers the decision in Re Arms Asset Backed Securities and says the English courts are increasingly confident in their use and interpretation of the EC rules.
Original news Re Arm Asset Backed Securities SA [2014] EWHC 1097 (Ch), [2014] All ER (D) 88 (Apr) A winding up petition was presented to the Chancery Division in respect of a company in the United Kingdom. Joint provisional liquidators were appointed and the English court ordered that the English provisional liquidation of the company was a main proceeding within Council Regulation (EC) 1346/2000, art 3(1) (EC Regulation on Insolvency). A public prosecutor in Luxembourg applied to a court in Luxembourg for the commencement of a liquidation proceeding in respect of the company there. The Chancery Division granted the joint provisional liquidators' application for a declaration that the public prosecutor's application was stayed by the Insolvency Act 1986, s 130(2) (IA 1986).
What is the relevant chronology? ARM Asset Backed Securities SA (the company) was incorporated in Luxembourg and carried on the business of raising funds through the issue of bonds governed by Luxembourg law and the investment of those funds in the purchase of life insurance policies in the US. After carrying out business for a number of years, the company took advice on recognition and regulation in Luxembourg and applied for recognition in 2009. The Luxembourg regulator declined to grant the necessary licence in 2011 and had a Supervisory Commissioner appointed to the company to monitor it. The refusal of the licence was appealed by the company but that was finally dismissed in August 2013. By that time, the company was no longer actively engaged in business but having already invested in the US insurance market, it continued to receive funds from the policies that had been purchased in order to service and repay the bonds. After the company appeal was dismissed, the Luxembourg regulator indicated that it had asked the Luxembourg public prosecutor to apply to the Luxembourg district court for an order for the dissolution or liquidation of the company. No such steps had been taken before the company took the decision to apply to wind up the company on a just and equitable basis and for the appointment of provisional liquidators. The company duly presented a winding-up petition in the High Court on 7 October 2013 and Mr Justice David Richards heard the applications on 9 October 2013.
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He concluded that he had jurisdiction pursuant to the EC Regulation on Insolvency. Although the company was incorporated in Luxembourg, Mr Justice Richards determined that the centre of main interest (COMI) was England as the main director of the company was based in London and decisions were taken from London, for the most part. This was clear to third parties that had dealings with the company. He also went on to conclude that if insolvency of the company was a pre-requisite for the EC Regulation on Insolvency to apply (and for the English court to have jurisdiction), that too was satisfied as the company was unable to pay its debts. The Public Prosecutor and the Luxembourg Commission de Surveillance du Secteur Financier (CSSF) were notified of the applications but did not attend and were not represented. Following the decision in October 2013, the Public Prosecutor took the decision to commence liquidation proceedings in Luxembourg under the Securitisation Law. The application was made on 13 February 2014 and heard on 20 March 2014 with judgment reserved until 8 May 2014. In order to inform the Luxembourg court, the Provisional Liquidators applied for a declaration that the application of 13 February 2014 was subject to the automatic stay imposed by the IA 1986, s 130(2).
When were main proceedings opened in the UK (for the purpose of the EC Regulation on Insolvency)? On 9 October 2013 [when Mr Richards J made the order appointing the joint provisional liquidators].
What is the effect of opening main proceedings on actions commenced in other EU member states? Does it matter if the Luxembourg proceedings didn't arise under insolvency law? Once main proceedings are underway in one EU member state (the court of that state having determined whether the COMI is located there) the regulations prevent main proceedings in another state. Secondary proceedings may be commenced but only if the relevant company has an establishment within the jurisdiction (the company did not have such an establishment). In the Arm case, it was accepted by the provisional liquidators for the company that the liquidation proceedings in Luxembourg under the Securitisation Law would not be 'insolvency proceedings' as they did not fall within Annex B to the EC Regulation on Insolvency. However, IA 1986, s 130(2) was held to stay all actions or proceedings against the company whether arising out of insolvency legislation or otherwise as 'action or proceeding' has been interpreted for over a 150 years as having a wide meaning. Mr Justice Nugee stated: 'Since the commencement of Main Proceedings, no "actions or proceedings" may be commenced against the company or its property unless the English Court gives leave for such proceedings.'
What factors are relevant to considering the effect of the IA 1986, s 130 (provisional liquidation) stay? There is good guidance from the decision of Mr Justice Richards in Governor and Company of the Bank of Ireland and another v Colliers International UK plc (in administration) and others [2012] EWHC 2942 (Ch), [2012] All ER (D) 255 (Oct): when considering an application for leave to lift a stay, the court should act not so much to protect creditors as to ensure that when such an order had been made all proceedings having any bearing upon the winding up of the should remain under the supervision and control of the court which had made the order.
Are there any trends emerging? The English courts are increasingly confident in their use and interpretation of the EC Regulation on Insolvency, and indeed Directive 2001/24/EC, when the need arises. They are also coupling this with a familiarity with decisions from other jurisdictions. See the reference to the Eurofood IFSC Ltd C-341/04,
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[2006] All ER (EC) 1078 decision by Mr Justice Richards. As the body of case law increases from the EU, one should expect this to continue as countries strive to harmonise decisions over main and secondary proceedings. Interviewed by Nicola Laver. The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.