Abstract
This note reviews the implementation of EC Council Regulation 1346/2000 on insolvency proceedings by UK courts. Two recent decisions in the United Kingdom — Hans Brochier Holdings Ltd v. Exner (HBH) and Re Collins & Aikman Europe SA (C&A) — provide an indication of how UK courts will interpret the Regulation while implementing the United Kingdom’s newly established corporate insolvency regime and, specifically, the Enterprise Act 2002 and its overriding objectives. In HBH, the Court’s decision to regard the German forum as the company’s centre of main interest and thus as the forum for the main insolvency proceedings was influenced by the Court’s perception that certain social security protections would only be provided to the company’s employees if the company’s insolvency was administered in Germany, thus providing the company employees — who formed part of the company’s creditors ‘as a whole’ — better protection in insolvency. In C&A, the practice of providing creditors with oral assurances that their respective national insolvency protections would be respected by the administrators was approved by the Court. This is consistent with the purpose of furthering the objective of ‘rescue’, as the secondary proceedings may only be opened with a view to winding up the company.
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References
OJ 2001 L 160/1, amended in April 2005 by Council Regulation (EC) No. 603/2005 and in April 2006 by Council Regulation (EC) No. 694/2006. For commentary and analysis of the Regulation, see A.V. Dicey and J.H. Morris On the Conflict of Laws (gen. ed. Sir Lawrence Collins), 13th edn. (London, Sweet & Maxwell 2000, with cumulative supplements) ch. 30–31; M. Virgós and F. Garcimartín, The European Insolvency Regulation: Law and Practice (The Hague, Kluwer Law International 2004); P.J. Omar, European Insolvency Law (Aldershot, Ashgate 2004) ch. 3, 5–10; and I.F. Fletcher, Insolvency in Private International Law (Oxford, Oxford University Press 2005) ch. 7.
All current Member States of the European Union, with the exemption of Denmark, are subject to the Regulation, as confirmed by Recital (33) of the Regulation.
[2006] EWHC 2594; [2007] BCC 127 (the HBH decision).
[2006] EWHC 1343; [2006] BCC 861; [2007] IL Pr. 2 (the C&A decision).
The Regulation establishes a rule of ‘automatic recognition’. Arts. 16–25 contain the provisions that govern the recognition of insolvency proceedings in another Member State. Art. 26 provides the sole ground for refusing an application for enforcement of a foreign judgment, namely, if such judgement is contrary to public policy and fundamental principles or the constitutional rights and liberties of the individual. See Re Eurofood IFSC Ltd (Case C-341/04) [2006] BCC 397; [2006] Ch. 508, which involves a breach of the fundamental right to be heard.
Especially the Enterprise Act 2002, introducing Schedule B1 into the Insolvency Act 1986.
The Regulation applies to individual companies only. In Re Daisytek-ISA Ltd [2003] BCC 562, however, it was held that the COMI — the administrative control — of all the European subdivisions of Daisytek Inc. was located in Bradford, England, which allowed the Court to open main insolvency proceedings in respect of each of the companies in the group. This was followed in Re Crisscross Telecommunications Group, Chancery Division, 20 May 2003, unreported, and is referred to as the ‘command and control test’. See Fletcher, op. cit. n. 1, at paras. 7.67-7.77.
Art. 3(1) establishes a principle of unity embodied in rules for international jurisdiction in ‘main proceedings’ which are based on the place where the debtor has its centre of main interests (COMI) and which precludes the opening of insolvency proceedings elsewhere.
A term that implies that the jurisdiction is vested exclusively in the courts of a single state.
In Art. 220(4) of the Treaty Establishing the European Economic Community, signed in Rome on 25 March 1957 and commonly known as the (first) Treaty of Rome, the Member States committed to secure ‘… the simplification of formalities governing the reciprocal recognition and enforcement of judgments of courts or tribunals and of arbitral awards.’ The specific basis for standardising the inter-Community treatment of cross-border insolvency is explored in I.F. Fletcher, Conflict of Laws and European Community Law (Amsterdam, North-Holland Publishing Company 1982) ch. 1 and 2.
Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, implemented in the United Kingdom by the Civil Jurisdiction and Judgment Act 1982.
As required by Art. 220 of the Treaty of Rome, which is now known as Art. 293 of the consolidated EC Treaty generated under the provisions of the Treaty of Amsterdam of 1997.
This hostility was ascribed to the refusal of the European Commission to lift the ban on the export of British beef and dairy products imposed because of the BSE epidemic (see H.C. Deb. 18 June 1996, col. 394) and the concern that the failure to empower the United Kingdom to exclude Gibraltar from the Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters could impair the sovereignty of the United Kingdom over their colony. See P.J. Omar, ‘Genesis of the European Initiative of Insolvency Law’, 12 Int. Ins. L. Rev. (2003) p. 147; R. Goode, Principles of Corporate Insolvency Law (London, Sweet & Maxwell 2005) p. 565; and Fletcher, op. cit. n. 1, ch. 7.07-7.08.
A second consequence is that, as an EC legislative act, the Regulation does not need to contain any express provisions to authorise its own interpretation by the European Court of Justice acting under Arts. 220 and 234 of the consolidated EC Treaty generated under the provisions of the Treaty of Amsterdam of 1999.
Report of the Review Committee on Insolvency Law and Practice (Cmnd 8558, 1982).
Introducing Schedule B1 regarding administration into the Insolvency Act 1986. The Enterprise Act followed a government-commissioned report from a working party on reconstruction activities (A Review of Company Rescue and Business Reconstruction Mechanisms dated May 2000, published by the Department of Trade and Industry and HM Treasury) and the White Paper: ‘Productivity and Enterprise: Insolvency — A Second Chance’ (Cm 5234, 2001). See also F. Prentice, et al., ‘Administration: The Insolvency Act 1986, Part 11’, 4 L.M.C.L.Q. (1994) p. 487.
See I.F. Fletcher, ‘UK Corporate Rescue: Recent Developments — Changes to Administrative Receivership, Administration and Company Voluntary Arrangements — The Insolvency Act 2000, the White Paper 2001 and the Enterprise Act 2002’, 5 EBOR (2004) p. 119; S. Frisby, ‘In Search of a Rescue Regime: The Enterprise Act 2002’, 67 MLR (2004) p. 247; S. Foster, ‘Enterprise Act 2002: Changes to Corporate Insolvency’, 5 JBL (2003) p. 527; S. Rajani, ‘The Enterprise Act 2002: Outline of Changes to Insolvency Law’, 19(5) IL & P (2003) p. 160; M. Phillips and J. Goldring, ‘Rescue and Reconstruction’, 15 Insol. Intell. (2002) p. 75; and V. Finch, ‘Re-Invigorating Corporate Rescue’, 8 J.B.L. (2003) p. 527.
‘Rescue’ in this context means: a major intervention necessary to avert eventual failure of the company. See A. Belcher, ‘The Economic Implications of Attempting to Rescue Companies’, in H. Rajak, ed., Insolvency Law: Theory and Practice (London, Sweet and Maxwell 1993); and A. Belcher, Corporate Rescue (London, Sweet and Maxwell 1997).
Although paras. 72B-72F of Schedule B1 of the Insolvency Act 1986 contain a list of exceptions where the appointment of an administrative receiver remains available.
According to para. 3 of Schedule B1 of the Insolvency Act 1986, every administrator is under a duty to perform his function with: (a) the objective of rescuing the company as a going concern; or (b) the objective of achieving a better result for the company’s creditors as a whole than would be likely if the company was wound up; or (c) the objective of realising property in order to make a distribution to one or more secured or preferential creditors. These objectives should be addressed in a hierarchical order and rescue thus serves as the primary objective of the law.
See Art. 3(2). Art. 2(h) defines establishment as ‘any place where the debtor carries out a non-transitory economic activity with human means and goods.’ The exclusion of any possibility for proceedings to be opened on the basis of the mere presence of assets of the debtor, in the absence of any establishment, restricts the number of opportunities for creditors to avail themselves of the personal and tactical advantages gained by means of secondary proceedings. See Fletcher, op. cit. n. 1, at para. 7.54. Art. 3(4) also allows creditors to open independent territorial proceedings, based on the presence of an establishment, in such cases where no other insolvency proceedings are opened at all. Territorial proceedings — whether primary, secondary or independent — are governed by Chapter III of the Regulation (Arts. 27–38).
[2006] EWHC 2594 (Ch); [2007] BCC 127.
Art. 3(4) of the Regulation.
Art. 3(1) of the Regulation.
(Case C-341/04) [2006] BCC 397; [2006] Ch. 508.
Recitals (31)–(35) of the Regulation.
See Re BRAC Rent-A-Car International Inc [2003] BCC 248, in which the COMI was found to be located in the United Kingdom and the Court therefore had jurisdiction, even though the company was incorporated in the United States; Re Ci4net.com Inc [2005] BCC 277, in which two companies incorporated in Jersey and the United States, respectively, were held to have their COMI in England; and Re Daisytek-ISA Ltd [2003] BCC 562. Other cases involving the whereabouts of the debtor’s COMI include Geveran Trading Co. Ltd v. Skjevesland [2002] EWHC 2898 (Ch) and Shierson v. Vlieland-Boddy [2005] BCC 416.
[2006] EWHC 2594; [2007] BCC 127.
See the HBH decision, supra n. 3, at paras. 24–26.
See Goode, op. cit. n. 13, at p. 390.
See Goode, op. cit n. 13, at p. 591; and Re Eurofood IFSC Ltd [2004] BCC 383.
The administrators were informed by AGR, the main creditor, that it regarded the company as operating out of Germany, that it communicated with the company via its address in Nuremberg rather then via its registered office and that it therefore fully expected any insolvency proceedings in respect of the company to take place in Germany.
See Recital (28) of the Regulation. This is dictated by the Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, originally concluded on 27 September 1968, OJ 1989 L 285, Art. 5(1); Council Regulation (EC) No. 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, OJ 2001 L 12/1, Arts. 18–21, which took effect on 1 March 2002 (Brussels I Regulation); and the Convention on the Law Applicable to Contractual Obligations, concluded on 19 June 1980, OJ 1980 L 266/1, Arts. 6 and 7 (the Rome Convention). However, Article 10 is confined to the question of the effect of insolvency on employment contracts as such, i. e., whether such contracts are automatically terminated by the insolvency of either party to them or whether the liquidator has the option to affirm or rescind such contracts. Article 10 does not purport to regulate other issues, such as the ranking of employees’ claims. Such questions remain subject to the lex concursus, in accordance with Article 4(2)(h). See Fletcher, op. cit. n. 1, para. 7.111.
See Re Daisytek-ISA Ltd [2003] BCC 562.
See the HBH decision, supra n. 3, at paras. 29–30.
See Fletcher, op. cit. n. 1, ch. 3, where the author details the classic antithesis between the ‘state of incorporation’ and ‘real seat’ theories.
See para. 3(1) of Schedule B1 of the Insolvency Act 1986.
On the treatment of employees under German insolvency law, see Insolvenzordnung (Bundesgesetzblatt 1994 I S.2866) ch. 2. An English translation is available at: http://www. iuscomp.org/gla/statutes/InsO.pdf.
See s. 44 of the Insolvency Act 1986, which requires the administrator to ‘adopt’ an employment contract within fourteen days. This mechanism is perceived as furthering the protection of employees during the insolvency of their employer.
[2006] EWHC 1343; [2006] BCC 861; [2007] IL Pr. 2.
[2006] BCC 606. Of the twenty-four companies, six were trading in England and Wales, one was a Luxemburg holding company and others were based in Spain, Sweden, Germany, Belgium, Italy and the Netherlands.
See Art. 3(2). See also supra n. 21.
‘Universality’ in this context means the subjection of the totality of the debtor’s assets to one insolvency jurisdiction.
See Art. 3(3). Winding-up proceedings are specifically defined in Art. 2(c), which is linked to Annex B.
See Arts. 1(1) and 2(a) and Annex A of the Regulation.
Paras. 15–16. The rule was established in Re Condon, Ex p. James (1873–74) LR Ch App 609, approved in Re Clark [1975] 1 WLR 559; Re TH Knitwear (Wholesale) Ltd [1988] 4 BCC 102. See also McPherson’s Law of Company Liquidation, 4th edn. (London, Lawbook Co 1999).
As established in Re Wyvern Developments Ltd [1974] 1 WLR 1097; [1974] 2 All ER 535.
See the C&A decision, supra n. 4, at para. 17.
See paras. 3(1), (2) and (3) of Schedule B1 of the Insolvency Act 1986.
A similar conclusion was reached in the administration proceedings in the Birmingham District Registry of the High Court against eight companies within the Rover group, including a French company, in which Judge Norris QC held that, although the claims of French employees were governed by English insolvency law, the administrators had the power under para. 66 of Schedule B1 (defining the powers of the administrators) of the Insolvency Act 1986 to pay employees of the French company what they would have received in secondary proceedings in France in cases where this was likely to achieve the purpose of administration. The reason behind this judgment was that, if such payments were not made, there would be pressure to open secondary proceedings in France, which would lead to the uncoordinated destruction of the individual business in those proceedings and undermine the coordination of the insolvency process within the main proceedings. See Re Rover Espana SA [2006] BCC 599.
See the C&A decision, supra n. 4, at para. 33.
See the C&A decision, supra n. 4, at para. 49, mentioning that the following statement was made by C&A North America: ‘We acknowledge that application of local law could reduce our recovery as compared to the result that might be achieved if English rules regarding subordination and preferential claims were applied. Nonetheless, we believe that this theoretical reduction is more than off-set by the benefit to creditors, including C&A North America, than could have been realised had creditors not been advised that local priorities would apply through the joint administration. We believe that method would be the most efficient and cost effective process possible, and will achieve a fair distribution to all creditors, including C&A North America.’
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Geva, E.Z. National Policy Objectives from an EU Perspective: UK Corporate Rescue and the European Insolvency Regulation. Eur Bus Org Law Rev 8, 605–619 (2007). https://doi.org/10.1017/S1566752907006052
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DOI: https://doi.org/10.1017/S1566752907006052