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Insolvency and jurisdiction update: stating the obvious?

11 December 17

Corporate briefing: a Court of Session ruling has confirmed that EU legislation on jurisdiction in insolvency proceedings has no effect in a question as between different UK jurisdictions

by Emma Arcari

Where do you wind up an English registered company, with its corporate details held in the Companies House register in Wales and its day-to-day business carried on in Scotland? England, according to Bank Leumi (UK) plc v Screw Conveyor Ltd [2017] CSOH 129 (which relates to an application for an administration order). 

Bank Leumi lodged a petition for an administration order in respect of Screw Conveyor. Certain interim orders were granted. Following service, on a motion to grant the petition attention was drawn to the issue of jurisdiction. A question arose as to whether a company’s “centre of main interests” being in Scotland could allow the Court of Session jurisdiction over an administration order for an English registered company. 

Which court and where?

The Insolvency Act 1986, s 117 provides that the High Court has jurisdiction to wind up companies registered in England & Wales, and s 120 that the Court of Session has jurisdiction to wind up companies registered in Scotland. Both sections are subject to article 3 of Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings, a recast version of Regulation (EC) No 1346/2000.

Lord Doherty considered the relevant provisions of the 1986 Act, as amended, in relation to the making of an administration order together with the application of the EU and EC Regulation. The EU Regulation recitals mentioned included recital 23: “This Regulation enables the main insolvency proceedings to be opened in the Member State where the debtor has the centre of its main interest”; recital 26: “The rules of jurisdiction set out in this Regulation establish only international jurisdiction, that is to say, they designate the Member State the courts of which may open insolvency proceedings. Territorial jurisdiction within that Member State should be established by the national law of the Member State concerned”; and recital 27: “Before opening insolvency proceedings, the competent court should examine of its own motion whether the centre of the debtor’s main interests or the debtor’s establishment is actually located within its jurisdiction.”

Article 3.1 of the EU Regulation, under the heading “International jurisdiction”, states: “The courts of the Member State within the territory of which the centre of the debtor’s main interests is situated shall have jurisdiction to open insolvency proceedings (‘main insolvency proceedings’). The centre of main interests shall be the place where the debtor conducts the administration of its interests on a regular basis and which is ascertainable by third parties. In the case of a company or legal person, the place of the registered office shall be presumed to be the centre of its main interests in the absence of proof to the contrary. That presumption shall only apply if the registered office has not been moved to another Member State within the 3-month period prior to the request for the opening of insolvency proceedings”.

The petitioner argued that s 120(6) incorporated article 3 into domestic law and applied to determine jurisdiction between the different parts of the UK. Given that the centre of main interests (COMI) for Screw Conveyor was Scotland, the Court of Session had jurisdiction. Indirect assistance was sought to be found in Re BRAC Rent-A-Car International Inc [2003] 1 WLR 1421 and Re Salvage Association [2004] 1 WLR 174). 

Restricted effect

Lord Doherty rejected these arguments and considered that the EU Regulation only applies to establish international jurisdiction; the same applied to the EC Regulation: “The component parts of the United Kingdom are treated as one jurisdiction for the purposes of the EU Regulation. In my opinion that is all plain from the operative parts of the Regulation and from the recitals in its preamble.” The European Communities Act 1972 did not provide authority for the Government to alter national law governing territorial jurisdiction as between the different parts of the United Kingdom, nor did the Insolvency Act (Amendment) (No 2) Regulations 2002/1240, regs 6 and 7 so alter the law.

The Court of Session therefore did not have jurisdiction to grant an administration order over Screw Conveyor.

Comment

It goes without saying that many UK corporations have registered offices in one part of the UK, but significant operations elsewhere in the UK. Although the outcome of this case was perhaps expected and in line with various academic writings on the topic, it serves to provide clarity (and is seemingly the first Scottish judicial authority to do this) that the COMI only serves to distinguish between jurisdictions of member states, not the jurisdictions within a member state, and that within the UK the location of the registered office will govern which insolvency regime applies.  

Emma Arcari, associate, CCW Business Lawyers Ltd

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