Foreign Registered Debtors
From time to time it is necessary to consider enforcement proceedings against a company registered outside England and Wales.
A typical example might be where a property is owned by a company registered in the British Virgin Islands, or indeed an occupier of property is a company registered in Gibraltar, Isle of Man, Guernsey, etc. A liability order may have been obtained against that particular company and consideration must then be given as to the proper forum for proceedings.
The provisions of the Insolvency Act 1986, and associated legislation and regulations relating to foreign jurisdictions can be complex, particularly where it concerns a company which operates across several jurisdictions. Therefore for the purposes of this review, we will assume we are dealing with a company with its registered office abroad with the only other known dealings of that company being in the UK. In our experience these companies have been set up in off shore locations for tax planning reasons.
It is also assumed that enforcement is to be carried out by way of seeking a winding up order against that company, so that a liquidator may be appointed to realise that company’s assets for the benefit of all creditors.
Two Sets of Rules – which one applies?
There are two relevant sets of rules and it is necessary to look at the debtor company to determine which set apply.
The starting point is to establish the company’s centre of main interests (“COMI”). COMI is a creation of European law designed to settle conflicts that can arise between jurisdictions in cross border insolvencies, based on the principles of mutual recognition and co-operation.
If the debtor’s COMI is in an EU member state, and it has assets in more than one EU member state, then the appropriate rules are the EC Regulation on Insolvency Proceedings 2000 (the regulations).
Otherwise Ss. 220 and 221 of the Insolvency Act 1986 will apply.
The EC regulation on insolvency proceedings governs the opening of insolvency proceedings in member states by laying down rules for deciding where main insolvency proceedings can be opened in circumstances where a company has a presence in more than one member state. The regulations directly applicable to all EU member states apart from Denmark, and applies to all forms of companies.
The regulations do not define the term COMI, and the only guidance given is that in article 3 which states the location of a company’s registered office is presumed to be its COMI in the absence of proof to the contrary. Recital 13 states that a company’s COMI should correspond to the place where the company conducts the administration of its interests on a regular basis, and therefore can be ascertained by third parties.
As a result of there being no statutory definition, case law has had to develop and refine the concept, largely as a result of both creditors and debtors who want to take advantage of a more favourable insolvency regime, and who have sought to rebut the presumption that a company’s COMI is the place of its registered office.
Re: Daisytek ISA Limited (2003) and re Euro Good IFSC Limited (2005) give some guidance and stated that any factors relied on to rebut the registered office presumption must be both objective and ascertainable to third parties.
In the Daisytek case, the company in question was an English subsidiary of a US parent company and its own subsidiaries incorporated respectively in England, Germany and France. Although the foreign subsidiaries had their registered offices and conducted their business abroad, they were managed to a large extent from Daisytek’s head office in Bradford. In ruling that all the European subsidiaries had their COMI in England, the court had regard to various factors:
- Location of banking activities and the keeping of financial records
- The degree of independence in making purchases
- Policy and the recruitment of senior employees
- The provision of services to customers
- Control of corporate identity and branding
- Responsibility for corporate strategy
The scale and importance of the subsidiary’s interests carried out was greater in the UK than in the subsidiary’s own country. Again it was stressed that the most important third parties concerned with identifying the COMI were the various potential creditors – their financiers and trade suppliers. The evidence was that a large majority of these would have looked to Bradford in this regard.
The Insolvency Act 1986
Similarly, sections 220 and 221 IA 1986 give no guidance as to the criteria which will justify an English court in assuming jurisdiction. The matter has been left to the discretion of the court. In practice, it is normally considered a sufficient connection for the company to have, or have had its place of business or branch office within the jurisdiction, or to have assets here, but other factors may also be regarded as relevant:
- Was there as place of business or an office in the UK?
- Is there a bank account in the UK?
- Are there or were there assets or creditors in the UK?
- Will the winding up benefit creditors?
- Could a claim be brought by the company against a UK insurer?
- Were any of the directors based in the UK?
It is not necessary that the company should have assets within the jurisdiction. However the court must be satisfied that there is a reasonable possibility that the winding up order will benefit those applying for it, and the court must be able to exercise jurisdiction over one or more persons interested in the distribution of the company’s assets.
In recent times, we have been asked to advise on recovery of rates against companies which appear to have been set up for tax planning purposes.
The company has been registered in an “off-shore” location such as the British Virgin Islands, Gibraltar or Isle of Man. Little or nothing is known about it other than the basic details such as name and registered office available from that jurisdiction’s company register. However the company has or had owned property in the UK.
In our view, such companies may be dealt with by the High Court in England pursuant to S.220 IA 1986 and winding up proceedings may properly be issued there.