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Comi, The Stanford Collapse and the Restraint of Foreign Enforcement: 2009 Developments in Cross Boarder Insolvency Proceedings

Louis Doyle, Barrister, Kings Chambers, Manchester & Leeds

Cross-border insolvency has been very fertile ground in recent times. For example, in Re Oilexco Northsea Ltd, Harms Offshore AHT v Bloom [2009] EWCA Civ 632 the Court of Appeal held that the court has jurisdiction to restrain two German creditors, which had obtained relief from the New York District Court by way of judgment and, on an ex parte basis, attachment against funds in a New York bank account of an English company in administration, from continuing the attachments. In addition, the English court had jurisdiction to require the return of those assets against which the German creditors had attached. The case is rather exceptional because the English court will usually not interfere with the strong presumption that proceedings in a foreign court are not to be interfered with. What is also curious is that, given that an English administration moratorium is ordinarily of no extra-territorial effect, the English administrators did not seek protection of the company’s estate by recognition under US Chapter 15 (although it is understood that that route is now being pursued)

The decision in Syska (Elektrim SA) v Vivendi Universal SA [2009] EWCA Civ 667 is another decision of the Court of Appeal. The decision upheld that at first instance (albeit on slightly different grounds) to the effect that arbitration proceedings fall within the scope of “lawsuit pending” for the purposes of Articles 4.2(f) and 15 of the EC Regulation on Insolvency Proceedings. Where arbitration proceedings are pending at the date of insolvency those provisions are engaged such that the effect of insolvency on the arbitration proceedings is governed by the law of the Member State in which the arbitration is pending. Converseley, where arbitration proceedings have not been commenced the applicable law is that governing the contract to which the debtor is party.

Perhaps most significant recent decision, at least in general terms, is that of Lewison J at first instance in Stanford International Bank Ltd [2009] EWHC 1441 (Ch), the first reported contested case under the Cross-border Insolvency Regulations 2006. The case involved the competing claims of office-holders appointed in the United States and Antigua to entities forming part of Sir Allen Stanford’s collapsed business empire. It is unlikely to be the last word on the issues raised, however, since an appeal has been filed and is expected to be heard later in year.

Pending the appeal the judgment remains of some significance for its analysis, amongst other issues, of what is of necessity the recent case law on the proper determination of a insolvent’s “centre of main interests” (“COMI”) under the EC Regulation (in addition to which the Judge also considered the position under Chapter 15 which incorporates the Model Law on Cross-border Insolvency into US law). Interestingly, this was an analysis Lewison J took on despite the fact that it was common ground between the parties that, in determining COMI, the court should follow the guidance given by the ECJ in Eurofoodcase [2006] ECR 1-701. In effectively adopting the ECJ’s approach, by which COMI is determined by reference to criteria that are both objective and ascertainable by third parties, his Lordship went on to hold that what is ascertainable by a third party depends on what was in the public domain and what a typical third party could ascertain as a result of dealing with the debtor. In so finding, Lewison J overruled the decision of HHJ Langan QC in Re Ci4net.com Inc [2005] BCC 277 (ChD, Leeds District Registry), decided before Eurofood, which had held that the location of a company’s registered office is but a factor in determining COMI. The Ci4net approach is irreconcilable with Eurofood under which the location of a debtor’s registered office raises a presumption of COMI, the burden lying on the party seeking to rebut that presumption. Lewison J also disapproved of the “head office functions” test espoused by Advocate-General Jacobs in Eurofood [2006] ECR 1-03813 (at para 111) – the opinion of the Advocate-General, importantly, not being that of the ECJ itself – a test which had been adopted by the French court in MPOTEC Gmbh [2006] BCC 861, Under that test the court looks at what is carried on at the registered office, rather than merely its location. The difficulty in that test, on Lewison J’s analysis, is that it at odds with the test established by the ECJ itself by reference to criteria objective and ascertainable by third parties.

This author’s view, for what that is worth, is that the Court of Appeal is very unlikely to upset Lewison J’s approach on COMI, though the Court of Appeal’s involvement is timely. The earlier authorities have been considered unsatisfactory in a number of quarters and the area is one so fundamental to cross-border insolvency that it requires clarification at the appeal court level.

Louis Doyle is a barrister at Kings Chambers and the co-author (with Professor Andrew Keay) of Insolvency Legislation: Annotations and Commentary (3rd edn, 2009, Jordans)

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