Tag: Centre of Main Interests

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East-West Logistics v Melars. A good reminder of the strength of a company’s place of incorporation as a presumption of Centre of Main Interests (insolvency).

A bit of a late follow-up to a 1 November Tweet but hey ho, I have been a tad busy and it is nevertheless good to still have the post up.

East-West Logistics Llp v Melars Group Ltd [2022] EWCA Civ 1419 is a good reminder of the importance of ascertainability by third parties for determination of a corporation’s Centre of Main Interests – COMI. The appeal against Miles J’s finding in [2021] EWHC 1523 (Ch) was rejected and Malta as place of COMI confirmed.

The Company was incorporated in the British Virgin Islands -BVI and entered into a charterparty with the Petitioner in December 2011 for a shipment to Turkmenistan. The address of the Company in the charterparty was stated to be in the BVI. The charterparty contained a clause providing for disputes to be resolved by arbitration in London under English law. Following a disputed shipment, the Petitioner tried to but failed to launch LCIA arbitration (the tribunal holding it did not have jurisdiction), followed by successful proceedings in BVI resulting in a judgment in default against the company, which the latter later managed to have set aside. Without notifying the Petitioner, the Company had in the meantime moved its place of incorporation, and hence its registered office, to Malta.

On 19 July 2016 the Petitioner then presented a winding up petition in London based upon its BVI judgment debt. The Petition alleged that COMI of the Company was in the UK, citing pro UK as COMI [11] (prima facie rather flimsily) that i) the six commercial contracts concluded by the Company of which the Petitioner was aware (including its own charterparty) were in the English language, were governed by English law and had arbitration clauses providing for arbitration in London; and ii) the Company participated in the LCIA arbitration in London and was represented by a London firm (or firms) of solicitors. Against Malta as COMI, it suggested i) the Company did not actually have an office there, its registered office address being that of a Cypriot law firm providing company administration services; ii) the Company did not have any employees or conduct any business in Malta; iii) the Company’s sole director was a nominee who was a Swiss national, resident in South Africa; and iv) the Company’s sole shareholder and principals were Russian.

Baister J made a winding-up order, citing [20] the forum shopping background and the corporation not much being involved in physical, rather virtual trade, deciding ‘ by a narrow margin and with misgivings, that on balance the greater use of English law for contracts, the greater use of London as a seat of arbitration, the actual recourse to or forced involvement in legal proceedings here and the consequential use of English lawyers makes the UK, on the balance of probabilities, the main centre of those interests. The company’s affairs seem to have been conducted in this country more than in Switzerland [SW plays a role because of a Swiss national, GAVC],  certainly as far as contractual and litigation interests were concerned, although it is, I accept, hard to be precise.”

That judgment was overruled on appeal, with Miles J concluding ‘that Judge Baister had erred in principle in three ways in his approach to the determination of the Company’s COMI. The first was in relation to the importance of the presumption in Article 3(1), the second was in relation to the concept of ascertainability, and the third was in failing to distinguish between matters of administration of the company’s interests and matters going to the operation of its business.’

Upon further appeal, Lewison LJ agreed with Miles J. [46] ‘lack of evidence that the debtor actually carries out any activities at the place of its registered office does not allow the court to ignore or disregard the legal presumption under Article 3(1).’

He is right! [47] ‘The court must be alert to detect fraudulent or abusive forum shopping by purported changes of COMI by a debtor’ however ‘the question in such cases is whether the move of COMI is real or illusory. It is not whether the move of the debtor’s registered office is real or illusory.’

[63] “the court should not invent a hypothetical “typical” third party creditor with “average” or “normal” characteristics, and form a view on what might (or might not) have been apparent to that creditor in the course of a notional dealing by him with the company. Neither the EU Regulation nor the jurisprudence of the CJEU refer to the concept of a “typical” creditor, but refer instead, and more generically, to “creditors” or “third parties”.”

[80] “none of the factors relied upon by the Petitioner were, individually or collectively, sufficient to establish that the Company actually conducted the administration of its interests on a regular basis in England (or any other particular location) so as to displace the presumption in favour of Malta under Article 3(1).”

One’s intuition in a case like this may be not to have much sympathy for a corporation engaging in COMI /seat forum shopping. However that intuition is not reflected in the Regulation’s presumptive treatment of incorporation as COMI.

Geert.

EU Private International Law, 3rd ed. 2021, Heading 5.6.1.

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COMI for natural persons and the EIR. The High Court unconvincingly in Lin v Gudmondsson.

Lin v Gudmundsson & Ors [2021 EWHC 820 (Ch) is an application to annul the bankruptcy of Mr Gudmundsson by his ex-wife. She argues inter alia that the bankruptcy order should not have been made because England was not Mr Gudmundsson’s COMI.

At 54, Briggs J (presumably so led by counsel) oddly holds that the EU Insolvency Regulation (‘EIR’) 2015/848 only defines COMI in its recital 13. Odd, for that was the case under the previous Regulation, 1346/2000, not the current one which does define COMI in the text of the Regulation proper (Article 3(1) – see Heading 4 of my overview here). However that issue is of minor importance for the real hesitation I have with the judgment is

that the judge despite the EIR’s specific instruction that COMI needs to be determined proprio motu, retreats to the default adversarial nature of common law proceedings and defers to the claimant’s concession ‘that even if the court were to find that Mr Gudmundsson did not have his COMI in England and Wales it should not exercise its discretion to annul the bankruptcy order’ [57]; and

that the judge resorts to section 265(2) of the Insolvency Act 1986’s jurisdictional anchor (“in the period of three years ending with the day on which the petition is presented …a place of residence in England and Wales”) instead of the autonomous concept of ‘habitual residence’ in the Regulation. The meaning of that concept was recently discussed by the CJEU in C-253/19 Novo Banco.

Geert.

EU Private International Law, 3rd ed 2021, Chapter 5, para 5.95.

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Zetta Jet: COMI, time of filing, forum shopping, ordre public in insolvency. A comparative law Fest in Singapore.

An interesting comparison may be made between [2019] SGHC 53 Re Zetta Jet Pte Ltd and [2018] EWHC 2186 (Ch) Videology on which I reported here. Both concern recognition of foreign main (or not) proceeding under of the UNCITRAL Model Law on Cross-Border Insolvency (“the Model Law”). Zetta Jet came to me courtesy of my former student Filbert Lam, and has now also been analysed to great effect by Tan Meiyen and colleagues here.

The judgment is a master class on COMI determination, but also on comparative legal analysis re time of filing etc.: best read judgment and Tan’s note for oneself. Of particular note are

  • the expression of sympathy by Aedit Abdullah J for forum shopping in insolvency law; compare also with Ocean Rig, and Kekhman; here this took the particular form of following the US approach to selecting the date on which the application for recognition is filed, as relevant to COMI determination (friendlier to forum shopping than the EU’s and England’s date of commencement of the foreign insolvency proceedings);
  • the emphasis on the basket of criteria required to identify COMI;
  • the narrow approach to ordre public despite Singaporean court order having been defied; yet also the relevance of the fact that these orders post defiance had been varied.

Geert.

(Handbook of) EU private international law, 2nd ed. 2016, Chapter 5, Heading 5.6.1 et al.

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Videology: Snowden J’s textbook consideration of COMI under UNCITRAL Model Law and EU Insolvency Regulations.

Looking at my back queue for blog postings, [2018] EWHC 2186 (Ch) Videology is one I do wish to bring to the attention of my readers. Snowden J refused to recognise proceedings under Chapter 11 of the US Bankruptcy Code (“Chapter 11”) in relation to Videology Ltd as a foreign main proceeding under Article 17 of the UNCITRAL Model Law on Cross-Border Insolvency (“the Model Law”) as incorporated into English law in Schedule 1 to the Cross-Border Insolvency Regulations 2006 (the “CBIR”). He did so because he was not satisfied that the centre of main interests (“COMI”) of the Company was in the US where the Chapter 11 proceedings are taking place. He did, however, grant recognition of the Chapter 11 proceedings as a foreign non-main proceeding.

The Judgment is a master class on COMI determination.  Of note are

  • at 28 the rejection of, for so long as the UK remains a party to the Recast EIR,  any different approach in relation to the concept of COMI under the CBIR/Model Law and the Recast EIR;
  • the emphasis on a basket of criteria required to displace the presumption of COMI in place of the registered office;
  • at 42 ff the rejection of a narrow focus on, or attachment of overriding importance to, the location in which the directors and senior management act;
  • Snowden J’s rejection at 46 ff of the Head Office approach as being determinant under EU law (see also Handbook heading 5.6.1.2.4); and
  • the factors referred to eventually to uphold the presumption: at 72: ‘In addition to being the place of its registered office, the UK is where the Company’s trading premises and staff are located, where its customer and creditor relationships are established, where it administers its relations with its trade creditors on a day-to-day basis using those premises and local staff, and where its main assets (the receivables and cash at bank) are located. All of those factors will be visible and immediately ascertainable by the customers, and in particular by the trade creditors, of the Company. The UK is also, importantly, where representations were made to the Company’s main finance creditor that its COMI was situated.’

Geert.

(Handbook of) EU private international law, 2nd ed. 2016, Chapter 5, Heading 5.6.1 (specifically also 5.6.1.2.4 for the Head Office discussion).

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COMI in NIKI.

Thank you Bob Wessels for again alerting us (with follow-up here [update 15 January 2018 and here ; looks like regular revisits of prof Wessels’ blog are in order) and also reporting by Lukas Schmidt here) timely to a decision this time by the German courts in Niki, applying the Insolvency Regulation 2015, on the determination of COMI – Centre of Main Interests. Bob’s review is excellent per usual hence I am happy to refer for complete background.

Of particular note is the discussion on the extent of a court’s duty to review jurisdiction ex officio; the court’s correct assumption that in the event of foggy circumstances, the EIR’s presumption of COMI at the place of incorporation must have priority; and finally in my view the insufficient weight the court places on ascertainability by third parties.

Geert.

(Handbook of) EU Private International Law, 2nd ed. 2016, Chapter 5, Heading 5.6.1.

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COMI in Powerstorm and in Bezuijen Holding v X: Dutch Courts warming up to the new Insolvency Regulation.

Thank you Bob Wessels for again alerting us timely to two recent decisions by the Dutch courts, applying the Insolvency Regulation 2015, on the determination of COMI – Centre of Main Interests. Bob’s review is excellent per usual hence I am happy to refer for complete background. In short, the decisions are

  • in Powerstorm: textbook applications on the public expression (hence ascertainability by third parties, to use the CJEU’s phrase of words) of COMI, which third parties have to rely on. Here: to displace the presumption of COMI in the United States (place of incorporation; in re Powerstorm) in favour of Amsterdam.
  • in Bezuijen BV against X, a natural person: with extensive reference to the recitals of the EIR 2015, that the Dutch courts have to consider jurisdiction proprio motu, evidently, and that they need serious evidence to uphold jurisdiction against a natural person who, both parties agree, no longer has his residence in The Netherlands (where it is, is in dispute but it is probably somewhere in the vicinity of Paris).

Geert.

(Handbook of) EU Private International Law, 2nd ed. 2016, Chapter 5, Heading 5.6.1.

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Schemes of arrangement: No scheming, and no hastily arranging, please. The High Court adjourns hearing in Indah Kiat.

I have reported before on various schemes of arrangement which the English Courts gave the go-ahead even when they concerned non-English companies (I should flag that in two of those, Apcoa and Van Gansewinkel, I acted as expert). Thank you Arie van Hoe for bringing Indah Kiat to my attention some weeks ago.

Indah Kiat is a Dutch BV seeking an order convening a single meeting of its scheme creditors to consider and if thought fit approve a scheme of arrangement pursuant to Part 26 of the Companies Act 2006. The application is strenuously opposed by one of the Scheme Creditors, APP Investment Opportunity LLC (“APPIO”), which contests the jurisdiction of the court to entertain or sanction the Scheme. Such opposition is different from the other schemes which I mention in my previous postings.

In the first instance, APPIO simply seeks an adjournment of the Scheme Company’s application on the grounds that inadequate notice has been given to Scheme Creditors. However, it also raises a significant number of other issues concerning the adequacy of the evidence and disclosure by the Scheme Company, together with questions concerning the procedure and scope of the court’s jurisdiction to sanction creditor schemes for foreign companies in relation to debts governed by foreign law.

The Scheme Company is a special purpose vehicle which was incorporated for financing purposes in the Netherlands. It sought the COMI way to enable English courts to obtain jurisdiction over the scheme. English jurisdiction, required to carry out the Scheme, usually rests on either one of two legs: COMI, or making English law the governing law of the underlying credit agreements (if necessary by changing that governing law en route).

The COMI route to jurisdiction in many ways defies the proverbial impossibility of having one’s cake and eating it. For the establishment of a company’s centre of main interests, the courts and practice tend to refer to the EU’s Insolvency Regulation. Yet that schemes of arrangement do not fall under the Insolvency Regulation is a crucial part of the forum shopping involved in attracting restructuring advice to the English legal market. This is especially so for the aforementioned second route to jurisdiction (a change in governing law). however it is also true for the first form. Snowden J refers to that at para 85-86 of his judgment.

Indah Kiat has effected its change of COMI (rebutting the presumption of COMI being at its registered seat) by notifying its creditors via a number of clearing houses for the Notes concerned. APPIO contest that this notification sufficed for change in COMI. There are not enough relevant facts in the judgment to consider this objection thoroughly, however APPIO’s misgivings would not seem entirely implausible.

Snowden J notes that whilst protesting the jurisdiction, in the first instance APPIO simply seeks an adjournment of the convening hearing on the grounds that inadequate notice has been given of it to Scheme Creditors. It contends that given the complex nature of the Scheme and the factual background, there is no justification for an urgent hearing of the application. The Court agreed and the convening hearing (different from the sanction hearing, which follows later) was adjourned until 3 March. Snowden J further gave extensive argument obiter as to why the Scheme’s information was insufficient in the form as it stood at the hearing.

He then revisits (82 ff) the jurisdictional issue, which I have already signalled above: what role exactly COMI should play, how the Brussels I recast intervenes, what the impact is of likely recognition of the sanction (if any) in Indonesia, The Netherlands, and the US; and what if any role the relevant US judgments in the case should play: there will be plenty of points for discussion at the convening and sanction hearing. (I mentioned above that the convening hearing was scheduled around 3 March; I have not heard from the case since however if anyone has, please do let me know).

I do not think Indah Kiat has made the jurisdictional hurdle higher for Schemes of Arrangement involving foreign companies. Rather, the fierce opposition of an important creditor has brought jurisdictional issues into sharper perspective than had been the case before.

Geert.

(Handbook of) EU Private International Law, Chapter 5, Heading 5.4.2).

 

 

 

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SwissMarine- The High Court declines anti-suit against insolvency proceedings in Denmark.

Much of the analysis in Swissmarine would have been redundant had Denmark been subject to the Insolvency Regulation. Please refer to the judgment for the many lines of arguments by applicants and defendants – Alexis Hogan has good summary over at the RPC blog.

SwissMarine Corporation Limited (“SwissMarine”) applied for an anti-suit injunction against O. W. Supply & Trading A/S (“OW Supply”), a Danish company that had filed for bankruptcy in the Bankruptcy Court of Aalborg, Denmark on 7 November 2014. SwissMarine sought an order restraining OW Supply (i) from proceeding with an action that it had brought in the District Court in Lyngby, Denmark (the “Lyngby action”) and (ii) from commencing any other or further proceedings in Denmark or elsewhere against SwissMarine directed to obtaining a “disputed” sum claimed under an ISDA Master Agreement (the “ISDA Agreement”) or any transaction thereunder. (For a related discussion of the ISDA Agreement, see Anchorage).

Brussels I recast does not apply for the dispute arguably falls under that Regulation’s insolvency exception. The Insolvency Regulation as noted does not apply for Denmark has opted out of it. The High Court held essentially that the Lygnby action is not covered by the jurisdiction agreement because it is not a suit, action or proceedings relating to a dispute arising out of or in connection with the ISDA Agreement or any non-contractual obligations arising out of or in relation to it. The Court followed the defendant’s argument that OW Supply is not seeking to have determined any dispute under the ISDA Agreement or about the parties’ rights and obligations under it, and there is no dispute about their contractual rights and obligations. The question for the Lyngby court will be how the Danish insolvency regime applies to them. In the words of Smith J: ‘The wording (of the choice of court clause in the ISDA Agreement – GAVC) does not bear on the question whether OW Supply can invoke the protection of Danish insolvency rules, or whether the jurisdiction agreement was intended to prevent this. I cannot accept that the parties evinced an intention in the schedule that OW Supply (or SwissMarine) should abandon the protection of its national insolvency regime.’ (at 26) In conclusion, SwissMarine have not shown a sufficient case that the jurisdiction agreement applies to the Lyngby action to justify its submission that it should be granted an anti-suit injunction on the grounds that in bringing and pursuing the action OW Supply is acting in breach of it. (at 29).

Smith J also discusses at length the impact of the Brussels I and Brussels I recast Regulation on the reference, in the choice of court provision of the ISDA Agreement, to ‘Convention’ (ie 1968 Brussels Convention) parties. Athough this discussion had no bearing on the eventual outcome, the Court’s (disputable) conclusion that reference to Convention States should be read as such (and not include ‘Regulation’ States), in my view would merit adaptation, by parties ad hoc or generally, of the relevant choice of court clause.

Geert.

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Buccament Bay: Is there room for forum non conveniens in the Insolvency Regulation?

In Buccament Bay, 2014 EWHC 3130 (Ch), Strauss QC (DJ) dealt with the preliminary jurisdictional issue of whether the court should exercise its jurisdiction to hear winding-up petitions, based on largely undisputed debts, when neither of the companies concerned is incorporated in England (they are incorporated in Saint Vincent and the Grenadines, ‘SVG’).

[I have a copy of the judgment courtesy of Richard Clark, who with Patrick Cook authored this review of the judgment. Judgment was issued on 3 October but has not yet appeared in BAILII].

The judgment does not start with what logically it ought to have done, namely application of COMI per the EU’s Insolvency Regulation. Instead, Strauss DJ first considers the application of Section 221(1) of UK the Insolvency Act 1986, which i.a. gives the court jurisdiction to wind-up foreign  companies as ‘unregistered’ companies, provided, subject to relevant case-law, that there be sufficient connection with England. He decides there is not (in particular because the condition is not satisfied, required under relevant precedent, that the petitioners derive benefit from the winding up). It is only after having rejected application of Article 221(1) that the court summarily returns to COMI under the Insolvency Regulation. Arguments pro and contra (which also fed into the Section 221(1) analysis) are helpfully summarised by Anna Jeffrey here. They led, justifiably I believe (albeit that reference to ECJ precedent here, would have been helpful) to a finding on COMI being outside the EU.

This is then where the High Court comes to the most interesting part of the judgment, even if it was obiter (at 25). Namely that even had COMI being in the UK, the English court could still exercise constraints /room for manoeuvre, applying Section 221(1), including recourse to forum non conveniens. In the words of Strauss DJ, ‘the only effect of Article 3(1) [of the Insolvency Regulation] is to give the court jurisdiction, which it has anyhow under English domestic law, to open insolvency proceedings. Where a company’s COMI is in this country, it is highly likely that, by definition, the court will be satisfied that there is a substantial connection with this country, but otherwise the discretionary factors will be the same. In this case, even if I had been satisfied that the respondents’ COMI was here, it would still have made no sense to make winding up orders in a case which is obviously much more suitable for the SVG courts.‘

Respectfully, I disagree. Article 3(1) simply supersedes Section 221(1) in cases where COMI is in the UK. It generally supersedes national jurisdictional rules, again, provided COMI is in the EU. Article 221(1) being a jurisdictional rule and not one of substantive UK insolvency law (which applies as lex concursus), it cannot have calling had COMI been in England.

That leaves the overall question, whether the Insolvency Regulation accommodates forum non conveniens (it certainly does not have a formal rule on it, in contrast with the Brussels I recast). Although there is to my knowledge no ECJ case-law on this, it is quite likely that neither Regulation nor most definitely the ECJ have sympathy for FNC. (See my posting on Kemsley for the issue of anti-suit injunctions and the Regulation).

Geert.

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Anti-suit injunctions and the Insolvency Regulation – The High Court (and the US Bankruptcy court) in Kemsley

At least until late 2008, Mr Kemsley was a very wealthy individual. On 25 June 2008, Barclays granted him a personal loan of £5 million on an unsecured basis. The loan was repayable after a year but the loan period was subsequently extended. In 2009, Mr Kemsley’s business in England collapsed when his group of companies went into administration. Mr Kemsley was unable to keep up repayment to Barclays of instalments under the extended loan, and failed to stick to a repayment schedule for debts with another company. Mr Kemsley is a British citizen and had lived until 2009 in England. Following the collapse of his business here, he moved in June 2009 with his wife and family to Florida. They moved to New York City in about May 2010 but subsequently Mr and Mrs Kemsley became estranged and Mrs Kemsley moved back with their children to England in about June 2012. Mr Kemsley has remained in the United States.

On 13 January 2012, Mr Kemsley presented his bankruptcy petition to the High Court. His petition was based on his physical presence in England on the date of presentation, within the terms of the Insolvency Act 1986, and on his having had a place of residence in England within three years of presentation. On 26 March 2012, he was declared bankrupt on the basis of the EU’s Insolvency Regulation. On 1 March 2012, shortly before Mr Kemsley became bankrupt, Barclays commenced proceedings against him under the loan agreement in the Supreme Court of the State of New York. On 21 August 2012, he applied in the US Bankruptcy Court for the Southern District of New York under Chapter 15 of the US Bankruptcy Code for recognition of the English bankruptcy as a foreign main proceeding.

In the English case discussed in this post, Mr Kemsley seeks to restrain Barclays from pursuing proceedings in the United States: an anti-suit injunction. The anti-suit injunction was dismissed. The High Court sided in favour of a restrictive approach to ASIs in the case of bankruptcy, per precedent. It found that the US court was best placed to decide on COMI in the US.

The US bankruptcy court refused to recognise K’s UK bankruptcy as a foreign main or nonmain proceeding under chapter 15. The court held that K’s COMI needed to be adjudged as at the time of his English bankruptcy filing, not the time of the chapter 15 filing. Rejecting K’s statement at the time of his UK bankruptcy filing, the court found that his COMI was in the US at that time, focusing on K’s habitual place of residence and that of his family.

EU readers may be surprised that the High Court even considers an ASI, given the EU’s aversion to ASIs in the area of conflict of laws, post Gasser and Turner. However the High Court evidently must have considered the English court’s duties under and loyalties to the Insolvency Regulation fully met with the previous finding of insolvency. The current proceedings in that understanding fall outside that remit. Moreover, the aversion to anti-suit injunctions arguably only holds vis-a-vis fellow EU courts.

Of note are also the apparent limits to the international harmonisation of COMI as things stand.

Geert.