Posts Tagged COMI

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.

, , , , , , , , ,

Leave a comment

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.

, , , , , , ,

Leave a comment

Bank Leumi. No calling for the EU’s Insolvency Regulation in intra-UK scenarios.

Thank you Ben Zielinski for flagging Bank Leumi (UK) Plc v Screw Conveyor Ltd [2017] CSOH 129. I believe Ben is right in writing that this is the first formal acknowledgement that Scottish judicial authorities have no insolvency business in respect of an English registered company, and the same applies to English courts and Scottish companies,  in spite of the EU’s Insolvency Regulation.

Even if a company carries out its main activities in Scotland, internal UK jurisdictional rules will assign insolvency jurisdiction to the English judicial authorities. That is a result of, as Lord Doherty writes, the Insolvency Regulations designating the ‘Member State the courts of which may open insolvency proceedings’ however ‘territorial jurisdiction within that Member State is established by the Member State’s national law’ (at 9).

Geert.

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

, , , , , , , , , , , ,

Leave a comment

OCEAN Rig: COMI shopping cautiously welcomed by US Bankruptcy Court.

I have often argued that the European Commission and by extension the EU’s Insolvency Regulation is wrong in taking as a starting point that forum shopping in insolvency matters as a rule needs to be discouraged. This aversion towards forum shopping is one of the main reasons for the UK and other Member States to keep Schemes of Arrangement and other restructuring devises well out off the reach of the Regulation. (The Brussels I recast for instance allows for much more strategic choice of court use).

Thank you Debra Dandeneau for flagging the US Bankruptcy Court, Southern District of New York’s decision in Ocean Rig. The Court essentially argues that to use forum shopping in a restructuring /insolvency case is absolutely acceptable provided it is done in good faith, particularly with a view to maximizing chances of survival and /or maximal recovery by the creditors. Note that the Court, in determining COMI for the various companies in the group, pays specific attention to the ascertainability, by third parties, of COMI.

A judgment to be applauded. And this posting, incidentally, is the 500th on this blog. To 1000 and beyond!

Geert.

(Handbook of) EU private international law, 2nd ed. 2016, Chapter 5, Heading 5.1, Heading 5.4.6.

, , , , , ,

Leave a comment

COMI for groups of companies. The Brussels commercial court in Parfip.

Thank you to both Patrick Wauthelet and Arie van Hoe for forwarding a copy of the judgment of the Brussels commercial court in Parfip. Please pop me an e-mail should you like a copy. The judgment is textbook application of CJEU precedent, including of course Eurofood and Interedil. Fully respecting the presumption of individual COMI in the case of a group of companies, the judgment refers to ia German and French precedent in rebuking the presumption. Not only were the companies effectively run from Brussels, notwithstanding non-Belgian seat for some of them; to third parties it was also clear that this was the case.

The judgment also confirms a narrow interpretation of the exception for ‘credit institutions’.

Geert.

(Handbook of) EU private international law, 2nd ed. 2016, Chapter 5, Heading 5.6.1.2.Heading 5.6.1.2.4.

, , , , , , , , , , , , , , , ,

Leave a comment

Not the Muppet show. FREP, FREP, FREP and Frogmore. Determination of COMI for groups and SPVs. The High Court pushes head office approach.

In [2017] EWHC 25 (Ch) the Frogmore Group,  there are three relevant companies: FREP (Knowle) Limited. FREP (Ellesmere Port) Limited and FREP (Belle Vale) Limited all of which were incorporated in and have their registered office in Jersey. The Companies form part of Frogmore group (of which the ultimate parent is Frogmore Property Company Limited). The Frogmore group specialises in real estate investment and management in the UK and each of the Companies owns a shopping centre located at Ellesmere Port in Cheshire, Belle Vale in Liverpool and Knowle in Bristol respectively. Each of these shopping centres is managed by Frogmore Real Estate Investment Managers Limited (“FREPIM”), a company formed in England and Wales with its registered office and base for operations at London.

The Nationwide seeking enforcement of security, the group sought a declaration that COMI was at Jersey.

Marshall DJ held with reference to the familiar precedents of Eurofood and Interedil, both featuring heavily in my earlier postings on COMI, but also to Northsea Base Investments in which Birss J paid particular attention to the largest shareholders. Of note is that this reference to the largest shareholders does not entail (and indeed is not so constructed in either Northsea Base or Frogmore) that these get the pick of what COMI might entail. Rather, that the dealings with and experience of one place as being the place where the company’s interest are being managed from, is of particular interest for the Interedil emphasis on ascertainability by third parties. Marshall DJ also rekindles the discussion on whether Interedil’s emphasis is on identifying the ‘Head office’ of the companies: a conclusion which one needs to treat with caution for even in Interedil’s tacit support for the head office approach, the emphasis continues to lie with the combination of factors, all leading to transparency and publicity.

The High Court in the end held with reference to the following: (at 39; all wording as  the judgment but with one or two words left out)

(1) Day- to-day conduct of the business and activities of the Companies has been in the hands of an agent appointed in England, namely FREPIM. Under the Advisory Agreement (which was itself governed by English law and had an English exclusive jurisdiction clause) FREPIM was to take on full responsibility for providing a very large range of services to the Companies, including day-to-day management of the Shopping Centres and dealing with their financing, accounting, marketing and formulation of their business strategy. FREPIM  itself acknowledged that it worked on investment strategy and business plans for the Companies; instructed lawyers, surveyors and consultants for them; negotiated the purchase and sale of properties on their behalf; dealt with their borrowing requirements; and attended to the provision of accounting systems and the preparation of management and annual accounts. These actions were not just limited commercial activities but included the types of function that one would expect a head office to discharge.

(2) Day-to-day dealings with third parties are carried out from the offices of FREPIM at London. This is confirmed by the evidence of the activity of FREPIM described above but it is also supported by, for example, the Companies’ VAT returns where their business address is stated to be those offices. In their day-to-day dealings with third parties regarding expenditure these offices are given as the address for invoices.

(3) If one has regard to the point of view of the largest creditor, Nationwide, the Facility Agreement and the Nationwide Debentures are governed by English law and have an English jurisdiction clause. Under the Facility Agreement the Shareholder is the service agent for the Companies. In the case of the Nationwide Debentures, they have express reference to the power to appoint administrators under the 1986 Act. FREPIM took over the day-to-day contact with Nationwide as well as providing Nationwide with various pieces of information (such as quarterly compliance packs and accounts for borrowers) and did so from London. FREPIM also accepted that the management of the relationship between the Companies and Nationwide had been carried out by [the group treasurer] and the Chairman of the Frogmore group, who was also based in London.

(4) I also note that under the terms of the debentures securing the advances made by the Shareholder that the governing law is English, there is an English exclusive jurisdiction clause, that FREPIM is appointed the service agent of the Companies and there is express provision for the appointment of administrators under the 1986 Act.

The case is a good reminder that even intricate SPV structures should not detract from COMI finding on well-established principles. And that COMI determination always depends on a basket of criteria.

Geert.

(Handbook of) EU private international law, 2nd ed. 2016, Chapter 5, Heading 5.6.1.2., Heading 5.6.1.2.4.

, , , , , , , , , , , , , , , , , ,

Leave a comment

Hooley: Modified universalism outside the EU’s Insolvency Regulation.

Update 25 January 2019 Rubin v  Eurofinance was incorporated as precedent by the Australian Federal Courts in King (Trustee), in the matter of Zetta Jet Pte Ltd v Linkage Access Limited [2018] FCA 1979, as explained by David Walter here.

Hooley [Hooley v The Victoria Jute Company Ltd and others [2016] CSOH 14] has been sitting in my in-box for a few months. It concerns the liquidation (particularly: selling of companies’ assets by liquidators under Scots law) of companies incorporated in Scotland but with COMI (centre of main interests) outside the EU. In particular, India.

Given the presence of COMI outside the EU, the Insolvency Regulation does not apply. Indeed the Court of Session (Lord Tyre) does not refer to it at all.Findings would have been very different were the Regulation to apply: place of incorporation has to give way to COMI, where these two do not coincide, in which circumstance the place of incorporation at best may open secondary proceedings.

At issue was among others (and for the first time in a Scots court, I understand) the consideration of ‘modified universalism’: ie what is the practical impact of there being a company incorporated in Scotland, given Scots courts and administrators jurisdiction over the insolvencies, when the companies’ business is mainly carried out abroad and when proceedings are also pending abroad.

Per Rubin v Eurofinance, Universalism” means the “administration of multinational insolvencies by a leading court applying a single bankruptcy law.”  The principle of modified universalism was stated by Lord Sumption in Singularis Holdings Ltd v Pricewaterhouse Coopers [2015] AC 1675 (PC) at para 15 as being that “the court has a common law power to assist foreign winding up proceedings so far as it properly can” (see also Lord Collins at paragraph 33 and Lord Clarke of Stone‑cum‑Ebony at paragraph 112).

Essentially Lord Tyre had to decide whether the Scottish administrators’ powers were only exercisable to the extent that their exercise was recognised as legally valid by the law of the relevant non-UK jurisdiction. He held (at 36) that the proceedings taking place in India were ancillary to the administration proceedings in Scotland. The powers of a validly appointed administrator to a Scottish company were therefore not limited by the Indian winding up.

As often of course this judgment is but one side of the coin. Indian courts are at liberty to disregard the Scots findings. Any purchasers of Hooley assets therefore will have a compromised title. One assumes this has an impact on price.

Geert.

(Handbook of) EU private international law, 2nd ed. 2016, Chapter 5, Heading 5.1, Heading 5.5.

, , , , , , , , , , , , , , , , ,

Leave a comment

Secondary insolvency proceedings in Hanjin Europe. Plenty held, plenty assumed.

The Rotterdam court in Hanjin Europe held on the opening of secondary proceedings in The Netherlands, in application of the European Insolvency Regulation (EIR), with main proceedings and COMI in Germany. On the application of the insolvency Regulation there are few that match prof Wessels’ insights and I am happy to refer to them. Indeed it is Bob who alerted me to the case. Prof Wessels in particular points us to the following considerations:

  • the relationship between Annex A, Annex C and the abstract definition of ‘insolvency’ in the EIR. Useful precedent is Eurofood.
  • the power of a provisionary liquidator to request the opening of secondary proceedings.
  • the exact meaning of ‘establishment’, inter alia following judgment in Interedil.
  • whether applicant has to show an interest in requesting secondary proceedings.

Geert.

(Handbook of) European private international law, 2nd ed. 2016, Chapter 5.

, , , , , , , ,

1 Comment

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).

 

 

 

, , , , , , , , , , , , , , , , , , , , , , , , , , ,

Leave a comment

Nortel. CJEU confirms Nickel & Goeldner, and extends Seagon to secondary proceedings.

Update 16 June 2017. See [2017] EWHC 1429 Nortel for not just cost orders in the UK COMI proceeding but also the strategy in trying to discourage opening of secondary proceedings.

I need to give a bit of a factual background before I can get to the implications of the ECJ’s (or CJEU, I still haven’t decided) finding in C-469/13 Nortel.

Nortel Networks SA is established in Yvelines (France). The Nortel group was a provider of technical solutions for telecommunications networks. Nortel Networks Limited (‘NNL’), established in Mississauga (Canada), held the majority of the Nortel group’s worldwide subsidiaries, including NNSA.  In 2008 insolvency proceedings were initiated simultaneously in Canada, the US and the EU. In January 2009, the High Court opened main insolvency proceedings under English law in respect of all the companies in the Nortel group established in the EU, including NNSA, pursuant to Article 3(1) of the Insolvency Regulation.

Following a joint application lodged by NNSA and the joint administrators, by judgment of May 2009 the court at Versailles opened secondary proceedings in respect of NNSA. In July 2009, industrial action at NNSA was brought to an end by a memorandum of agreement settling the action. It provided for the making of a severance payment, of which one part was payable immediately and another part, known as the ‘deferred severance payment’, was to be paid, once operations had ceased, out of the available funds arising from the sale of assets. That memorandum was approved by the court at Versailles. NNSA’s positive balance was subsequently however caught up in the global settlement for Nortel, including transfers of funds to escrow accounts in the US, to be distributed following global settlement, and new debt following the continuation of Nortel’s activities as well as costs related to the global winding-up of the company. The deferred severance payment therefore could no longer be paid.

The works council of NNSA and former NNSA employees brought an action before the court at Versailles seeking, first, a declaration that the secondary proceedings give them an exclusive and direct right over the share of the overall proceeds from the sale of the Nortel group’s assets that falls to NNSA and, second, an order requiring the liquidator to make immediate disbursement, in particular, of the deferred severance payment, to the extent of the funds available to NNSA. the French liquidator then summoned the joint administrators as third parties before the referring court. However, these then suggested the court at Versailles decline international jurisdiction, in favour of the High Court at London, and in the alternative, to decline jurisdiction to rule on the assets and rights which were not situated in France for the purposes of Article 2(g) of the Insolvency Regulation when the judgment opening the secondary proceedings was delivered. That Article reads

(g) “the Member State in which assets are situated” shall mean, in the case of: – tangible property, the Member State within the territory of which the property is situated, – property and rights ownership of or entitlement to which must be entered in a public register, the Member State under the authority of which the register is kept, – claims, the Member State within the territory of which the third party required to meet them has the centre of his main interests, as determined in Article 3(1);

There are essentially two parts to the referring court’s questions: (i) the allocation of international jurisdiction between the court hearing the main proceedings and the court hearing the secondary proceedings; and (ii) identification of the law applicable to determine the debtor’s assets that fall within the scope of the effects of the secondary proceedings.

On the (i) first question, the Court first reviewed whether the Insolvency Regulation applied at all – an issue seemingly which did not feature in the national proceedings nor in the written procedure before the CJEU, however which came up at the hearing. The issue being that what the Works Council was after was that an agreement to pay a debt be honoured: one that looks just like a fairly standard agreement were it not to arise out of insolvency. Per Nickel and Goeldner the Court reviewed whether the right or the obligation which respects the basis of the action finds its source in the common rules of civil and commercial law or in the derogating rules specific to insolvency proceedings. Here, the basis of the action, as was pointed out by Mengozzi AG, was relevant French insolvency law (for the determination of the order of creditors’ rights) and the Insolvency Regulation (for the determination of the hierarchy between main and secondary insolvency proceedings). The Insolvency Regulation therefore applies. The AG’s review in fact was clearer than the Court’s summary. More generally, the ECJ does seem to go out of its way to re-emphasise the Nickel and Goeldner formula, even if the separation of the Brussels I and the Insolvency Regulation was not particularly controversial in the case at issue.

Next, the Court essentially extended its Seagon/Deko Marty case-law to secondary proceedings. In Seagon, the Court held that Article 3(1) must be interpreted as meaning that it also confers international jurisdiction on the courts of the Member State within the territory of which insolvency proceedings were opened to hear an action which derives directly from the initial insolvency proceedings and which is ‘closely connected’ with them, within the meaning of recital 6 in the preamble to the Regulation. In Nortel the Court holds that Article 3(2) of that regulation must be interpreted analogously. Here, the related action seeks a declaration that specified assets fall within secondary insolvency proceedings. It is designed specifically to protect the local interests which justify the very establishment of jurisdiction for the secondary proceedings.

However, such action quite obviously has a direct effect on the interests administered in the main insolvency proceedings. The jurisdiction for the court of the secondary proceedings therefore cannot be exclusive. It is jurisdiction concurrently with the Member State of COMI. This is an altogether sec appreciation of the Court which, as Bob Wessels notes, in reality will create serious co-ordination headaches (one for which I do not think even the provisions for co-ordination in the new insolvency Regulation provide sufficient answer).

Finally, in reply to question (ii), the ECJ is fairly brief: Article 2(g) ought to suffice to give the referring court the guidance it seeks. Granted, the ECJ says, it will not be easy. But it ought to suffice. The one extra guidance the CJEU gives is that that provision is also applicable if the property, right or claim in question must be regarded as situated in a third State (such as here: in the escrow accounts).

All in all, quite an important judgment, indeed. Unlike Nortel’s sad demise, this judgment has quite a life ahead of it.

Geert.

 

, , , , , , , , , , , , , , , , , , , ,

Leave a comment

%d bloggers like this: