Posts Tagged Insolvency
CJEU in Novo Banco: confirms mere presence of a natural person’s core immovable asset (the ‘family home’) does not in itself determine COMI (in insolvency).
When I reviewed Szpunar AG’s opinion, I pointed out that the crux of this case is the determination of ‘centre of main interests’ in the context of natural persons not exercising an independent business or professional activity, who benefit from free movement. The CJEU has now held.
With respect to natural persons outside of a profession, the Insolvency Regulation 2015/848 (‘EIR 2015’) determines ‘(i)n the case of any other individual, the centre of main interests shall be presumed to be the place of the individual’s habitual residence in the absence of proof to the contrary. This presumption shall only apply if the habitual residence has not been moved to another Member State within the 6-month period prior to the request for the opening of insolvency proceedings.’
‘Habitual residence’ is not defined by the EIR 2015. The CJEU runs along the usual themes: need for predictability and autonomous interpretation; emphasis on the Regulation generally defining COMI as ‘the place where the debtor conducts the administration of his interests on a regular basis and is therefore ascertainable by third parties’ (at 19 and referring to recital 13 of the previous Regulation); among those third parties, the important position of (potential) creditors and whether they may ascertain said centre (at 21); to agree with the AG at 24 that
relevant criteria for determining the centre of the main interests of individuals not exercising an independent business or professional activity are those connected with their financial and economic situation which corresponds to the place where they conduct the administration of their economic interests or the majority of their revenue is earned and spent, or the place where the greater part of their assets is located.
Like the AG, the CJEU holds that the mere presence of a natural person’s one immovable asset (the ‘family home’, GAVC) in another Member State than that of habitual residence, in and of itself does not suffice to rebut COMI (at 28).
At 30, the Court specifically flags that COMI in effect represents the place of the ’cause’ of the insolvency, i.e. the place from where one’s assets are managed in a way which led the insolvent into the financial pickle:
In that regard, although the cause of the insolvency is not, as such, a relevant factor for determining the centre of the main interests of an individual not exercising an independent business or professional activity, it nevertheless falls to the referring court to take into consideration all objective factors, ascertainable by third parties, which are connected with that person’s financial and economic situation. In a case such as the one in the main proceedings, as was observed in paragraph 24 above, that insolvency situation is located in the place where the applicants in the main proceedings conduct the administration of their economic interests on a regular basis or the majority of their revenue is earned and spent, or the place where the greater part of their assets is located.
As in all other scenarios of rebuttal, the ascertainability in particular by (potential) creditors is key and is a factual consideration which the national courts have to make.
(Handbook of) EU private international law, 2nd ed. 2016, Chapter 5, Heading 5.6.1.
Bundeszentralamt Fur Steuern v Heis. On comity, staying proceedings, and the ‘public /private’ divide in international litigation.
Bundeszentralamt Fur Steuern (Being the Federal Central Tax Office of the Federal Republic of Germany) & Ors v Heis & Ors  EWHC 705 (Ch) was held in March 2019 bit only came unto BAILII recently and had not caught my attention before.
The primary question raised is whether appeals by the applicants, the German Federal Tax Office (“the GTA”) and by Deutsche Bank AG (“DB”) against the rejection by the Joint Special Administrators (“the Administrators”) of MF Global UK Limited (“MFGUK”) of their respective proofs of debt, to allow the underlying claim which forms the subject of the proof to be resolved by the specialist German tax or fiscal courts, which both the applicants (for different reasons) contend are the natural forum for the determination of the claims and the forum in which they can be resolved most efficiently.
The underlying issue concerns German withholding tax.
The GTA has at all times maintained that its claim should be determined in Germany by the German tax courts, per the UK-Germany double taxation Treaty, based on the OECD model convention (for those in the know: it is Article 28(6) which the GTA has suggested exclusively reserves its GTA Claim to the German Courts). However it felt compelled to submit a proof in MFGUK’s UK administration proceedings in order to preserve its rights.
Under German law, it is within the GTA’s power to give a decision on MFGUK’s objection to relvant Amended Tax Assessment Notices. If and when it did so, it would then be for MFGUK, if it wished to pursue the matter further, to file an appeal against that decision by the GTA with the Fiscal Court of Cologne. The Fiscal Court of Cologne is one of the 18 fiscal courts in Germany which are the courts of first instance for tax matters. That seems a natural course to take however here the GTA is caught in a conundrum: at 18: the GTA has not yet formally rejected MFGUK’s objection. This is because such objection would establish proceedings in Germany, and there is a procedural rule of German law that, in order to prevent parallel proceedings, a German court will automatically defer to the court first seized of a matter. Accordingly, it seems likely that if the GTA were to reject MFGUK’s objection before the Stay Application has been decided by the UK Court, on any appeal by MFGUK, the Fiscal Court of Cologne might as a matter of comity defer to this Court in order to avoid parallel proceedings.
At 57: Brussels Ia is not engaged for the case concerns both the insolvency and the tax exclusion of Articles 1.1 and 1.2.b. At 56 Hildyard J considers the issues under English rules on the power to stay, with a focus on the risk of irreconcilable judgments.
At 84 Hildyard J holds that the GTA read too much into A28(6) and that there is no exclusive jurisdiction, leaving the consideration of whether a stay might be attractive nevertheless (at 89 ff the issue is discussed whether German courts could at all entertain the claim). This leads to an assessment pretty much like a stay under Brussels Ia as ‘related’ (rather than: the same, to which lis alibi pendens applies) cases. Note at 87(6) the emphasis which the GTA places on the actual possibility of consolidating the cases – similar to the arguments used in BIa A33-34 cases such as Privatbank and later cases).
At 115 the impact of this case having public law impacts becomes clear: ‘It seems to me that, despite my hunch that there will also be considerable factual enquiry, and a factual determination of the particular circumstances may determine the result …, the legal issues at stake are not only plainly matters of German law, but controversial and complex issues of statutory construction of systemic importance and substantial public interest in terms of the legitimate interests of the public in the protection of its taxation system from what are alleged to be colourable schemes.’
And at 116, referring ia to VTB Capital v Nutritek, ‘the risk of inconsistent decisions in concurrent proceedings in different jurisdictions, is the more acute when in one of the jurisdictions the issue is a systemic one, or may be decided in a manner which has systemic consequences. Especially in such a context, there is a preference for a case to be heard by the courts of the country whose law applies.’ Reference to VTB is made in particular with resepect to the point that Gleichlauf (the application by a court of its own laws) is to be promoted in particular (at  in VTB per Lord Mance: “it is generally preferable, other things being equal, that a case should be tried in a country whose law applies. However, this factor is of particular force if issues of law are likely to be important and if there is evidence of relevant differences in the legal principles or rules applicable to such issues in the two countries in contention as the appropriate forum.’
At 117: ‘even if the factual centre of gravity may be London, the jurisdiction likely to be most affected by the result is Germany: and even if the US approach of ‘interest analysis’ is not determinative in this jurisdiction it does not seem to me to be an impermissible consideration.’
Held, at 121, there is here ‘a sufficiently “rare and compelling” reason for granting the stay sought by the GTA, provided that the German Fiscal Court are an available forum in which to determine the substance of the disputes.’ At 122 Hildyard J seeks assurances ‘insofar as the parties’ best endeavours can secure it, resolution of both the GTA Claim and the Later MFGUK Refund Claim as expeditiously as possible. That seems to me necessary in order to safeguard this jurisdictions’ insolvency processes and for the protection of the interests of the body of creditors as a whole.’
Then follows at 131 ff extensive analysis of the impact of this stay decision on the related case of Deutsche Bank, with at 190 a summary of the issues to be decided. Held at 218: ‘By careful selection of potentially dispositive issues, I consider that there is some prospect of that process enabling a determination without recourse to the intricacies of German tax law which are to be decided in the context of the GTA Claim; whereas an immediate stay guarantees a long delay before this court can determine the matter, based on presently hypothetical claims, after a long wait for non-binding guidance from the German court which may result from other cases to which DB is not a party.’ However at 219 the prospect of a stay after all is held out, should a quick resolution of those issues not be possible.
The Colouroz Investment et all Scheme of arrangement. Change to asymmetric choice of court issue left to sanction hearing.
In Colouroz Investment et al  EWHC 1864 (Ch.), Snowden J at 59 ff considers the classic issues (see ia Lecta Paper) on the jurisdictional consideration: no cover under the Insolvency Regulation; cover under Brussels Ia (future Brexit alert: ditto under Lugano) left hanging and assumed arguendo. At 62 Snowden J summarises the position excellently:
‘(T)he court has usually adopted the practice of assuming that Chapter II of the Recast Judgments Regulation applies to schemes of arrangement on the basis that the scheme proposal is to be regarded as a “dispute” concerning the variation of the existing relationship between the company and its creditors under which the company “sues” the scheme creditors as “defendants” seeking an order binding them to the scheme. If, on the basis of that underlying assumption, the court has jurisdiction over the scheme creditors pursuant to Chapter II of the Recast Judgment Regulation, then there is no need for the Court to determine whether that assumption is correct.
At 64: ‘Credit Agreements and the ICA (Intercreditor Agreement, GAVC) were originally governed by New York law and were subject to the exclusive jurisdiction of the New York Court. However, as a result of the amendments made on 2 June 2020 with the consent of the requisite majority of the lenders under the contractual amendment regime, the governing law and jurisdiction provisions have now been changed to English governing law and English exclusive jurisdiction.’ At 65: expert evidence on NY law suggests amendments made on 2 June 2020 are valid and binding as a matter of New York law.
This to my mind continues to be a fuzzy proposition under the Rome I Regulation: change of lex contractus by majority must beg the question on the relevant provisions under Rome I. As far as I am are, this hitherto has not been driven home by anyone at a sanction hearing however it is bound to turn up at some point.
At 66 Snowden J, who gives consent for the sanction hearing, announces that one issue that will have to be discussed there is that if the Schemes are sanctioned, the intention is to have the jurisdiction clauses then changed to asymmetric jurisdiction clauses, detailed in 21-23: lenders will be entitled to bring proceedings against the obligors in any jurisdiction although any proceedings brought by the obligors must be brought in England. At 66 in fine: ‘that question is not for decision at this convening hearing, but should be considered at the sanction hearing.’
That’s a discussion I shall look forward to with interest.
(Handbook of) EU Private International Law, 2nd edition 2016, Chapter 2, Chapter 5.
Swissport Fuelling Ltd, Re  EWHC 1499 (Ch) at 59 ff repeats the classic (see Lecta Paper for the status quo), unresolved issue of jurisdiction for schemes of arrangement under under BIa (hence also: Lugano 2007). The case is worth reporting for slightly unusually, the scheme company, UK incorporated, acts as guarantor rather than borrower. Borrowers are mainly incorporated in Luxembourg and Switserland. Under the Credit Agreement, the Borrowers do not have a right of contribution or indemnity against the guarantors, so a claim against them would not ricochet against the UK incorporated Company.
Recognition under New York law is discussed – not yet the issue of recognition under Luxembourgish and Swiss law. That, one imagines, will follow at the sanctioning hearing, which will ordinarly follow the meeting of the scheme creditors which Miles J orders in current judgment.
(Handbook of) EU Private International Law, 2nd edition 2016, Chapter 2, Chapter 5.
Akkurate: Whether English discovery may act extraterritorially under the EU Insolvency Regulation, and a clear difference following Brexit.
Graham Woloff eaor Calzaturificio Zengarini eaor re Akkurate Ltd,  EWHC 1433 (Ch) concerns the question whether the court has the power under section 236(3) of the Insolvency Act 1986 to require persons resident in the EU to produce books and papers and an account of their dealings with a company being compulsorily wound up in England and Wales (it is not disputed that Akkurate’s centre of main interests (“COMI”) was in England and Wales under the European Insolvency Regulation EIR).
EIR 2000 applies to this case, because the winding up of Akkurate was before 26 June 2017, however the issue is not materially different in the new Regulation. There are inconsistent first instance decisions which Vos C reviews ia at 27 ff and at 54 after consideration, he considers s236(3) does not have extraterritorial effect on the basis of what he considers to be the binding authority of Re Tucker (a bankrupt)  Ch. 148. however that following the EIR 2000 (unchanged in EIR 2015) the European regime can and does extend the territoriality of purely domestic insolvency provisions. CJEU authority cited is in particular C-339/07 Seagon v Deko Marty Belgium (at 58 ff) – which I find may be a bit optimistic. Vos C also decides that he can and should apply his discretion to grant orders as formulated at 68.
Clearly, post Brexit, the situation will revert to Tucker. Which would make the English courts less attractive than their continental counterparts – although of course one would have to wait for CJEU authority to confirm the issue less equivocally.
(Handbook of) EU private international law, 2nd ed. 2016, Chapter 5,
Szpunar AG in Novo Banco: COMI (in insolvency) for natural persons, not self-employed, with assets in former Member State of habitual residence.
I sincerely continue to be humbled when cited by Advocates-General at the CJEU. Even more so therefore when it happens twice (see also Movic) in one week. In his Opinion in C-253/19 Szpunar AG refers to the Handbook’s analysis of C-341/04 Eurofood. The reference to that judgment is part of his assessment of ‘centre of main interests’ in the context of natural persons not exercising an independent business or professional activity, who benefit from free movement. The CJEU has not ruled on the issue before.
The AG points out that the European Insolvency Regulation (EIR) 1346/2000 (‘EIR 2000’), unlike its successor, Regulation 2015/848 (‘EIR 2015’), did not have time limitations under which the presumptions of COMI apply (see here for my paper on the main changes introduced by EIR 2015). However the EIR 2000 did have such presumption without the time limits, for companies and legal persons, and it generally, like the current EIR, requires courts to check whether COMI for natural persons or otherwise is located on their territory. This requires the court to check against the criteria for rebuttal of any presumptions of COMI. That test runs along the criteria that have repeatedly featured on the blog (cue search string ‘COMI’): COMI designates the place where the debtor conducts the administration of its interests on a regular basis and is therefore ascertainable by third parties.
‘Habitual residence’ is not defined by the EIR 2015 and I concur with the AG that references to its application in family European PIL are of limited value. At 45: priority should be given not to factors relating to a debtor’s social or family situation but to those relating to a debtor’s financial position. In the case of natural persons not engaged in a self-employed activity, the line separating their financial situation and their family situation is blurred (at 46). The Virgos Schmitt report already discussed the application of of the insolvency regime to natural persons and advised that COMI as applied to natural persons ought to focus on the economic interests.
At 49 the AG suggests that ‘habitual residence’ no longer reflects a natural person’s COMI if does not fulfil its role as the place where a debtor’s economic decisions are taken, as the place where the majority of its revenue is earned and spent, or as the place where the major part of its assets is located. That entails quite a broad scope for rebuttal of course. The AG refines this in the remainder of the Opinion. He refers to national case-law on the issue, and to the importance of free movement rights. He also suggests an important limitation: namely that in his view, the mere presence of a natural person’s one immovable asset (the ‘family home’, GAVC) in another Member State than that of habitual residence, in and of itself does not suffice to rebut COMI.
As in all other scenarios of rebuttal, the ascertainability in particular by (potential) creditors is key. That is a factual consideration which the national courts are in prime position to make.
(Handbook of) EU private international law, 2nd ed. 2016, Chapter 5, Heading 5.6.1.
In Representation of Lydian international Limited  JRC 049 MacRae DB refers to universality in insolvency proceedings only once, namely where he refers to authority at 20. Yet his approach in honouring the request for assistance, made by the courts at Ontario ‘on the basis of comity’, walks and talks like universality. This is of course reminiscent of Menon CJ’s recent speech on the issue, or similar decisions elsewhere.
‘Though there is no precedent in Jersey for a Canadian CCAA order or similar order being enforced or recognised in relation to a Jersey company, we had no doubt that we should assist the Canadian Court in this case. There were no reasons of Jersey public policy impeding the court making the orders sought. To the contrary, it is consistent with Jersey’s status as a responsible jurisdiction for the Royal Court to lend assistance in order to facilitate an international insolvency process in a friendly country that has a potential to benefit the creditors of the Lydian Group as a whole.’ The Deputy Bailiff also notes that key Jersey creditors and the Jersey corporation of the Lydian group itself were represented in the Canadian proceedings.
(Handbook of) EU Private International Law, 2nd edition 2016, Chapter 5.
Lecta paper. Scheme of arrangements in the Brexit transition period, and the Brussels IA elephants in the room continue to be undisturbed.
Update 24 June 2020 see also Swissport Fuelling Ltd, Re  EWHC 1499 (Ch) at 59 ff for the further unresolved issue of jurisdiction under BIa.
In Lecta Paper  EWHC 382 (Ch), Trower J picks up where Zacarolii J left off in  EWHC 3615 (Ch) (which I briefly flagged in my post here and which is referred to in current judgment 12) and goes through the usual matrix for assessing the international impact of an English scheme of arrangement on the European continent.
Ultimate parent company is a Luxembourg company, with further controlling interests held by yet another Luxembourg and a Spanish company. A 10-11 Trower J flags a sensitive issue for credit and other financial arrangements: financial instruments subject to New York law, where amended to English law as governing law and the courts at England as non-exclusive jurisdiction. This was done in accordance with New York law, and approved by over 90% of the instruments’ holders. Yet again therefore a crucial question viz schemes of arrangement and the Brussels jurisdictional and applicable law regimes remains unaddressed, namely the event of opposition of a sizeable stake of creditors.
At 33 ff the issue of jurisdiction is discussed along the lines of Apcoa, Codere and NN2 Newco. Under residual private international law, the sufficient connection to England, engineered by the aforementioned change of governing law and jurisdiction in line with the law governing the instruments at the time (New York law, at 38), was held not to be unfair viz the creditors even in the case of the mother company with COMI in Luxembourg. At 44 ff Trower J returns to the issue of whether Brussels Ia can apply at all to the case, particularly via Article 4 juncto Article 8(1), holding for application of Article 25 in the end. However as in the authority he applies, there continue to be a lot of assumptions in this analysis which, failing substantial opposition by creditors, still have not been settled by either UK, CJEU or continental authority.
At 40 follows the equally standard reference to national experts testifying to the scheme’s recognition in the jurisdictions concerned: France, Italy, Spain, Luxembourg.
At 41 Trower J then briefly mentions Brexit (see my reference to similar cases here). Referring again to the national experts but also to his own insight, Justice Trower simply notes that
‘The Recast Judgments Regulation will continue to apply to the recognition of an English judgment in EU member states, notwithstanding the occurrence of Brexit, provided that the judgment has been given in proceedings which were instituted before 31 December 2020, being the end of the transition period. This follows from Article 67(2) of the Withdrawal Agreement. It follows that any sanction order made in this case should be recognised in EU member states, pursuant to the Recast Judgments Regulation, as will their own domestic law dealing with the recognition of judgments. It is also the case that the application of the Rome I Regulation ought to be unaffected by Brexit in any event. As I read the expert reports, they each confirm that that Regulation will continue to apply after the end of the transition period so that the law of the jurisdiction in respect of which they give evidence will recognise the governing law of the relevant contracts, in this case English law, as applying to the variation and discharge of rights under that contract.’
Note as I did above, the continuing Brussels IA cover assumptions, as well as the position post Brexit (whether under Lugano 2007 or not, remains to be seen).
(Handbook of) EU Private International Law, 2nd edition 2016, Chapter 2, Chapter 5.
In Islandsbanki & Ors v Stanford  EWCA Civ 480, upon appeal from Fancourt J in  EWHC 1818 (Ch), Asplin LJ discussed whether purported execution of a foreign judgment registered in the High Court pursuant to the Lugano Convention, can be execution issued in respect of the judgment debt (for the purposes of section 268(1)(b) of the Insolvency Act 1986), if the execution occurred before the period for appealing the registration of the judgment has expired and, if not, whether the defect can be cured.
An unpaid Icelandic judgment debt from 2013 which together with interest, is now in excess of £1.5 million sterling equivalent. The judgment was given against Mr Stanford in the Reykjanes District Court in Iceland on 26 June 2013. A certificate was issued by the Icelandic court on 16 October 2013, pursuant to Articles 54 – 58 Lugano. IB applied to register the Icelandic judgment in England and Wales on 16 March 2016. A registration order was sealed on 23 March 2016 (the “Registration Order”).
Some of the issues in the Appeal (and before Fancourt J) concern purely English procedural rules however their effect is of course to facilitate, or obstruct, recognition and enforcement under the Lugano Convention. The confusion to a great degree results from the UK, despite Lugano’s direct effect, having implemented the Convention in the CPR rules anyway (at 24). The submission made by appellant (the Bank) before the Court is essentially that a narrow interpretation of the English CPR rules which would not allow remedying an error in the procedure, would run counter Lugano’s objective of facilitating recognition and enforcement (reference is made to the Pocar report and the recitals of Lugano itself).
Asplin LJ at 38 points to the language of Lugano itself: ‘during the time specified for an appeal pursuant to Article 43(5) against the declaration of enforceability and until any such appeal has been determined, no (emphasis in the original) measures of enforcement may be taken other than protective measures against the property of the party against whom enforcement is sought. The ordinary and natural meaning of those provisions is quite clear.’ She also at 37 points to the Convention’s objectives not being restricted to ease of enforcement: ‘the underlying policy of Articles 43(5) and 47(3) is that a fair and proportionate balance must be struck between the interests of the party which applies for a registration order having obtained a judgment in a foreign jurisdiction to which the Convention applies, and the defendant/debtor whose rights of appeal are prescribed by law and should not be undermined by allowing irreversible measures of enforcement.’
Conclusion, at 40: ‘It is for that reason that CPR 74.6(3) provides that a registration order must contain reference to the period in which an appeal against registration can be lodged and that no measures of enforcement can be taken before the end of that period and the reason why that prohibition was repeated in the Registration Order itself at paragraph 2. Accordingly, any attempt to remedy the premature issue and execution under the Writ of Control by means of an exercise of the discretion under CPR r3.10(b) or the use of CPR r3.1(2)(m) or 3.1(7) (or the inherent jurisdiction of the court, for that matter) would fundamentally undermine Article 47(3) and section 4A(3) in a way which is impermissible.’
at 62 ‘The defect in the execution in this case, if it can be called a defect, was fundamental….It was not a mere technicality or a formal defect which might be rectified pursuant to what is now Rule 12.64 of the Insolvency Rules 2016. It went to the heart of the execution process’.
Appeal dismissed following an interesting and clear application of both Lugano’s provisions and its spirit.
Forum shopping and personal insolvency. The High Court (briefly) in Wilson and Maloney (in re McNamara). Is this the last UK reference to the CJEU?
 EWHC 98 (Ch) Wilson and Maloney (bankruptcy trustees of Michael McNamara), concerns mostly Article 49 TFEU (freedom of establishment) and Article 24(1) of the Citizens’ Rights Directive 2004/38 (equal treatment). (At 114) the critical question is whether the exclusion of pension rights on bankruptcy is something that can impact on the right of establishment, or is otherwise within the scope of Art 49 TFEU.
The substantive case at issue concerns the inclusion or not of in investment in a certain pension scheme, into the bankruptcy. My interest in the judgment lies in the succinct reference to forum shopping under insolvency regimes.
Mr McNamara was made bankrupt on 2 November 2012 on his own petition, presented that day. Prior to his bankruptcy Mr McNamara had been a high profile property developer operating primarily, if not exclusively, in the Republic of Ireland. But he and his wife had moved to London in July 2011, and the Court accepted that he had moved his centre of main interests (or COMI) from Ireland to England by the date of presentation of the petition.
Nugee J decided to refer to the CJEU for preliminary review (this having happened on 23 January, clearly one of the last if not the last UK reference to go up to the CJEU). Whether COMI was moved for forum shopping purposes is not likely to feature in the eventual judgment – for there does not seem to be any suggestion that the move of COMI to England had not been properly established.