Posts Tagged Insolventieverordening
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.
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).
Schmid v Hertel: ECJ confirms ‘extraterritorial’ reach of insolvency Regulation’s Seagon extension – Actio Pauliana
(Postscript April 2015: The ECJ confirmed these principles in C-295/13, H v HK).
Less is more, I know – Apologies for the long title and thank you to Matthias Storme for highlighting the case. In Case C-328/12 Ralph Schmid v Lilly Hertel, Schmid was the German liquidator of the debtor’s assets, appointed in the insolvency proceedings opened in her regard in Germany on 4 May 2007. The defendant, Ms Hertel, resides in Switzerland. Mr Schmid brought an action against Ms Hertel before the German courts to have a transaction set aside, seeking to recover EUR 8 015.08 plus interest as part of the debtor’s estate.
In Case C-339/07 Seagon the ECJ had ruled that the courts of the Member State within the territory of which insolvency proceedings have been opened have jurisdiction to decide an action to set a transaction aside (actio pauliana) that is brought against a person whose registered office is in another Member State. However does Seagon also apply where insolvency proceedings have been opened in a Member State, but the place of residence or registered office of the person against whom the action to have a transaction set aside is brought is not in a Member State, but in a third country?
The ECJ held that it does. Bob Wessels has a very good analysis here and I am happy to refer. Let me just add one or two things. The Brussels I Regulation, the overall Regulation on jurisdiction on civil and commercial matters, displays bias in favour of the defendant: actor sequitur forum rei. The overall jurisdictional angle of the Insolvency Regulation is different: avoiding forum shopping to the detriment of creditors is its main aim, and its insistence on verifiable and predictable criteria to determine COMI (which in turns determines jurisdiction) needs to be seen in that light. That non-EU domiciled defendants get caught up in EU proceedings on the basis of COMI is not generally seen as problematic within the context of the Regulation.
The ECJ is rather realistic with respect to the potential recognition and enforcement problems associated with judgments under the Regulation held against non-domicileds. In the absence of assets in the EU held by the non-dom (if there were, enforcement would be straightforward), classic bilateral treaties may come to the rescue and if there is no such treaty, so be it: the Regulation’s jurisdictional rules should not be held up by potential problems end of pipe.
An important judgment for the reach of the Insolvency Regulation.
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.