Posts Tagged Regulation 1346/2000
Thank you Ben Zielinski for flagging Bank Leumi (UK) Plc v Screw Conveyor Ltd  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).
(Handbook of) EU private international law, 2nd ed. 2016, Chapter 5, Heading 5.6.1.
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’.
(Handbook of) EU private international law, 2nd ed. 2016, Chapter 5, Heading 18.104.22.168.Heading 22.214.171.124.4.
Not the Muppet show. FREP, FREP, FREP and Frogmore. Determination of COMI for groups and SPVs. The High Court pushes head office approach.
In  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.
(Handbook of) EU private international law, 2nd ed. 2016, Chapter 5, Heading 126.96.36.199., Heading 188.8.131.52.4.
Vinyls Italia: Szpunar AG on the chemistry between the Insolvency Regulation and Rome I. And again, on the pauliana.
In C-54/16 Vinyls Italia (in full: Vinyls Italia SpA, in liquidation v Mediterranea di Navigazione SpA) Szpunar AG opined last week (the Opinion is not available in English). At the core of the case is the application of Article 13 of the Insolvency Regulation 2000 (Article 16 in the 2015 version; see my general review here), however the case opens an interesting discussion on the meaning of ‘international’ in ‘private international law’.
For the general context of Article 13 (16 new) I should like to refer to my review of Lutz and Nike. At issue in the case at hand are payments made by Vinyls to Mediterranea for the transport of chemicals of the former by the latter. Both are Italian registered companies. Shipment was presumably carried out in Italy (an extra-Italian element in the actual transport does not feature in the factual analysis re ‘international’, which I refer to below). However the contract made choice of law in favour of English law. Mediterranea makes recourse to Article 13 juncto English law as the lex contractus to ward off an attempt by Vinyls to have the payments return to its books.
First up is the question whether courts should apply Article 13 ex officio: for Mediterranea’s claim was made after the procedural deadline foreseen by Italian law. Szpunar AG in my view justifiably suggest it does not: he refers to the Virgos Schmit report [„Article 13 represents a defence against the application of the law of the State of the opening, which must be pursued by the interested party, who must claim it” – § 136 of that report, para 43 of the AG’s Opinion) and to the CJEU’s finding in C-310/14 Nike at 26. The AG does point to the particulars of the case: Mediterranea seemingly had provided proof supporting its view that the substantial conditions of Article 13 had been met (in particular an expert opinion by an English lawyer) but had not expressis verbis requested its application. Szpunar refers the final say to the Italian court, which needs to judge on the basis of Italian civil procedure however does suggest that it seems fairly inconceivable to have provided proof for the fulfillment of a legal proviso, without meaning to request its application.
The question on the applicability of Rome I at all (which is required if Mediterranea want to make recourse to the provisions of English law as lex contractus per Rome I or the Rome convention) may not make it to the CJEU. As Szpunar AG notes, the underlying contract dates prior to 17 December 2009, which is the cut-off date of the Rome I Regulation. The referring court being a court of first instance, it is not in a position to request preliminary review of Rome I’s predecessor, the 1980 Rome Convention. The AG completes the analysis anyway (the Court itself will not, should it find Rome I not to be applicable) and takes in my view the right, expansionist approach (one which I also defend in my handbook): especially given the presence of Article 3(3)’s proviso for ‘purely domestic’ contracts, it is clear that it suffices for Rome I to be applicable that parties make choice of court in favour of a foreign law. Further in the opinion (137 ff) he also suggests that such application is not tantamount to fraude a la loi (fraus legis) and again I agree: the relevance of fraus has been seriously diminished by the provisions on party autonomy in both Rome I and the Rome Convention.
The use of choice of law per Rome I (or the Convention) in turn serves as a jack to trigger the application of the insolvency Regulation. That too is correct in my view, and with undramatic consequences. Choice of law for the underlying contract only identifies its lex causae (where relevant, with an impact on Article 13 of the Insolvency Regulation). It does does not of course in and of itself determine the lex concursus: the latter is determined by the Insolvency Regulation once /if insolvency occurs. Parties have no means to manipulate this at the time of the formation of the contract.
Exciting, conceptual stuff. Most probably the Court itself will not be in a position to assess it all.
(Handbook of) EU Private International Law, 2nd ed. 2016, Chapter 3, Heading 3.2.1; Heading 184.108.40.206; chapter 5; Heading 5.7.1.
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.
(Handbook of) European private international law, 2nd ed. 2016, Chapter 5.
Szpunar AG in Mulhaupt /SCI Senior Home: national law determines what rights in rem are under the Insolvency Regulation. However EU law does constrain national room for manouvre.
In C-195/15 Mulhaupt /SCI Senior Home, the question referred reads
Does the term ‘right in rem’ in Article 5(1) of (…) Regulation (…) 1346/2000 (…) on insolvency proceedings include a national rule such as that contained in Paragraph 12 of the Grundsteuergesetz (Law on real property tax, ‘GrStG’) in conjunction with the first sentence of Paragraph 77(2) of the Abgabenordnung (Tax Code, ‘AO’), pursuant to which real property tax debts are by operation of law a public charge on real property and the property owner must accept enforcement against the property in that respect?
Applicant is the trustee in bankruptcy of Société civile immobilière Senior Home, a French registered company. Gemeinde Wedemark is forcing the sale of real estate belonging to Senior home, linked to arrays in real estate tax. It is suggested by the referring court that the qualification under German law, of real property tax (also known as ‘stamp duties’ or ‘estate taxes’), owed to public authorities, as rights in rem, mean that the forced sale of the site at issue, as a result of Article 5(1) of Regulation 1346/2000, is covered by German law and is therefore not subject to French law, which in the case at issue is the lex concursus of the insolvency proceedings that have been opened. Regulation 1346/2000 in the meantime has been replaced by Regulation 2015/848 however the provisions at issue have not materially changed.
Szpunar AG Opined end May (other than a Tweet I have kept schtum about the Opinion so far, for exam reasons).The Opinion is as yet not available in English.
In terms of applicable law, Article 4 of the Regulation is the general rule: unless otherwise stated by the Regulation, the law of the State of the opening of proceedings is applicable.
The general rule of Article 4 inevitably had to be softened for quite a number of instances. As noted in the introduction, insolvency proceedings involve a wide array of interests. The expediency, efficiency and effectiveness craved inter alia by recital 2 (old; now 3) of the Regulation, has led in particular to the automatic extension of all the effects of the application of the lex concursus by the courts in the State of opening of the proceedings. That could not be done without there being exceptions to the general rule:
In certain cases, the Regulation excludes some rights over assets located abroad from the effects of the insolvency proceedings (as in Articles 5, 6 and 7). In other cases, it ensures that certain effects of the insolvency proceedings are governed not by the law of the State of the opening, but by the law of another State, defined in the abstract by Articles 8, 9, 10, 11, 14 and 15. In such cases, the effects to be given to the proceedings opened in other States are the same effects attributed to a domestic proceedings of equivalent nature (liquidation, composition, or reorganization proceedings) by the law of the State concerned. Of particular note are precisely Article 5 on third parties’ rights in rem, but also Article 10 on employment contracts, and Article 13 on ‘detrimental acts’.
The precise demarcation of rights in rem hovers between the classic interpretative rule of EU private international law, namely the principle of autonomous interpretation, and the lack of a European Ius Commune on what rights in rem are. The Advocate General completes his already extensive analysis in Lutz, with a combined reference to the recitals of the Regulation, and the Virgós/Schmit Report.
In particular, Article 5(2) does serve as something of a straightjacket, leading to the conclusion that rights in rem require restrictive interpretation: once the first hurdle of qualification using national law (of the rei sitae) is passed, the right also needs to meet with the fundamentals of what the Virgos-Schmit report defines as rights in rem (at 41-45 of the Opinion): these are (at 103 of the Report): a right in rem basically has two characteristics
(a) its direct and immediate relationship with the asset it covers, which remains linked to its satisfaction, without depending on the asset belonging to a person’s estate or on the relationship between the holder of the right in rem and another person;
(b) the absolute nature of the allocation of the right to the holder. This means that the person who holds a right in rem can enforce it against anyone who breaches or harms his right without his assent (e.g. such rights are typically protected by actions to recover); that the right can resist the alienation of the asset to a third party (it can be claimed erga omnes, with the restrictions characteristic of the protection of the bona fide purchaser); and that the right can thus resist individual enforcement by third parties and in collective insolvency proceedings (by its separation or individual satisfaction).
The Virgos-Schmit report in this respect cross-refers to the 1968 Brussels Convention however it is noteworthy that the CJEU, in defining rights in rem under the now Brussels I recast Regulation, does not in turn refer to the Virgos-Schmit report.
In conclusion therefore the AG suggests that the right at issue is indeed a right in rem under Article 5. Finally, that it benefits a public authority (the inland revenue) rather than a private individual or legal person, does not impact upon that qualification: Szpunar AG correctly highlights that the public character of the creditor is not a determining criteria in either the recitals of the Regulation or the Virgos-Schmit report.
A prima facie straightforward question met by complete analysis of the AG which in passing solves more issues than those raised by the referring court: this Opinion may well become an important part of authoritative sources in applying the Insolvency Regulation..
(Handbook of) EU private international law, 2nd ed. 2016, Chapter 5, Heading 5.7.1 ).
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.
(Handbook of) EU Private International Law, Chapter 5, Heading 5.4.2).