Posts Tagged Verordening 1346/2000

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).




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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.


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Burgo Group: Some not altogether shocking revelations on the Insolvency Regulation. Useful revelations nevertheless.

There’s case-law of the Essent, Kylie Minogue (eDate Advertising), Seal Pups, or Kiobel type. And then there is case-law of the, well, Burgo type. In Burgo Group v Illochrama SA, Case C-327/13, the ECJ held on 4 September. The judgment does not reveal anything shocking. (Some might argue at least some of the questions could have been acte claire). However the Court’s findings nevertheless put to bed some concerns which insolvency practitioners might have had.

On 21 April 2008, the Commercial Court, Roubaix-Tourcoing (France) placed all the companies in the Illochroma group — including Illochroma, established in Brussels (Belgium) — into receivership and appointed Maître Theetten as agent. On 25 November 2008, it placed Illochroma in liquidation and appointed Maître Theetten as liquidator.

Burgo Group, established in Altavilla-Vicentina-Vicenza (Italy), is owed money by Illochroma for the supply of goods. On 4 November 2008, Burgo Group presented Maître Theetten with a statement of liability in the amount of EUR 359 778.48. Maître Theetten informed Burgo Group that the statement of liability could not be taken into account because it was out of time.

Burgo Group then requested the opening of secondary proceedings in respect of Illochroma. The referring court (The Brussels Court of Appeal) observed that the Insolvency Regulation defines ‘establishment’ as any place where the debtor carries out a non-transitory economic activity with human means and goods, which is the situation in the present case. Illochroma is a company with two establishments in Belgium, where it is the owner of a building, buys and sells goods and employs staff. Illochrama and the liquidator contend that, since Illochroma has its registered office in Belgium, it cannot be regarded as an establishment within the meaning of Regulation No 1346/2000. They argue that secondary proceedings are restricted to establishments without legal personality (issue 1).

Belgian law applicable to the present case provides that any creditor, including a creditor established outside Belgium, may bring an action before a Belgian court for the opening of insolvency proceedings against its debtor. However, Illochroma maintains that that right is restricted to creditors established in the Member State of the court before which the action seeking the opening of secondary proceedings has been brought, since the sole purpose of such proceedings is to protect local interests (issue 2).

Finally, the referring court observes that Regulation No 1346/2000 does not state whether the possibility for the persons referred to in Article 29 thereof to request, in the Member State within the territory of which the establishment is situated, the opening of secondary proceedings is a right that must be recognised by the court having jurisdiction in that regard or whether that court enjoys a discretion as to whether it is appropriate to grant that request, with a view, in particular, to protecting local interests (issue 3).


With respect to issue 1, the ECJ first of all dismissed any suggestions that COMI may be second-guessed by courts in other Member States. Even if the French courts erred in accepting primary jurisdiction, per Bank Handlowy the courts in other Member States have to stick by that judgment. Any challenge to it must be brought in the national courts of the Member States were main proceedings were opened. The Regulation nevertheless of course has inserted the possibility of secondary proceedings precisely to protect local interests in other Member States. (Even though correction of COMI was not as such thought of when secondary proceedings’ architecture was conceived, in practice they do serve to offset some of the consequences of (alleged) wrong COMI assessment).

‘Establishment’ is defined in Article 2(h) of Regulation No 1346/2000 as ‘any place of operations where the debtor carries out a non-transitory economic activity with human means and goods’. Per Interedil, the fact that that definition links the pursuit of an economic activity to the presence of human resources shows that a minimum level of organisation and a degree of stability are required. It follows that, conversely, the presence alone of goods in isolation or bank accounts does not, in principle, satisfy the requirements for classification as an ‘establishment’. On the other hand, the definition does not refer to the place of the registered office of a debtor company or to the legal status of the place in which the operations in question are carried out.The Member State where the company has its registered office clearly is not excluded from the definition: otherwise local interests would be denied the opportunity of seeking protection, which would exist in other Member States where an establishment is present.

As for the second issue, the Regulation draws a clear distinction between territorial proceedings opened prior to the opening of main proceedings, and secondary proceedings. It is only in relation to territorial proceedings that the right to request the opening of proceedings is limited by the Regulation to creditors who have their domicile, habitual residence or registered office within the Member State in which the relevant establishment is situated, or whose claims arise from the operation of that establishment (at 48, with reference to Zaza Retail). Any other conclusion would amount to indirect discrimination on the grounds of nationality, since non-residents are in the majority of cases foreigners (at 49).

Finally, with respect to issue 3, the Regulation grants broad discretion, with regard to the opening of secondary proceedings, to the court before which an action seeking the opening of secondary proceedings has been bought. Article 28 of the Regulation determines in principle as the law applicable to secondary proceedings, that of the Member State within the territory of which those secondary proceedings are opened. Whether opening of the proceeding is ‘appropriate’ has to be determined by that applicable law. EU law does have an impact on that assessment, though (at 64 ff): in deciding appropriateness, Member States must not discriminate on the basis of place of residence or registered office; the Regulation’s motifs for allowing secondary proceedings must be respected (in the main: protection of local interests, given that universal proceedings may be preferred however do often lead to practical difficulties); and finally the principle of sincere co-operation implies that the court assessing the secondary proceedings, must have regard to the objectives of the main proceedings.


All in all therefore very much a common sense judgment, with the final instruction to the courts being quite relevant: secondary proceedings must not operate as isolated incidents and they have to take some lead from the main proceedings.


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Apcoa scheme of arrangement: Convening hearing gives firm but considered go-ahead for English Scheme of Arrangement following change in governing law

Postscript January 2016 in Codere the High Court at an earlier stage had expressed its concern at the ‘extreme forum shopping going on (creating a special purpose vehicle with COMI in England but no prior connection to the territory) however for reasons expertly summarised by Iain White, Newey J eventually sanctioned. (The application was made by Codere Finance (UK) Ltd., an English incorporated subsidiary of Codere SA, a Spanish company. Codere SA is the ultimate parent of a group of companies that carries on business by way of gaming and similar activities in Latin America, Italy and Spain. Codere SA’s shares are listed on a number of Spanish stock exchanges).

Postscript July 2015 Forum shopping possibilities were further expanded in Van Gansewinkel, which had the additional peculiarity that the only territorial link with England was the establishment of (only) one creditor there.

Postcript 8 May 2015 in DTEK, a challenge was maded by one disgruntled creditor to the change of governing law from New York law to English law. However reportedly this challenge was withdrawn in the nick of time, leaving this point as far as I am aware at this stage unaddressed by the English courts. (Not that in my view that change ougt to be problematic). (Update 11 June: judgment is now available here).

Postscript 25 November 2014. Hildyard J’s judgment in both convening and sanction hearings was released 19 November 2014, with leave to appeal granted. (Hearing at the CA is scheduled for December 2014).

The title of this piece is as considered as Hildyard J’s approval of the application for an order to convene scheme meetings for the purpose of considering, and if thought fit approving, schemes of arrangement, nine in all, pursuant to Part 26 of the Companies Act 2006, in a scheme of arrangement relating to the Apcoa group of companies.

At the time of writing Bailii did not yet feature a transcript of the hearing however I have a copy for those interested. Hildyard J aptly lists the potential booby traps given the international context of the case (the Scheme Companies comprise two English incorporated companies, a holding company and another company incorporated in Germany, and five other subsidiaries incorporated elsewhere in Europe): jurisdiction under English private international law (not all companies having COMI in England); related to this, establishment of jurisdiction only following a change on governing law of the initial finance agreements, approved by a majority but not all creditors; and, as a related pre-condition to English approval, the likelihood of recognition and enforcement of the Scheme, once adopted, elsewhere in the EU.

The application to convene hearings was approved, justifiably. Schemes of arrangement are, arguably, excluded from the Insolvency Regulation. Recognition and enforcement much facilitated by the Brussels I Regulation. The one big sticky point in any future challenge is likely to be the change in governing law which enabled English jurisdiction in the first place. This was not sub judice in the current proceedings and the scheme at this stage is not opposed by any of the creditors.

Apcoa is not insolvent; it is being restructured. The case highlights the relevance of the ongoing amendments to the Insolvency Regulation. (At the time of writing waiting for first reading by Council; not likely to appear any time soon, given the European elections). The jury is out (and case-law increasing; see e.g. Zlomrex International) whether it would be better for Schemes of Arrangement to be included in the Annex to the Insolvency Regulation. In my view cover by Brussels I is much preferred.

No doubt to be continued.


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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.


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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.


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