PART 1
September 2008
CROSS BORDER INSOLVENCY CONCERNING COUNTRIES OUTSIDE THE UK
42.2 Cross border insolvency – use of informal procedures
This part of the Chapter gives advice and information concerning the procedures relating to cross-border insolvency outside the UK.
Most cases where the official receiver may need to invoke powers granted under relevant legislation will be in respect of the recovery of assets or the provision of information by third parties. Due to the time cost and financial cost of some of these procedures, it is likely to be more beneficial to deal with matters on an informal basis, such as having the company officer or bankrupt agree to surrender the assets voluntarily (providing, if necessary, a declaration authorising the surrender and disposal of the asset), or provide an authority for the disclosure of information, as appropriate.
See paragraph 42.3 for steps that can be taken where the company officer or bankrupt will not co-operate in obtaining information or assets overseas.
42.3 Use of compulsive powers in a cross-border insolvency
The fact that an insolvency proceeding has a cross border dimension need not, in itself, stop the official receiver from taking enforcement action where a bankrupt or director is failing to co-operate.
Where property or information is situated overseas and the official receiver is having difficulty in obtaining an authorisation declaration (see paragraph 42.2), the official receiver should draw the company officer’s or bankrupt’s attention to the provisions of the Act that set out the duty to co-operate and deliver property [note 1] [note 2] [note 3] [note 4], set out the consequences of failure to deliver up property [note 5] [note 6] and, in connection with a bankrupt, the provisions regarding the suspension of the period of automatic discharge [note 7]. For company officers, attention can also be drawn to the provisions of the Company Directors Disqualification Act 1986 that set out the matters for determining unfitness, particularly in respect of non-cooperation [note 8].
42.4 Cross border insolvency within the UK
Part 4 of this Chapter explains the procedure for obtaining assistance in cross-border insolvencies within the UK – these being procedures specifically legislated for in the Act [note 9].
42.5 Cross border insolvency within the EU
Where the insolvent has interests in a member state of the European Union (EU) then the provisions of the EC Regulation on Insolvency Proceedings should be used to seek the co-operation of the foreign courts (see Chapter 41). The current members of the EU are listed in paragraph 41.6 of Chapter 41. Similarly, the provisions of the EC Regulation will be of assistance to foreign insolvency practitioners dealing with insolvents with interests in the UK.
42.6 Cross border insolvency where UNCITRAL Model Law on Cross-Border Insolvency applicable
Where the insolvent has interests in a country that is outside the EU, but has implemented the UNCITRAL Model Law on Cross Border Insolvency (see Part 3) then the provisions of the law implementing the UNCITRAL Model Law should be used to seek the co-operation of the foreign courts. A list of the countries that have implemented the Model Law is provided at paragraph 42.35.
42.7 Cross border insolvency and assistance between courts
Where the insolvent has interests in a country that is outside the EU, and has not implemented the UNCITRAL Model Law then the assistance of the foreign court may be granted under local laws providing for assistance to be granted in relation to English insolvency proceedings. Many of the countries that are in the Commonwealth (http://www.thecommonwealth.org/Internal/142227/members/) are likely to have provisions in their laws to allow the courts to provide assistance or recognise an English insolvency proceeding. Having said that, as many of these provisions are carry-overs from the Bankruptcy Act 1914 (which applied directly throughout the British Empire), they are likely to be of assistance in bankruptcy matters only.
The provisions under which the courts of these countries may seek the assistance of the courts in the UK is outlined further in this part.
42.8 Cross border insolvency and the Channel Islands and Isle of Man
The position regarding insolvents with interests in the Channel Islands or Isle of Man is explained in paragraphs 42.18. 42.19 and 42.20, respectively.
42.9 Assistance to foreign courts
The courts having jurisdiction in relation to insolvency law (see paragraph 42.10) in any part of the UK are required to assist the courts having corresponding jurisdiction in any of the countries designated under relevant orders of the Secretary of State (see paragraph 42.11) [note 10] [note 11].
The court has discretion regarding if and, if so, how it will provide the requested assistance [note 12] [note 13]. The court in England and Wales may choose to accept the jurisdiction of the foreign court and, where this is done, the court cannot then decide matters according to English Law [note 14].
Merely because a country is not designated does not mean that the courts of England and Wales will not assist in the enforcement of that country’s court orders in insolvency matters. The courts in England and Wales possess an inherent jurisdiction to assist foreign office holders.
In addition to providing assistance, the courts have the power to recognise a foreign insolvency judgement (see paragraph 42.12).
Mutual assistance between courts in the UK is dealt with in paragraph 42.86.
42.10 Definition of “insolvency law”
For the purposes of the part of the Act dealing with cross-border cooperation, “insolvency law” is defined as [note 15]:
In relation to England and Wales, all parts of the Insolvency Act 1986 and certain parts of the Company Directors Disqualification Act 1986;
In relation to Scotland, all provisions of the Insolvency Act 1986 that apply to Scotland (see paragraph 42.90), certain parts of the Company Directors Disqualification Act 1986, Part XVIII of the Companies Act or the Bankruptcy (Scotland) Act 1985;
In relation to Northern Ireland, all provisions made by or under the Insolvency (Northern Ireland) Order 1989 or the Companies Directors Disqualification (Northern Ireland) Order 2002.
In relation to any relevant country or territory, so much of the law of that country or territory as corresponds with British insolvency law.
The full details of those sections covered under the definition can be found in the relevant section of the Act [note 16].
42.11 Relevant countries and territories
The countries designated for the purposes of the mutual assistance aspects of the Act are:
Anguilla
Australia
The Bahamas
Bermuda
Botswana
Brunei
Canada
Cayman Islands
Falkland Islands
Gibraltar
Hong Kong
Republic of Ireland
Malaysia
Montserrat
New Zealand
St Helena
South Africa
Turks and Caicos Islands
Tuvalu
Virgin Islands
42.12 Recognition of foreign insolvency proceedings
Apart from where the provisions of the EC Regulation on Insolvency Proceedings 2000 (see Chapter 41) or the Cross Border Insolvency Regulations 2006 (see Part 3) apply, the recognition of foreign insolvency proceedings is based on case law, subject to limits on the grounds of public policy (see paragraph 42.13).
As regards England and Wales, the courts have adopted an internationalist approach to insolvency in order that the debtor’s estate should be administered for the benefit of all creditors on a worldwide basis.
42.13 Limits to recognition of foreign proceedings
The courts in England and Wales can prevent the recognition of a foreign judgement. For example, illegal contracts for the supply of drugs, for immoral purposes or to do damage, would not be recognised by the court even if they were legal in another state. On this basis, a debt arising from such a contract could not be the basis for a winding up petition or bankruptcy proceedings, or be a provable debt.
The court has in the past held that an English court would not lend its assistance to a foreign insolvency proceeding which ‘offended against some overriding principle of English Law’ [note 20]. Examples of a situation where proceedings may not be recognised are where the foreign insolvency decree was obtained through fraud or contrary to the laws of natural justice.
42.14 Recognition of English and Welsh insolvency proceedings overseas
Apart from where the provisions of the EC Regulation on Insolvency Proceedings 2000 (see Chapter 41) or the Cross Border Insolvency Regulations 2006 (see Part 3) apply, the recognition of foreign insolvency proceedings is based on case law, usually subject to limits on the grounds of public policy.
Where the official receiver requires the recognition of an insolvency overseas, he/she may use, with appropriate amendments, the precedent application at Annex A. It should be noted, however, that the foreign court might reject this approach and request that the official receiver make a formal application for assistance including, possibly, a letter of request from a court in England and Wales. In these circumstances, it is likely that local legal representation will be required to assist with the format and presentation of the application. Technical Section holds a precedent for such an application to the courts in Jersey, which is available on request, and may be used as the outline basis for other applications, if required.
42.15 Cross-border insolvency – choice of law
Where legal proceedings have an international dimension, such as in a cross-border insolvency, the questions that arise are generally to do with which law should apply to the particular set of circumstances. This is known as “choice of law” rules.
The choice of law rules may be governed by international convention, such as those provided by the EC Regulation on Insolvency Proceedings 2000 regarding insolvencies within the EU (see Chapter 41). Where there is no convention in place, a decision will be based on the rules of private international law (see paragraph 42.16).
42.16 Private international law
In the absence of an international convention governing insolvency proceedings, jurisdictional conflicts of laws issues will be decided by a set of judge-made rules. These are often referred to as private international law and will form part of a country’s domestic law. Unlike public international law, which regulates relations between sovereign states and is in theory the same everywhere, private international law differs from one country to another.
42.17 Choice of law in England and Wales
The issue of choice of law does not arise in English insolvency proceedings, as it is the Insolvency Act 1986 that applies.
Where a foreign company is in liquidation in the country of its incorporation and a winding up order is made in England, this would generally be regarded as ancillary, and does not relieve the English court of its obligation to apply English law to the resolution of any issue in the winding-up [note 21].
42.18 Channel Islands - Jersey
The court having jurisdiction in relation to insolvency law (see paragraph 42.10) in the UK is required to assist the courts having corresponding jurisdiction in Jersey [note 22] [note 23].
Jersey has a reciprocal arrangement with the UK in that courts having jurisdiction in relation to insolvency law in Jersey are required to assist the courts having corresponding jurisdiction in the UK [note 24] [note 25].
Where the official receiver wishes to apply for an order to take proceedings in relation to property situated, or a cause of action existing, in Jersey then he/she may follow the procedure outlined in paragraph 42.14.
Jersey is not part of the European Union and, therefore, the EC Regulation on Insolvency Proceedings (see Chapter 41) does not apply. Jersey has not implemented the UNCITRAL Model Law on Cross-Border Insolvency (see Parts 2 and 3 of this Chapter), and is not expected to do so.
42.19 Channel Islands – Bailiwick of Guernsey
The Bailiwick of Guernsey consists of the Royal Court of Guernsey, the Court of Alderney and the Court of the Seneschal of Sark, being all the inhabited islands of the Channel Islands except Jersey (see paragraph 41.18 for information on Jersey).
The court having jurisdiction in relation to insolvency law (see paragraph 42.10) in the UK is required to assist the courts having corresponding jurisdiction in the Bailiwick of Guernsey [note 26] [note 27].
The Bailiwick of Guernsey has a reciprocal arrangement with the UK in that courts having jurisdiction in relation to insolvency law in The Bailiwick of Guernsey is required to assist the courts having corresponding jurisdiction in the UK [note 28].
Where the official receiver wishes to apply for an order to take proceedings in relation to property situated, or a cause of action existing, in The Bailiwick of Guernsey, he/she may follow the procedure outlined in paragraph 42.14.
The Bailiwick of Guernsey is not part of the European Union and, therefore, the EC Regulation on Insolvency Proceedings (see Chapter 41) does not apply. The Bailiwick of Guernsey has not implemented the UNCITRAL Model Law on Cross-Border Insolvency (see Parts 2 and 3 of this Chapter).
The court having jurisdiction in relation to insolvency law (see paragraph 42.10) in the UK is required to assist the courts having corresponding jurisdiction in the Isle of Man [note 29] [note 30].
The High Court of the Isle of Man is required to assist the courts having bankruptcy jurisdiction in the UK [note 31]. This does not extend to company cases because there is no specific provision in Isle of Man legislation to offer assistance in liquidations.
Where the official receiver has a need to deal with a company’s affairs in the Isle of Man, then it may be the case that the only option will be to open parallel proceedings in that jurisdiction (see paragraph 42.28 for more information on opening concurrent proceedings).
42.21 Provision of assistance by official receivers
If an application is made by a court in another part of the UK, one of the Channel Islands, the Isle of Man or a designated foreign court (see paragraph 42.11) to a court in England and Wales for assets to be dealt with or information obtained in England and Wales, the official receiver may be requested by the court, in his/her capacity as one of its officers, to take action in the matter. The extent of such action will be limited by the terms of the order made by that court and if any practical difficulties arise the matter should be referred back to court. In such cases the official receiver should ensure that proper provision is made by the court as to his/her expenses, which, when received, should be transferred to Finance Section to be credited to the VOTE (non-estate) account.
42.22 Winding-up of foreign companies in England and Wales
The courts in England and Wales have the jurisdiction to wind up foreign companies as unregistered companies (see Chapter 58) (that is, companies that are not registered in England and Wales, rather than being unregistered at all) [note 32] [note 33]. Companies registered in Scotland and Northern Ireland should be wound up within those jurisdictions. There has, however, been a circumstance where the court in England and Wales has wound-up a company registered in Northern Ireland (see paragraph 42.93). In essence, the reason for this is that the relevant part of the Act [note 34] states that a company registered in Great Britain cannot, for the purposes of the provisions allowing for the winding-up of unregistered companies, be considered an unregistered company.
42.23 Winding up of foreign companies – connection with England and Wales
As there is nothing in the legislation setting out the conditions under which a foreign company can be wound up in England and Wales it has been left to the courts to develop case law.
In order for a foreign company to be wound up in England and Wales, the courts have usually considered it sufficient that the company have a connection with the England and Wales, such as a place of business or assets within the jurisdiction [note 35].
The existence of assets or a place of business within the jurisdiction are not, though, the only matters that the court will take into account. The court may, for example, also consider making a winding up order where it will entitle employees of the company to claim statutory redundancy payments [note 36], or where the petition debt was incurred in England and Wales [note 37].
The court has unrestricted discretion to make or refuse an order, or to make an order subject to conditions. Generally, the court must be satisfied that there is a reasonable possibility of the winding-up order being to the benefit of the petitioner [note 38]. The court may decline to order a winding up where it considers that the courts of another country would provide a more appropriate forum [note 39].
A foreign company can be wound up in England and Wales even if it has been dissolved, or otherwise ceased to exist as a company, in the country of its registration [note 40].
42.24 Winding up of foreign companies – EC Regulation on Insolvency Proceedings 2000
Where a company has it “centre of main interests” or an establishment in a country that is a member of the EU then reference should be made to Chapter 41, as different rules will apply.
Details of the procedures related to the winding-up of European Economic Interest Groupings (a form of Europe-wide limited company) can be found in paragraphs 58.9 to 58.13.
42.25 Winding up of English/Welsh companies overseas
Other countries will have provisions similar to those available under the Act (see paragraph 42.23), allowing foreign companies to be wound up. It is possible, therefore, that a company registered in England and Wales may be wound-up up abroad. Assuming there are no compulsory proceedings against the company in England and Wales then, unless ordered by the court to provide assistance (see paragraph 42.21), a foreign winding-up proceeding has no implications for the official receiver.
Where there are concurrent proceedings, reference should be made to paragraph 42.28.
42.26 Legalisation of documents (amended October 2009)
A foreign court or other organisation may require the legalisation of a document (most likely, a winding-up order or bankruptcy order) prior to, for example, giving access to an asset or providing information regarding an insolvent’s affairs.
This legalisation (sometimes referred to as obtaining an “apostille” certificate is a service provided by the Foreign and Commonwealth Office for a fee of £28. Details can be found at their web-site http://www.fco.gov.uk/en/about-us/what-we-do/services-we-deliver/legal-services/legalisation/
42.27 Legal assistance in cross-border insolvency
In most cases dealt with by the official receiver involving property or information abroad, it is likely that specialist legal advice will be required, particularly where legal proceedings are envisaged. There is no central list of solicitors who have experience in dealing with cross-border insolvency and it is advised, therefore, that official receivers seek a recommendation from his/her own legal advisors.
Before instructing solicitors, the official receiver should have regard to the procedure for sanction as outlined in Chapter 32.1 – Employment of Agents and 32.2 - Solicitors.
The official receive will require prior authority from Technical Section if a debit balance will be incurred in pursuing asset or asset-related enquiries abroad.
As regards England and Wales, both the EC Regulation on Insolvency Proceedings 2000 (see Chapter 41) and the Cross Border Regulations (see Part 3) set rules to decide matters where insolvency proceedings are already in place, or are desired to be commenced and proceedings are opened, or desired to be opened, in another overseas country (or, in the case of the EC Regulation, another EU member state).
The EC Regulation also sets rules where there are, or are desired to be, proceedings in more than one member state and, similarly, countries that have implemented the UNCITRAL Model Law (see Part 2) will have rules in place to deal with concurrent, or desired concurrent, proceedings.
42.29 Decision to take concurrent proceedings
If, when attempting to deal with assets situated overseas the official receiver is unable to take advantage of the provisions of the EC Regulation (see Chapter 41) or UNCITRAL Model Law (see Part 2), or to obtain the voluntary co-operation of the company officer or bankrupt, then the only remaining option may be to open concurrent proceedings in the country in which the asset is situated.
Given the likely need to employ solicitors (not least to explore whether there are grounds to open such proceedings) (see paragraph 42.28), and the additional resources that will be required to deal with the proceedings themselves, the costs should be weighed against the potential benefit to the estate before embarking on this course of action.
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