Application of UNCITRAL Model Law to England and Wales
The process of implementation of the Model Law (see Part 2 of this chapter) into the legislation of England and Wales began with the enactment of the Insolvency Act 2000 [note 1]. This gave power to the Secretary of State to implement the Model Law by secondary legislation leading, in turn, to the coming into force of the Cross-Border Insolvency Regulations 2006 [note 2] on 4 April 2006.
The Cross-Border Insolvency Regulations 2006 (“the Cross-Border Regulations”) provide that the Model Law has the force of law in Great Britain in the form set out in Schedule 1 to the Cross-Border Regulations – which contains the Model Law with certain modifications to adapt it for application in Great Britain. Great Britain consists of England, Wales and Scotland – comparable legislation was enacted for Northern Ireland on 12 April 2007 [note 3].
This part of the chapter will concentrate on those parts of the Cross-Border Regulation that have effect in England and Wales.
The Cross-Border Regulations provide that British insolvency law applies with such modifications as are required to give effect to the Cross-Border Regulations [note 4]. As a result, specific amendments to the Act have not been necessary. “British insolvency law” is defined in relation to England and Wales as “provision extending to England and Wales and made by or under the Insolvency Act 1986 (with the exception of Part 3 of that Act) or by or under that Act as extended or applied by or under any other enactment (excluding these Regulations)”.
Where there is any conflict between British insolvency law and the provisions of the Cross-Border Regulations, the latter will prevail [note 5].
The scope of application of the Regulation follows closely the Model Law (Part 2), but provision is made for the exclusion of entities (such as water companies, air traffic control operators and railway companies) to which special insolvency procedures apply [note 7].
The definition of proceedings covered by the Cross-Border Regulations mirrors exactly that in the Model Law, i.e. “a collective judicial or administrative proceeding in a foreign state, including an interim proceeding, pursuant to a law relating to insolvency in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganisation or liquidation.” [note 8]. See paragraph 42.38 for further information.
The Cross-Border Regulation confirms that British insolvency office holders (covering, in respect of England and Wales, the official receiver and insolvency practitioners, but not administrative receivers [note 9]) are authorised to act in a foreign state on behalf of a proceeding under British insolvency law, as permitted by the applicable foreign law [note 10]. This authorisation is from the perspective of British law, but legal or practical authorisation may still be required in the state in which the officer holder intends to act. For those states that have enacted the Model Law (see Part 2) the provisions of the legislation enabling the Model Law may be applied. For other states the office holder will be required to rely on any applicable local law providing authorisation to his/her acting in that jurisdiction.
The court may refuse to take part in any action governed by the Cross-Border Regulation if the action would be manifestly contrary to the public policy of Great Britain [note 11].
A foreign representative (defined as “a person or body, including one appointed on an interim basis, authorised in a foreign proceeding to administer the reorganisation or the liquidation of the debtor’s assets or affairs or to act as a representative of the foreign proceeding”) is entitled under the Cross-Border Regulation to apply directly to a court in Great Britain [note 12]. This removes any previous requirements that there may have been for the representative to seek consular support or a licence before being granted access to the court. The representative’s right of access is not conditional on the prior recognition (see paragraph 42.71) of the insolvency proceedings.
A foreign representative appointed in a foreign main proceeding or foreign non-main proceeding (see paragraph 42.71) is entitled to apply to commence a proceeding under British insolvency law if the conditions for commencing such a proceeding are otherwise met [note 13]. The representative’s right to commence proceedings is not conditional on the prior recognition of foreign insolvency proceedings.
Upon recognition of a foreign proceeding, the foreign representative is entitled to participate in a proceeding regarding the debtor under British insolvency law [note 14]. The term “participate” is not defined in order to avoid restricting the breadth and flexibility of this provision, and is intended to cover not only court processes, but also all parts of the insolvency process.
Under the Cross-Border Regulation, foreign creditors have the same rights regarding commencement of, and participation in, a proceeding under British insolvency law as creditors in Great Britain [note 15]. The ranking of claims is not affected by this provision, except that the claim of a foreign creditor must not be given a lower priority than that of general unsecured claims solely because the holder of such a claim is a foreign creditor [note 16].
The Cross-Border Regulation (along with the provisions of the EC Regulation on Insolvency Proceedings [note 17]) repeals the common law rule [note 18] that foreign tax judgements and foreign revenue laws are unenforceable [note 19].
The Cross-Border Regulation provides that, where notification is to be given to creditors under British insolvency law, notice should also be given to known creditors that do not have an address in Great Britain [note 20]. Such notification must be made individually, except where:
Where notification of a right to claim is to be given, the notification must [note 22]:
A foreign representative may apply to the court for recognition of a foreign insolvency proceeding in which that representative has been appointed [note 23]. The effect of the recognition of the foreign proceeding is outlined in paragraph 42.72.
The application for recognition must be accompanied by:
Additionally, the applicant must provide the court with a list, in respect of the debtor, of all foreign proceedings, proceedings under British insolvency law and co-operation requests made by overseas courts [note 25] that are known to them [note 26]. This is to assist the court in co-ordinating any concurrent proceedings to best effect (see paragraph 42.80).
The foreign representative must provide translations into English of any documents supplied in support of the application [note 27].
The court may, if circumstances require, take interim measures to protect the estate whilst the application is decided upon [note 28].
The court is entitled to presume that the documents provided in support of an application for recognition (see paragraph 42.69) are genuine, whether or not they have been legalised [note 29]. Similarly, if the decision or certificate provided in support of the application indicate that the proceeding is a foreign proceeding within the meaning of the Cross-Border Regulation (see paragraph 42.62) and that the foreign representative is a person or body within the meaning of the Cross-Border Regulation then the court is entitled to presume that this is so [note 30].
Following the satisfaction of the requirements set out in paragraph 42.69 the court is obliged to recognise the foreign proceedings and must decide if the proceeding is to be recognised as a “foreign main proceeding” or a “foreign non-main proceeding”.
A foreign main proceeding is one taking place in the state in which the debtor has the centre of main interest (there is no definition in the Cross-Border Regulation of Centre of Main Interests – it is for the court to decide). Whereas a foreign non-main proceeding is one taking place in a state in which the debtor has an establishment (“establishment” is defined as “any place of operations where the debtor carries out a non-transitory economic activity with human means and assets or services [note 31] [note 32]).
The significance of this decision is related to the fact that the effects of the recognition (see paragraph 42.72) vary depending on which type of proceeding is recognised.
Following recognition of a foreign main proceeding (see paragraph 42.71) there is an automatic stay on the commencement or continuation of individual actions or individual proceedings concerning the debtor’s assets, rights, obligations or liabilities and a stay of any execution against the debtor’s assets. Additionally, the right to transfer, encumber or otherwise dispose of any assets of the debtor is suspended [note 33]. Essentially, the stays and suspensions granted are intended to have the same scope as those consequent from the making of a winding-up or bankruptcy order under the Insolvency Act 1986 [note 34].
The general right of stay and suspension does not affect rights of creditors or other third parties in respect of:
Additionally, the stay or suspensions granted under the relevant provisions (see paragraph 42.72) of the Cross-Border Regulation do not affect the right to commence individual actions or proceedings to the extent necessary to preserve a legal claim against the debtor (such as complying with a court deadline to file documents); or commence or continue any criminal proceedings or any action or proceedings by a person or body having regulatory, supervisory or investigative functions of a public nature [note 39].
Finally, the provisions regarding the stay or suspension of proceedings do not affect the right to request or initiate the commencement of proceedings under British insolvency law, or the right to file claims in such a proceeding [note 40].
In respect of the effects resultant from the recognition of a foreign main proceeding (see paragraph 42.72), the court may, on the application of the foreign representative or a person affected by the stay and suspension, or of its own motion, modify or terminate the stay or suspension or any part of it. The modification or, as the case may be, the termination may be for a limited time and/or on such terms and conditions as the court sees fit [note 41].
In addition to the automatic effects following the recognition of a foreign main proceeding (see paragraph 42.72), there are provisions in the Cross-Border Regulation for additional effects which may be applied to both foreign main and foreign non main proceedings. These effects are instigated by an application to court by the foreign representative and include those outlined in paragraph 42.72, and also:
Additionally, upon recognition of a foreign proceeding, whether main or non-main, the court may, at the request of the foreign representative, entrust the distribution of all or part of the debtor’s assets located in Great Britain to the foreign representative or another person designated by the court, provided that the court is satisfied that the interests of the creditors in Great Britain are adequately protected [note 43]. In granting this relief to a representative of a foreign non-main proceeding, the court must be satisfied that the relief relates to assets that, under the law of Great Britain, should be administered in the foreign non-main proceeding or concerns information required in that proceeding (for example, assets in the foreign state or assets formerly in the foreign state that have since been transferred to Great Britain) [note 44].
In granting or denying relief, or in modifying or terminating relief, the court must be satisfied that the interests of creditors (including secured creditors or parties to hire-purchase agreements) and other interested parties (including, if appropriate, the debtor) are adequately protected [note 45].
The court may subject relief of the type outlined in paragraph 42.72 and 42.74 to such conditions as it considers appropriate – including the provision by foreign representatives of security or caution for the proper performance of his/her functions [note 46] and it may on its own motion, or on the application of the foreign representative or affected party, modify or terminate such relief [note 47].
The Cross Border Regulation provides foreign representatives with the power to commence actions to recover transactions detrimental to creditors (such as, transactions at under-value or preferences) [note 48]. Where a local, British, insolvency proceeding is opened subsequent to the opening of the recognised foreign proceeding, the court is required to review and give directions regarding those actions [note 49].
In addition to making provision for the recognition of foreign insolvency proceedings and the recognition, and effects of recognition, of foreign representatives, the Cross Border Regulation’s third main thrust is to provide for the courts to cooperate with foreign courts and foreign representatives. Unlike the Model Law (see part 2) it does not impose a duty on courts to cooperate – it simply authorises them to do so [note 50].
The Cross Border Regulation provides a list of possible forms of cooperation, but this list is not intended to be exhaustive [note 51].
The Cross Border Regulation places a duty upon British office-holders (including the official receiver) to cooperate with foreign courts and foreign representatives. The cooperation is to be provided to the extent that it is consistent with the law of Great Britain and subject to the supervision of the court [note 52]. In cases where there is uncertainty as to whether or not the official receiver should cooperate then the directions of the courts should be sought.
The British insolvency office-holder is entitled to communicate directly with the foreign court or foreign representative [note 53].
After recognition of a foreign main proceeding (see paragraph 42.71) the effects of a proceeding under British insolvency law in relation to the same debtor shall, insofar as assets of that debtor are concerned, be restricted to assets that are located in Great Britain and, to the extent required to cooperate with a foreign representative, to other assets (i.e. those overseas) that, under the law of Great Britain, should be administered in that proceeding. This will enable a foreign representative to recover assets under British law from a jurisdiction which may not have implemented the Model Law [note 54].
The Cross Border Regulation provides for coordination of relief where there are concurrent local, British, proceedings and recognised foreign proceedings [note 55] and also for the coordination of more than one foreign proceeding [note 56].
There are also rules regarding the payment of dividends to creditors in concurrent proceedings, the basic rule being that a creditor who has already received a payment under foreign proceedings may not receive a dividend under local proceedings until other creditors of the same class have received equal pro-rata treatment [note 57].
In the absence of evidence to the contrary, recognition of a foreign main proceeding is, for the purpose of commencing a proceeding under British insolvency law, proof that the debtor is unable to pay its debts [note 58].