CROSS-BORDER INSOLVENCY WITHIN THE UK

PART 4

September 2008

CROSS-BORDER INSOLVENCY WITHIN THE UK

42.82 The United Kingdom

The United Kingdom (the full title of which is the United Kingdom of Great Britain and Northern Ireland) consists of the countries of England, Wales, Scotland and Northern Ireland).

Each constituent part of the UK (with the exception of Wales – see paragraph 42.84) is a separate jurisdiction with its own laws relating to the conduct of insolvency matters.  An overview of the insolvency legislation in operation in Scotland and Northern Ireland can be found in paragraphs 42.90 and 42.92, respectively.

 

42.83 Cross-Border insolvency within the UK - general

This part of the chapter gives advice and information on the interaction of proceedings where the insolvent’s affairs straddle borders within the UK.  For the purpose of conventions such as the EC Regulation on Insolvency Proceedings 2002 (see Chapter 41) and the UNCITRAL Model Law on Cross-Border Insolvency (see Part 2), the UK is considered to be one country and, therefore, these procedures cannot be used to decide matters between countries within the UK.

In regard to cross-border insolvency within the UK, the provisions for deciding such matters can be found in domestic legislation, largely the Insolvency Act 1986.

 

42.84 England and Wales

England and Wales is considered to be a single jurisdiction and any references (including those in this chapter) to English law can be taken to include Wales.  There is, therefore, no need for any special provisions or procedures where an insolvent’s affairs straddle the English/Welsh border.

 

42.85 Enforcement of orders throughout the UK

A court order relating to insolvency law (see paragraph 42.89) made in any part of the UK must be enforced in any other part of the UK as if it were made by a court in that part [note 1], except where that order relates to property, in which case the relevant court has a discretion as to whether and, if so, how it enforces the order [note 2].

For example, the court may grant a trustee a right over property consistent with the law of the country in which the trustee is based, rather than that in which the property is situated or in which the right arose [note 3].

 

42.86 Mutual assistance between courts in the UK

The courts having jurisdiction in relation to insolvency law (see paragraph 42.89) in any part of the UK is required to assist the courts having corresponding jurisdiction in any other part of the UK [note 4].

 

42.87 Applications for requests for assistance from the courts in another part of the UK

Where the official receiver is trustee and he/she is dealing with property situated in a part of the UK other than England and Wales, he/she has the power to apply directly to court in the part of the UK in which the property is situated to seek assistance [note 5].

A precedent application that provides for the court of the country in question to recognise the bankruptcy order that might be used in these circumstances is attached at Annex B.  The endorsed bankruptcy order resultant from that application can then be used to, for example, persuade a third party to release property, or register a property interest, as appropriate.  It should be noted, however, that the court in the other jurisdiction 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 may be used as the outline basis for other applications, if required.

Otherwise, 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 a part of the UK other than England and Wales, he/she must apply to the court in England and Wales in which the insolvency proceedings are being conducted.  That court may, if it considers that it cannot itself make an order in the matter but that it considers that the official receiver’s application has merit, request the court in the other jurisdiction to assist [note 6] [note 7]. 

Where the order is sought to, for example, require a third party to provide information regarding the insolvent’s affairs, the official receiver could consider the alternative course of action of having the company officer or bankrupt complete an authority for the disclosure of the relevant information.

 

42.88 Cross-border warrants

A warrant of arrest in relation to insolvency law issued in any part of the UK is enforceable in any other part of the UK as if it were a warrant for arrest of a person charged with an offence [note 8].

 

42.89 Definition of “insolvency law”

For the purposes of the part of the Act dealing with cross-border cooperation within the UK, “insolvency law” is defined as [note 9]:

  • 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.

The full details of those sections covered under the definition can be found in the relevant section of the Act [note 10].

 

42.90 Insolvency law in Scotland

The majority of the corporate provisions of the Act apply equally to Scotland [s440], the main exception being those provisions that relate to receivership – for which Scotland has its own system [note 11].  There are also special provisions relating to antecedent recoveries [note 12] [note 13].

As regards bankruptcy, Scotland has its own laws – namely, the Bankruptcy (Scotland) Act 1985, which was comprehensively amended by the Bankruptcy and Diligence etc. Act 2007.  Since the coming into force of this latter act on 1 April 2008, many of the features of English insolvency law have been introduced.  Examples of this are one-year discharge, income payment agreements and bankruptcy restriction orders/undertakings.  There are some key differences, such as the fact that a debtor has no need to go to court to declare themselves bankrupt – instead, all debtors’ petitions are received, and decided, by the Accountant in Bankruptcy (the Scottish equivalent of the Insolvency Service) - and the minimum amount of debt for a creditor’s petition is £3,000.

Details relating to personal insolvency law in Scotland can be found on the website of the Accountant in Bankruptcy (http://www.aib.gov.uk/).

 

42.91 Opening of proceedings in Scotland

The general principle of insolvency legislation as regards compulsory liquidation is that a company may only be wound up by a court with jurisdiction in the country of the UK in which it is registered [note 14] [note 15] [note 16].

As regards bankruptcy (which, in Scotland, is more commonly known as sequestration), where a bankruptcy petition is presented by a creditor, the sheriff (the rough equivalent of the county court) has jurisdiction if the debtor had an established place of business in the sheriffdom (the area covered by the jurisdiction of a sheriff), or was habitually resident there, at the time of the presentation of the petition [note 17].

For debtor’s petitions, it is the Accountant in Bankruptcy who had jurisdiction to determine an application for bankruptcy if the debtor had an established place of business in Scotland, or was habitually resident there at the time of the presentation of the application for sequestration [note 18].

 

42.92 Insolvency law in Northern Ireland

With some very limited exceptions, the majority of the Act does not apply to Northern Ireland [note 19].  One of the exceptions is in relation to the section of the Act that relates to the provision of assistance to courts in other jurisdictions (see paragraph 42.86). 

Insolvency law in Northern Ireland is, though, broadly in line with that of England and Wales.  The Insolvency (Northern Ireland) Order 1989, which came into operation on 1 October 1991, brought into operation provisions that are equivalent to the provisions of the Act.  Amongst others, legislation has subsequently been brought into force to deal with the insolvency of partnerships [note 20] and the administration of the estates of deceased persons [note 21].

Amendments corresponding to those made by the Insolvency Act 2000 (which established the right to a moratorium on a company voluntary arrangement being proposed were made by the Insolvency (Northern Ireland) Order 2002, which came into operation on 2 February 2004.

The reforms introduced into English law by the Enterprise Act 2002 (such as, for example, discharge from bankruptcy after one year, bankruptcy restriction orders/undertakings and reforms to administrative receivership) have been incorporated in Northern Ireland by the Insolvency (Northern Ireland) Order 2005, which came into operation on 27 March 2006.

Further information regarding insolvency in Northern Ireland can be found on the website of the Department of Enterprise, Trade and Investment (http://www.detini.gov.uk/cgi-bin/get_builder_page?page=2423&site=8).

 

42.93 Opening of proceedings in Northern Ireland – company (amended November 2012)

The general principle of insolvency legislation as regards compulsory liquidation is that a company may only be wound up by a court with jurisdiction in the country of the UK in which it is registered [note 22] [note 23] [note 24].

In Northern Ireland this means that the High Court in Northern Ireland has the jurisdiction to wind up a company registered in Northern Ireland under the Companies Act 2006 [note 25] [note 26].

 

42.93a Winding up in England and Wales a company registered in Northern Ireland as an unregistered company (inserted November 2012)

As outlined in paragraph 42.93, the general principle of insolvency legislation is that a company should be wound up by the courts of the country of the UK in which it is registered.

The court has historically held that it is possible for a company registered in Northern Ireland to be wound up in the High Court in London provided that the petition is in the public interest [note 27], and the company had a principle place of business in England and Wales [note 28].

However, since that judgment was passed in 1993 the Act has been amended [note 29] to provide that companies ‘registered under the Companies Act 2006 in any part of the United Kingdom’ (which would include Northern Irish companies) would not be included in the definition of an unregistered company for the purpose of the provisions of the Act [note 30] that allow the winding-up of unregistered companies.  Previously, the provisions excluded only companies registered in Great Britain (which is formed of England/Wales and Scotland, but not Northern Ireland).

Technically, many Northern Irish companies were not registered under the Companies Act 2006, as the Northern Irish company register was not merged with the Great British company register until 2009.  It is probable, however, due to the merger of the registers that a Northern Irish company on the UK register (which has registrars in Cardiff, London, Edinburgh and Belfast) would be considered to be ‘registered under the Companies Act 2006’, even if the specific act of initial registration was carried out under the older Northern Irish legislation.

In consequence, it is likely that no Northern Irish registered company could now be wound-up in England and Wales notwithstanding the aforementioned court ruling.

 

42.93b Opening of proceedings in Northern Ireland – bankruptcy (inserted November 2012)

The only court in Northern Ireland with jurisdiction to hear bankruptcy petitions is the High Court in Belfast.  A bankruptcy petition cannot be presented to the High Court unless the debtor:

  • lives in Northern Ireland [note 32],
  • is personally present in Northern Ireland on the day on which the petition is presented [note 33], or
  • has been ordinarily resident, or has a place of residence, or has carried on business in Northern Ireland in the previous three years [note 34].

42.94 Bankruptcy orders made against the same person in different jurisdictions

In Northern Ireland, as in England and Wales [note 35], no person who is a creditor of the bankrupt can take any proceedings or have any remedy against the bankrupt [note 36]. 

Where proceedings are in force in another part of the UK, the sheriff or accountant in bankruptcy in Scotland may dismiss or determine any petition or application for bankruptcy [note 37].

 

[Back to Part 3 – Application of the UNCITRAL Model Law to England and Wales] [On to Part 5 – Effect of disqualification and bankruptcy restrictions overseas]