The recent decisions in Re MF Global UK Ltd and Re Omni Trustees Ltd give conflicting views as to whether section 236 of the Insolvency Act 1986 has extra-territorial effect. In this article, we look at the reasoning in the two judgments and discuss a possible further argument for extra-territorial effect.

The conflicting rulings on section 236

In both Re MF Global UK Ltd [2015] EWHC 2319 (Ch) and Re Omni Trustees Ltd [2015] EWHC 2697 (Ch) the office holders sought orders for the production of witness statements and supporting documentation from respondents who were resident overseas.

In MF Global the court refused to grant the order on the basis that the respondent was a French company with no presence in England and, unlike other sections of the Insolvency Act, section 236 does not have extra-territorial effect.

In Omni Trustees, heard only a few months later, the court held that section 236 does have extra-territorial effect and exercised its discretion to grant the order requested, even though the respondent was resident in Hong Kong.

The Judges’ reasoning

Although the respondent in MF Global was located in France, the legal position was similar to that in Omni Trustees, as the EC Insolvency Regulation (1346/2000) does not apply in the context of MF Global’s special administration.

In MF Global, David Richards J felt bound to follow Re Tucker [1990] Ch 148, in which the Court of Appeal held that section 25 Bankruptcy Act 1914 did not have extra-territorial effect. Although he noted that in the absence of Re Tucker there was a good deal to be said for section 236 having extra-territorial effect, he reasoned that section 25 was the precursor to, and included powers in substantially the same terms as, the powers in section 236. Accordingly, he could not overlook Re Tucker.

In Omni Trustees, His Honour Judge Hodge QC disagreed, reasoning that the power to order the production of documents under the 1914 Act had been structured as ancillary to and dependent upon the power to summon a person before the court. Section 236, on the other hand, is structured such that the power to compel a person to submit documents to the court (section 236(3)) is independent and can be exercised without the additional burden of proving an ability to compel the respondent to come to England to be examined on oath (section 236(2)). Accordingly, he felt it appropriate not to follow Re Tucker, using the Court of Appeal’s decision in Re Mid-East Trading Ltd [1998] 1 BCLC 240 to support his reasoning.

In Mid-East Trading, the Court of Appeal considered that it did have jurisdiction to make an order under section 236 for the production of documents situated in New York. While the documents requested in Mid-East Trading were located in the United States, the court was satisfied that the liquidators had demonstrated a prima facie case that part of Mid-East’s business was conducted in England using its London office facilities. Accordingly, the question for the Court of Appeal in Mid-East Trading was not whether the court had jurisdiction to make an order under section 236 against a person outside of the UK, but whether it was appropriate for the court to exercise its discretion to grant the order in circumstances where the relevant documents were situated abroad, taking into account the respondent’s New York law governed duties of confidentiality to its customers.

While acknowledging this distinction, His Honour Judge Hodge QC considered the Court of Appeal’s comments inMid-East Trading such as “the making of an order under Section 236 … in respect of documents which are not in the jurisdiction does not involve an exercise in sovereignty; alternatively, that it is an assertion of sovereignty which the legislature must be taken to have intended the courts to make,” supported the contention that parliament intended section 236(3) to have extra-territorial effect in situations where the respondent, and not just documents, are located outside the UK.

His Honour Judge Hodge QC said in Omni Trustees that, “Crucially to my decision, it would not appear that the case of Mid-East Trading Ltd was cited to Mr Justice David Richards.” Mid-East Trading was in fact cited by both parties in their skeleton arguments before Mr Justice David Richards. Nevertheless, the distinction identified in Omni Trusteesbetween section 25 of the 1914 Act and section 236 of the 1986 Act is not discussed in MF Global.

Comment – a possible way forward

As David Richards J acknowledged, even if substantially similar words are used in successive Acts of Parliament, it is possible to give them a different interpretation in the new legislation if the context of the new legislation shows that the meaning must be taken to have changed.

The reasoning in Re Tucker focussed on the ability to serve process in bankruptcy proceedings outside the jurisdiction. When the 1914 Act came into effect, there was no power under the Bankruptcy Rules to serve process on any person (other than the debtor) outside the jurisdiction, and the Rules of the Supreme Court did not apply to bankruptcy proceedings.

In 1962, the Bankruptcy Rules were amended to permit service out of the jurisdiction. The Court of Appeal in Re Tucker referred to that amendment as “basic to these proceedings”, and said that the “essential question” they had to consider on the appeal was whether there was jurisdiction to authorise service out of the jurisdiction.

Among other things, the Court of Appeal considered that the amendment to the Bankruptcy Rules could not have extended the court’s jurisdiction under section 25, because the rule-making provision in the 1914 Act expressly stated that the Bankruptcy Rules could not extend the jurisdiction of the court.

If a court were to go through the same analysis with the 1986 Act, it may conclude that the situation has changed. There is no similar jurisdictional restriction in the equivalent rule-making provision of the 1986 Act, nor in Schedule 8, which sets out the provisions capable of being included in the Insolvency Rules.

Instead, the original Rule 12.12 specifically permitted service out of the jurisdiction, and what is now Rule 12A.20 provides that Part 6 of the Civil Procedure Rules applies to service of documents outside the jurisdiction, and that Part permits service out in a variety of circumstances. Accordingly, it could be argued that, even if the text of section 236 is substantively similar to that of section 25, the context has changed sufficiently to justify interpreting it as having extra-territorial effect.

If the courts were prepared to accept extra-territorial jurisdiction, that would clearly assist officeholders in the modern world where a company’s counterparties and even directors and officers are frequently located abroad.

If the approach in MF Global prevails, officeholders will be left in the unenviable position of being able to bring actions for fraudulent trading and transactions at undervalue against persons located outside the jurisdiction, but being unable to use section 236 to understand the circumstances of the company’s downfall in the first place.

The logic of the Supreme Court in Jetivia v Bilta [2015] UKSC 23 would appear to apply to section 236 as much as it does to section 213 (fraudulent trading): “In the case of a company trading internationally, it is difficult to see how such provisions can achieve their object if their effect is confined to the United Kingdom.”

The MF Global Administrators’ section 236 application was led by partners Mark Lawford in Weil’s London Restructuring team and Jamie Maples in Weil’s London Litigation team, assisted by associate Matt Akers. The Administrators were represented in court by Felicity Toube QC of South Square.

As part of its representation of the Administrators of MFG UK, which is the largest European collapse since Lehman, Weil has fielded a multi-disciplinary, multi-jurisdictional team, led by Adam Plainer.