Two recent decisions of the UK courts concern UK liquidation and administration of foreign companies

Refusal to Wind-Up Foreign Companies: Re Buccament Bay Limited [2014] EWHC 3130 (Ch)

The High Court of England and Wales may refuse to exercise its discretion to wind up companies incorporated abroad where there would be little likelihood of the petitioners deriving benefit from the winding-up.

In Re Buccament Bay Limited, the issue was whether the Court would exercise its jurisdiction over two companies incorporated in St Vincent and the Grenadines ("SVG") rather than England and Wales ("E&W").

The test per Knox J in Re Real Estate Development Co [1991] BCLC 210 was applied, which requires: (i) sufficient connection with E&W; (ii) reasonable possibility of benefit to those applying for winding-up order; and (iii) at least one person interested in the distribution of assets within the Court's jurisdiction.

These debts arose in relation to land in SVG governed by SVG law, where all assets and key management were located. Conversely, the contract was formally signed in E&W, funds were routed to the Caribbean through an E&W group company, and 30 staff were employed in E&W.

The Judge found that in the circumstances limbs (i) and (iii) were satisfied. However, given the adequacy of the SVG liquidation procedure and undisputed evidence that an English liquidator would face difficulties gaining control of assets, there was no reasonable possibility that the petitioners would derive a benefit from a winding-up in E&W.

The Judge further cited authority to the effect that the E&W Court should be cautious about assuming jurisdiction over foreign matters even where it had 'jurisdiction' in a broad sense. Given the flimsiness of the connection, the petition might have been expected to be dismissed under (i), the 'sufficiency of connection' requirement.

The lesson to be learned from this case is that Insolvency Practitioners and lawyers should exercise caution when looking at winding up a foreign company (such as a BVI company) in E&W. Careful thought should be given to whether or not a clear benefit to winding up in E&W can be demonstrated to the Court; whether or not there are assets in E&W will be a significant factor. If no clear benefit can be demonstrated, it may be that winding up in the jurisdiction of incorporation is the preferable route.

English Administration of BVI Company Declared Invalid on Application of BVI Liquidator: McKellar v Griffin and Anr [2014] EWHC 2644 (Ch)

The appointment in England and Wales of an administrator over a BVI company whose centre of main interest ("COMI") was not England and Wales was invalid, and the High Court of England and Wales was prepared to make a declaration to that effect in support of a Virgin Islands liquidator, such a declaration having practical utility.

The lender under a charge ("the Chargee") of almost the entire assets (an office block in England and Wales ("E&W")) of a BVI company ("the Company") appointed administrators ("the Administrators") in E&W. The Administrators sold the property, leaving a large shortfall for the Chargee. A BVI liquidator of the Company applied to the High Court of E&W and was granted:

  1. recognition of the BVI liquidation under the Cross Border Insolvency Regulations 2006 as foreign main proceedings; and
  2. a declaration that the Administrators’ appointment had been invalid, on the basis that the Company’s COMI had not been in the UK as required by the Insolvency Act 1986  (E&W) and the EC Regulation on Insolvency Proceedings.

As to determination of the Company's COMI, the loan given by the Chargee represented that the Company would remain situated in the BVI which, while not definitive, was a clear indicator. The managerial functions and third party communications were primarily in Jersey, with some in Portugal and Ireland. The Administrators argued the COMI was E&W because the property was there, and there was also a suggestion that there were professional agents there. The judge held there was insufficient evidence showing the company’s COMI was E&W. Asset location was of no particular weight and agents operating in the jurisdiction are only relevant insofar as they discharge “head office” functions (of which there was no evidence) and not just limited commercial activities.

The Administrators further argued that the shortfall following sale meant there was no loss to the Company, which rendered the Liquidator's declaration of no practical utility. On this point the Judge stated that a Liquidator was entitled to have the validity of the Administrators' appointment determined and, while not policing them, the Court had its own interest in ensuring administrators were properly appointed.

This case again demonstrates the caution which should be applied by Insolvency Practitioners and lawyers when considering the appointment of E&W administrators over a foreign company. Failure to exercise such caution can store up potential problems which might only emerge a considerable distance down the line. A possible solution available to the Chargee might have been to follow the guidance provided by the Court of Appeal (E&W) in HSBC Bank Plc v Tambrook Jersey Ltd [2013] EWCA Civ 576 (Ch), following which courts in relevant countries or territories can request assistance from E&W courts in the form of appointment of administrators in E&W over a foreign company. The BVI has been delegated a relevant territory for these purposes. The Court of Appeal in Tambrook indicated quite firmly that this jurisdiction should be used to assist foreign courts by appointing administrators in E&W where a proper request is made.

This firm is not aware of an application for such a Letter of Request having been made to the BVI Court. While it is possible that the BVI Court may take a different view to the Jersey Court on the policy considerations of requesting that a BVI company be put into administration in E&W rather than liquidated in the BVI, there is no reason in principle why the Tambrook approach should not be available in the BVI.