The Scottish Court of Session considers the interaction of Indian insolvency proceedings for three Scottish Companies that had also been placed into Administration in Scotland.

Background

The Victoria Jute Company Limited ("Victoria"), The Samnuggur Jute Factory Limited ("Samnuggur") and Titaghur plc ("Titaghur") were all incorporated in Scotland, but had been carrying out their business in India.

Upon failing to pay pension contributions required under their employers' pension schemes, each of the three companies became subject to an order issued by the (Indian) Employee's Provident Fund, the effect of which was to seize the companies' entire assets. In addition, various orders were made by the High Court of Kolkata prohibiting Victoria and Samnuggur from dealing with or granting charges over their assets. Titaghur became subject to liquidation proceedings in India, whilst a winding up petition in India is pending against Samnuggur.

Administrators were appointed in respect of Victoria and Samnuggur on 24 October 2011, and in respect of Titaghur on 16 March 2012, on the application of Hooley Limited ("Hooley") as the holder of floating charges.

Shortly after the companies had entered into administration, Hooley agreed to purchase the business and assets of all three companies from the administrator, and entered into various agreements to this effect. Hooley then made an application to the court seeking declaratory orders confirming the dispositions by the Administrators were valid.

However, a creditor of the company opposed Hooley's application for declaratory orders and also attempted to dispute the validity of the floating charges and by consequence the appointment of the Administrators.

Issues for debate

The Court had to consider:

  1. Given the entire property of the companies was located in India, does the floating charge over those assets need to be legally valid under Indian law in order to be deemed a "qualifying floating charge" ("QFC") capable of instigating administration?
  2. Furthermore, if the floating charge is indeed a QFC, is it "enforceable" within the meaning of paragraph 16, Schedule B1 even if it is not enforceable under Indian law?
  3. Finally, if the charge is a QFC and is "enforceable", are the powers of the administrators limited by the ongoing Indian insolvency proceedings?

The reason that this third question arose for debate is because of the concept of "modified universalism", the idea that the court has common law power to assist foreign winding up proceedings so far as it properly can. The creditor's argument was that this assistance should extend to refraining from taking any action which might hinder the progress of insolvency proceedings abroad.

Decision

In relation to the three points, it was held:

  1. The QFC did not need to be recognised as legally valid under Indian law. Lord Tyre felt that if it was necessary to consider the validity of the charge in other jurisdictions, then the appointment of the administrator would be uncertain for an unknown period of time. This uncertainty would prevent the administrator from being able to properly carry out his duties.
  2. The charge did not need to be "enforceable" under Indian law for it to be valid, merely that it must have become enforceable under its own terms.
  3. The administrator was not limited by the ongoing Indian insolvency proceedings. Although the principle of "modified universalism" was acknowledged by Lord Tyre, he found no reason to extend the scope of the principle in the way outlined above. In fact, by a correct interpretation of the principle, the insolvency proceedings taking place in India should be regarded as ancillary to the administration proceedings taking place in Scotland, given that the companies themselves were incorporated in Scotland.