Summary
IMS group: centre of main interest and examinership in Ireland
HMRC petition
UK cooperation with foreign proceedings
Irish High Court application
UK court petition hearing
Comment
In October 2011, in proceedings taking place across Ireland and England, an Irish company secured unique cooperation between the Irish and English courts in relation to the examinership of a group of companies, resulting in the Irish High Court granting protection to a UK company under Irish examinership law. The first-ever successful application was made for:
- court protection in Ireland for an insolvent UK company under the Irish Companies (Amendment) Act 1990; and
- the dismissal of a winding-up petition in the United Kingdom based on a letter of request from the Irish High Court and assistance under the Cross-Border Insolvency Regulations.
The original application for examinership in Ireland and the subsequent winding-up petition, made by Her Majesty's Revenue Commissioners (HMRC) and presented in the United Kingdom, raised a number of significant issues for UK and Irish insolvency practitioners and sets a precedent for financially troubled groups to follow.
IMS group: centre of main interest and examinership in Ireland
The Irish Medical Systems group provides software for the storage and access of medical records in the United Kingdom and Ireland. In 2011 the group suffered financial difficulties and sought to secure insolvency protection from the Irish High Court under the Irish Companies (Amendment) Act 1990, which provides for examinership in Ireland and is comparable to Chapter 11 protection in the United States. Companies which are insolvent, have a reasonable prospect of survival and those whose centre of main interest is in Ireland may be entitled to benefit from such a court order.
The group included a UK subsidiary. It was critical - not only to the group's continued business, but also to the continuous provision of medical services - that the group remain unified. In late August 2011 the Irish High Court confirmed the appointment of an examiner to the group. The group was effectively managed and controlled in Ireland and the Irish High Court accepted that the UK subsidiary's centre of main interest was also in Ireland.
An entity's centre of main interest is usually presumed to be the place of its registered office, but this is a rebuttable presumption. The group was able to convince the Irish High Court that the UK subsidiary's centre of main interest was in Ireland. Accordingly, the Irish High Court granted protection to the group, including the UK subsidiary, and appointed an examiner to it.
HMRC petition
A successful examinership provides a company with a moratorium in respect of creditors filing insolvency proceedings, and a platform to reorganise the company's debt through a court-approved scheme. After the initial appointment of the Irish examiner, HMRC petitioned to wind up the UK subsidiary through secondary proceedings in the English High Court.
Secondary proceedings in a state where a debtor has an establishment can be problematic, as increased costs will be incurred and may prejudice the successful achievement of the purposes of the main insolvency proceedings. In order to succeed in opening secondary proceedings, the applicant creditor must demonstrate to the English court a proper interest in the opening of such proceedings sufficient to override these considerations.
UK cooperation with foreign proceedings
Under Section 426 of the Insolvency Act 1986 the UK courts can assist courts that have corresponding jurisdiction in any other part of the United Kingdom or any relevant country or territory, including Ireland. An application for assistance is usually made by way of a request from the relevant foreign court. The UK courts will extend assistance unless there is good reason not to do so.
Similarly, under Articles 15 and 17 of the Cross-Border Insolvency Regulations an application can be made for recognition of a foreign representative (in this instance, the Irish examiner) in foreign main proceedings. However, the recognition of the examiner under Articles 15 and 17 would result only in a stay of proceedings. Under Article 21 a court may, at the request of the foreign representative, grant any "appropriate relief", but there is no UK authority on "appropriate relief" in Article 21.
In the present proceedings, while an Irish examiner might have been recognised, this would merely have provided a stay on proceedings. In order to attract new financing for the group, the UK subsidiary could not have the threat of a winding-up petition pending against it. A bidder for the group in Ireland was unprepared to make the necessary investment and commitments that would secure the group's future while proceedings were pending against the UK subsidiary.
On an expedited basis the group applied to the Irish High Court for assistance on October 28 2011. The court ordered that a letter of request be sent to the UK courts and the examiner was authorised to appear before the UK courts and make any necessary application. The Irish High Court's letter of request asked the UK court to:
- take into account the Irish court's desire for the petition to be struck out;
- strike out or dismiss the petition immediately; and
- grant such further or other relief or assistance under Section 426 or the regulations as would be just and convenient.
At the English High Court on October 31 2011, in light of the Irish High Court's order of October 28 2011, HMRC (supported by another creditor) applied for an adjournment to consider the letter of request and the court order.
However, the UK court refused an adjournment and ordered that the petition be heard that afternoon. The court referred to the word "immediately" in the letter of request, taking the view that an adjournment would not address the Irish High Court's request.
The full hearing followed that afternoon and the court, relying on the Irish letter of request and Section 426 of the Insolvency Act, dismissed the petition and reserved the question of costs, stating that:
- the letter of request came from a court in a friendly jurisdiction which was a member state of the European Union;
- the Irish legal system was respected by the High Court; and
- only in the most compelling circumstances would the High Court decline assistance to a court in a foreign jurisdiction. No such circumstance arose in this case.
On December 14 2011, at an uncontested hearing before Mr Justice Ryan in the Irish High Court, the examiner's proposals for the group were approved with an effective time and date of 2:00pm on Tuesday December 20 2011.
The applications in the Irish and UK courts show the effectiveness of the cooperation on insolvency between the two jurisdictions. It enables non-Irish incorporated companies to avail themselves of the Irish examinership legislation in the clear knowledge that the UK courts under the Insolvency Act and the Cross-Border Insolvency Regulations will support the process.
For further information on this topic please contact Louise Verrill or Bernard McEvoy at Brown Rudnick LLP by telephone (+44 20 7851 6000), fax (+44 20 7851 6100) or email ([email protected] or [email protected]).