An application was made for recognition in Great Britain under the Cross-Border Insolvency Regulations 2006 ("CBIR") of new legislation in Croatia known as "Extraordinary Administration Proceeding".

Agrokor DD (Company), Croatia's largest privately owned company, the holding company of a group of companies specialising in agriculture and food production encountered financial difficulties. Because of the size of the Company and these difficulties it appears to have prompted the enactment of new legislation in Croatia intended to facilitate the restructuring of the Company, and its subsidiaries and affiliates, and to preserve their businesses as going concerns.

The legislation was passed on 6 April 2017 and the next day the Company and its subsidiaries applied to place themselves into extraordinary administration. This created a moratorium on actions within Croatia but some of the Company's debt obligations were in England where the moratorium would not bite unless the Croatian proceedings were recognised in England.

Accordingly the Company, and critically solely the Company and not its subsidiaries, applied to the High Court under the CBIR for the extraordinary administration in relation to the Company to be recognised as a foreign main proceeding. The application was challenged by Russian bank creditor, Sberbank, who claimed to be owed in excess of €1 billion. It was challenged on the basis that the proceeding was not a "foreign proceeding" as set out in Article 2(i) of Schedule 1 of the CBIR, or if it was it was contrary to public policy for the proceedings to be recognised. It was challenged because the extraordinary administration:

  1. was not a law relating to insolvency;
  2. was not passed for the purpose of a reorganisation;
  3. was not a collective proceeding;
  4. was not subject to control or supervision by a foreign court;
  5. was a single group proceeding in respect of the Company and its subsidiaries and was therefore outside the scope of Article 2(i).

The principal question for the Court to consider was whether the CBIR permitted recognition of a foreign proceeding in respect of a group of companies even though the recognition was sought only in relation one specific company.

As the CBIR is silent as to group proceedings the Court had to interpret whether this allowed or did not allow recognition of a single company within group proceedings. HHJ Matthews took guidance from two decisions in the United States (Re Rede Energia SA and Re OAS SA) as well as commentary on the UNCITRAL Model Law and held that the CBIR did not prevent a foreign proceeding being recognised where it involves a group of companies with recognition requested only in relation to a single company.

The Court acknowledged that such groups are today very common and if it was not recognised as such, it would limit the range of possible options for international recognition. The Court also analysed the secondary elements and considered that the extraordinary administration met the requirements to be classed as a foreign proceeding.

Under the extraordinary administration the group's assets and liabilities would be combined to achieve a group settlement and so it was challenged on the basis that this would infringe the pari passu principle and legal public policy in English law.

It was held that in some circumstances it may be possible not to comply with the pari passu principle and the principle can be overridden in appropriate cases even under English law (Re Bank of Credit and Commerce International SA (No 3) [1993] BCLC 1490 (CA)).

The court held that there is no violation of public policy in merely recognising the proceeding if the priorities of the Croatian law in reorganising or liquidating the company are different from those which would apply under English law (referring to HIH Casualty and General Insurance Ltd [2008] 1 WLR 852 (HL)).

Therefore, the criteria for recognising the extraordinary administration proceeding in Croatia as a foreign main proceeding within the CBIR were met and recognition of the proceeding was granted.