It is not uncommon for companies, often property related joint ventures or single purpose vehicles, to be incorporated abroad for tax reasons but carry on much of their business in Scotland or elsewhere in the U.K. This can result in difficulties when determining where to initiate insolvency proceedings.
Insolvency Practitioners and Banks are now all familiar with the EU Regulation on Insolvency Proceedings. In order for the EU Regulation to apply, a company requires to have a centre of main interests (COMI) within the EU . However, what do you do when faced with a foreign company that does not have a COMI or even an "establishment" in the any member state of the EU but does have a substantial connection with Scotland?
Shepherd and Wedderburn were recently instructed by a leading UK bank to give advice regarding its lending to various property development companies incorporated in the British Virgin Islands or Gibraltar. The companies were clearly administered in the country of incorporation but had a substantial connection with Scotland in that the main asset of each company was located in Scotland.
The option of opening insolvency proceedings in the country of incorporation was not an attractive one for the bank therefore we looked at the ability of the Court of Session to exercise a winding up jurisdiction over "unregistered" companies (which includes foreign companies). There was case law in England setting out the core requirements in these types of cases but very little direct Scottish authority on the issue. In terms of the case law in England there needed to be (1) a sufficient connection with the jurisdiction which might, but did not necessarily have to, consist of assets situated within the jurisdiction; (2) a reasonable possibility, if the winding up order was made, of benefit to those applying for the winding up order and (3) one or more persons interested in the distribution of assets of the company had to be persons over whom the court could exercise jurisdiction.
It appeared to us that all three requirements applied to our cases and the Court agreed. We understand that, following these successful applications, the Court will take the opportunity of clarifying the core requirements in Scotland in relation to winding up unregistered companies which should be of assistance to both creditors and Insolvency Practitioners faced with a similar situation in the future.