We are increasingly being asked to advise non EU resident nationals, with cross jurisdictional lives, who wish to take advantage of the IVA regime in England & Wales.  A fairly standard scenario we see is this:

  • Non EU national has debts arising in both non EU states and the UK.  They live in both the UK and their non EU state of origin.
  • They have assets in the UK being called upon by creditors owed monies by them (who have UK judgments against the debtor).
  • The debtor wants to enter into an IVA in England and to seek the protection of an interim order.  

The EU Insolvency Regulation does not apply because the non EU state is not a party to / bound by it.  This raises issues relating to jurisdiction.

In an ‘ordinary’ IVA the debtor will usually be domiciled, habitually resident or carrying on business in England or Wales.  When this is the case the appropriate court for an IVA will be governed by the Insolvency Act 1986.

In our above scenario the debtor resides both in a non EU state and England, and the EC Regulation does not apply.  The question of whether the English Courts have jurisdiction is therefore governed by the Cross-border insolvency Regulations 2006 (“CBIR 2006”) which brings into effect in the UK the United Nations Commission on International Trade Law (“UNCITRAL”) Model Law on Cross-border insolvency.

As in the case of the EC Regulation, jurisdiction for insolvency proceedings under CBIR 2006 is determined primarily by the debtor’s Centre of Main Interests (“COMI”).  Proceedings commenced in the jurisdiction where the debtor has his COMI are ‘main’ proceedings.  Proceedings which are instituted in a jurisdiction other than that in which the debtor has his COMI will, where permitted, be ‘non-main’ proceedings and will be subservient to any main proceedings when they are issued.

IVA proceedings may be non-main proceedings under the CBIR 2006 (they may not be under the EC Regulation) but they are capable of being overtaken or countermanded by other main proceedings.  In the vast majority of cases, therefore, it is unrealistic to suppose that an IVA will be able to continue after main proceedings to bankrupt the debtor have been commenced in a foreign jurisdiction.

In all but the most exceptional of cases, therefore, it will be the case that IVA proceedings will only proceed with any prospect of success in England and Wales where the debtor has his COMI in this jurisdiction. In addition, the issue of proving that COMI is in England must be overcome in order for the proposed nominee to be satisfied that the IVA proposal is feasible for the purposes of submitting a nominee’s report.

In our scenario, if COMI in England could not be proved, we would either have to work on the basis that we did not anticipate other main proceedings against the debtor (clearly not ideal), or the debtor could commence main proceedings in his other state of residence.

Recognition of foreign main proceedings in England and Wales

If main proceedings were commenced in the Debtor’s non EU home state, would they be capable of being recognised in England and could the debtor obtain the protection of a stay on enforcement proceedings in England as a result?

In a recent case we had, it was particularly important for the debtor to obtain the protection of an interim order here in England.  The CBIR 2006 provides a framework for the recognition by and cooperation of, the English courts in relation to insolvency proceedings commenced in a foreign jurisdiction.

In the recently reported case of OJSC International Bank of Azerbaijan [2017] EWHC 2075 (Ch), the High Court approved an application for the recognition of restructuring proceedings of an Azerbaijani bank under the CBIR 2006. In addition, it granted discretionary relief equivalent to the moratorium in English administration proceedings.  The case was a useful reminder that the English Court can provide discretionary relief:

  • Under article 21 CBIR 2006, as it did in this case; or
  • Under article 20(6) CBIR 2006 which enables the court to modify (and thereby extend) the automatic relief that otherwise applies to foreign main proceedings, as it has done in other cases.

In practice, it is unlikely that an English Court would prevent secured creditors from enforcing their security unless the foreign proceedings also prevented this. The Judgment appears to suggest that the Azerbaijan restructuring proceedings included a stay on the enforcement of security.

In our scenario, advice would need to be taken on the non EU home state’s insolvency process to establish whether restructuring or insolvency proceedings include a stay on enforcement of security there.  Conversely, advice on that state’s law would need to be taken in relation to a third possible scenario: Whether or not that state would recognise an English IVA (if commenced first and if main proceedings).

It is clear that, whilst UNCITRAL and the resulting case law goes some way to the harmonisation of laws and the procedure for recognition is more well defined than previously, it remains the case that local assistance is often inevitably required.