10 September 2013
 EWHC 3351 (Ch)
Companies Court, Chancery Division (David Richards J)
Company held to be insolvent despite limited recourse stipulations
The company ARM Asset Backed Securities (“ARM”) made an application to the High Court for the appointment of provisional liquidators, having already presented a petition for just and equitable winding up.
The Court first held that ARM’s ‘centre of main interest’ (“COMI”) was in London, notwithstanding the fact that it was incorporated in Luxembourg (Re Eurofood IFSC Ltd (C-341/04)  Ch 508 applied). Evidence of the location of ARM’s head-office function was sufficient to rebut the presumption in article 3.1 of the EC Regulation on Insolvency Proceedings (1346/2000).
A further issue arose as to whether the EC Regulation could apply to a just and equitable petition. The issue was not resolved in light of the urgency of the application and the case proceeded on the basis that it could not. However it was held that evidence showed ARM to be insolvent and permission was granted to allow it to amend the winding up petition to rely on its insolvency.
A factor in the assessment of ARM’s insolvency was that its bonds were issued on a ‘limited recourse’ basis: the rights of creditors to recover were restricted to the available assets of the company. The Court held that ARM was still unable to pay its debts, having liabilities on bonds that exceeded the assets available to it notwithstanding limited recourse stipulations.
The Court concluded that provisional liquidators should be appointed where they would be better placed than the existing directors to come to an arrangement with the Company’s creditors and achieve an orderly distribution of assets.
Arguments as to solvency were necessitated in this case solely in order to ensure that the Regulation applied to the provisional liquidation. Although the decision seems to leave the way open for argument that limited recourse provisions may be viewed as ineffective in preventing insolvency, on the facts the court did not appear to have considered how such bonds should be valued for insolvency purposes.