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Jurisdiction Of Courts In England And Wales And Their Recognition Of Foreign Insolvency Proceedings

 

52.3 Introduction

The Insolvency Act 1986 as a whole extends to England and Wales, which is a single legal jurisdiction. Any references in this chapter to ‘English law’ include Wales.

The Act extends to Scotland apart from the provisions identified in section 440(2). Most of the corporate insolvency provisions apply there, although Scotland has a separate receivership system and its own rules on preferences and transactions at an undervalue. In Scotland private sector liquidators deal with corporate insolvency and a company is unlikely to be wound up if there are no assets to finance the insolvency practitioner, unless one or more creditors are prepared to bear the cost. The Act’s provisions relating to personal insolvency do not apply in Scotland which has its own system contained in the Bankruptcy (Scotland) Act 1985.

The Act, generally speaking, does not apply to Northern Ireland, which has its own system of both corporate and personal insolvency law. The Insolvency (Northern Ireland) Order 1989 (SI 1989/2405 (NI19)) which came fully into effect on 1 October 1991 is the counterpart of the Insolvency Act 1986 and brings the insolvency legislation in Northern Ireland into line with that of England and Wales.

Section 441 lists the provisions of the Insolvency Act 1986 that apply to Northern Ireland and makes clear that, apart from these provisions and any provisions expressly relating to companies registered outside Great Britain, nothing in the Act extends to Northern Ireland or to companies registered or incorporated in Northern Ireland.

Notes: [s440] The Bankruptcy (Scotland) Act 1985. The Insolvency (Northern Ireland) Order 1989 (SI 1989/2405 NI19) [s441] 

COMMENCING PROCEEDINGS

52.4 Bankruptcy

The purpose of section 265 is to establish a sufficient connection between the debtor and the bankruptcy system of England and Wales. There is a broad range of jurisdictional criteria which may permit the presentation of a bankruptcy petition. The debtor must have some connection with England and Wales by way of domicile, personal presence, ordinary residence, place of residence or the carrying on of a business for a petition to be presented, (see Chapter 45 - Proceedings up to order; paragraph 70). Where the EC Regulation on Insolvency Proceedings (see Chapter 41) applies the presence of a ‘centre of main interests’ or an ‘establishment’ is necessary

The court has discretion as to whether to make the bankruptcy order. The case of Re Thulin, [1995] 1 WLR 165 is an authority on the circumstances in which the court’s discretion should be exercised in the debtor’s favour.

The international aspects of a debtor’s affairs may be such that the conditions for commencing insolvency proceedings are met in more than one state. This may give rise to the possibility of multiple proceedings (see also part 6 of this chapter).

Note: [s265] [266(3)]

52.5 England and Wales

The High Court has jurisdiction to wind up any company registered in England and Wales. Concurrent jurisdiction is given to county courts where the company’s share capital paid up or credited as paid up does not exceed £120,000 and its registered office is situated in the court’s district, (see Chapter 45 - Proceedings up to order; paragraph 45.6).

Notes: [s117]

52.6 Scotland

The Court of Session has jurisdiction to wind up any company registered in Scotland. Concurrent jurisdiction is given to sheriff courts in Scotland on the same terms as for county courts in England and Wales. A company registered in England and Wales cannot be wound up in Scotland and vice versa.

Notes: [s220(1)(b)][s120] 

52.7 Northern Ireland

The object of section 220(1)(b) is to ensure that a company registered in the UK is wound up only in the jurisdiction in which it is registered but this does not appear to be the case as far as companies registered in Northern Ireland are concerned. Northern Ireland, although part of the United Kingdom, is not part of Great Britain and a company registered in Northern Ireland is not excluded from the meaning of unregistered company under section 220(1)(b).

In the case of Re Normandy Marketing Limited [1993] BCC 879 it was held that by virtue of section 220 and section 441, read together, the courts in England and Wales have jurisdiction to wind up a company registered in Northern Ireland on the petition of the Secretary of State under section 124A (on the grounds that it was in the public interest to do so), provided that it had a principal place of business in England and Wales. However, this case has been the subject of much academic question and it is far from certain that the decision would be followed by another court.

Note: [s220(1)(b) and s441]

52.8 Foreign companies

Overseas companies and associations, including partnerships, with assets in England or Wales may be wound up as unregistered companies, (see Chapter 58, Unregistered companies). There have been judicial decisions to the effect that it is not a necessary requirement that there should be any asset of the company situated within the jurisdiction of the court for a winding-up order to be made. Provided that a sufficient connection with this country can be shown, together with a reasonable prospect that a winding up would be of benefit to creditors, a winding-up order may be made. In one case, the fact that the company's business had been controlled and conducted from a location in England (a hotel near London) was treated as satisfying the sufficient connection test (Re a Company (No. 003102 of 1991) ex parte Nyckeln Finance Co. Ltd [1991] BCLC 539).

An overseas company which has previously carried on business in Great Britain may be wound up in Great Britain notwithstanding that it has been dissolved or otherwise ceased to exist as a company under the laws of the country of its incorporation.

The court has an unrestricted discretion to make or refuse an order, or to make an order subject to conditions. In the case of an overseas company, it may decline to order a winding up, or grant a stay of proceedings here, on the grounds that the courts of another country would provide a more appropriate forum. (Re Harrods (Buenos Aires) Limited [1992] Ch 72; [1991] BCC 249.

Most governments provide websites with information on the registration of companies and access to company information. These sites can be accessed through links on the Companies House International pages at www.companies-house.gov.uk.

Notes: [s221] [s225]

52.9 Scope of UK insolvency

Historically United Kingdom insolvency has adopted an extraterritorial approach to property. Under that approach all property belonging to the debtor, wherever situated, is covered by the Insolvency Act 1986. The liquidator is entitled to take control of all property of a company in liquidation and the property of a bankrupt, (with exceptions), vests in the trustee. Therefore under English law the liquidator or trustee has the power to deal with all the assets. Most other countries have a similar universalist approach but in practice the law of the country in which the property is situated retains control. However, the EC Regulation on Insolvency Proceedings (see Chapter 41) has significantly restricted the universalist approach, particularly when there are concurrent insolvency proceedings.

Notes: [s144] [s283] [s436]

52.10 Choice of law

Where legal proceedings have an international dimension, because the parties are not English or because property is situated in another jurisdiction a conflict of laws arises. The questions that generally arise in conflicts of law cases are whether the English court has jurisdiction to deal with a case and, if so, what law it should apply in so doing. However, in the case of an English winding up, or administration, or bankruptcy the choice of laws issue does not arise since it is the Insolvency Act 1986 that applies. In the case of Re Bank of Credit and Commerce International S.A. (No. 10) [1997] Ch 213 Sir Richard Scott V-C made clear that, even where a foreign company was in liquidation in the country of its incorporation and a winding-up order made in England would generally be regarded as ancillary, that did not relieve the English court of its obligation to apply English law to the resolution of any issue arising in the winding up.

52.11 Private international law

In the absence of an international convention governing insolvency proceedings English lawyers have had regard to a set of judge-made rules in order to resolve jurisdictional conflicts of laws issues. These rules are often referred to as private international law and form part of English domestic law. Unlike public international law, which regulates relations between sovereign states and is in theory the same everywhere, private international law differs from one country to another. That difference is markedly significant between common law and civil law countries.

52.12 Recognition of foreign insolvency

The recognition of foreign insolvency proceedings is based on case law. The courts in England and Wales have adopted an internationalist approach to insolvency in order that the debtor’s estate should be administered for the benefit of all creditors on a worldwide basis. Many countries will look to past decisions of the other country before deciding if and how far to recognise the other’s laws. Even in a time of war recognition has been given to the enemy country’s law.

52.13 Limits to recognition of foreign proceedings

The court in England limits its recognition of foreign insolvency proceedings as follows:

  • Public Policy can prevent the recognition of foreign law. For example, illegal contracts for the supply of drugs, for immoral purposes or to do damage, would not be recognised by the court in England even if they were legal in another state. A debt arising from such a contract could not be the basis for a winding up petition or bankruptcy proceedings or be a provable debt.

In the case of Re a Debtor, ex parte Viscount of the Royal Court of Jersey [1981] Ch 384, Goulding J accepted that the English court would not lend its assistance to any foreign insolvency proceedings which ‘offended against some overriding principle of English law’.

  • A foreign decree of insolvency obtained as a result of fraud may not be recognised.

  • A foreign decree of insolvency obtained in breach of the rules of natural justice may not be recognised.

  • Any foreign insolvency proceedings which constitute an attempt to enforce foreign penal or revenue laws in England may not be recognised.