Anglo Irish Bank Corp Ltd v Flannery (2012) (unreported)

Bankruptcy petition refused as appellant bank had not established a good arguable case that a foreign national had carried on business in England or Wales

Anglo Irish Bank Corp Ltd (the Bank) had granted loan facilities to a group of seven real estate investment companies registered in England. The companies defaulted and the Bank sought to recover from the facilities' Guarantor (F), an Irish national who resided in Andorra. F failed to make repayment or satisfy the requirements of a statutory demand, so the Bank sought to issue insolvency proceedings against F, under English law by presenting a bankruptcy petition in the High Court.

F had not resided or had a place of residence in England and Wales. For the High Court to accept jurisdiction, the Bank had to establish a good arguable case that F had carried on business in England or Wales in the three years prior to presentation of the petition. The Registrar concluded that the Bank had not done so and dismissed the petition.

The Bank appealed, but the appeal was dismissed. The Judge said of the Bank's documentary evidence:

  • A credit committee application showing F dealing with the Bank as a non-director confirmed that F was a guarantor, but not that any of the companies were to be used as part of a business carried on by F;
  • The bank memorandum showed that the Bank understood F to be the ultimate beneficial owner of shares in the companies. This did not refute F's explanation and supporting documentation showing that he had ceased to be the beneficial owner of the shares in 2003; and
  • Correspondence between one of the companies' directors and F confirmed the importance placed on F acting as guarantor but not that F had any involvement in the management of the companies.

The Judge concluded that the Bank had failed to present an arguable case that F had been carrying on business during the relevant period. The Registrar had been correct to dismiss the petition.

Bank Handlowy w Warszawie SA & Anor v. Christianapol sp. z o.o. (CJEU C-116/11); [2012] All ER (D) 300 (Nov)

CJEU holds that member states' national laws determine when insolvency proceedings are closed, and that a debtor's insolvency cannot be examined in secondary proceedings

The First Chamber of the CJEU has given its interpretation of provisions of the EU Insolvency Regulation in respect of the opening and closure of insolvency proceedings.

A debtor company (C) established in Poland was the wholly-owned subsidiary of a German company, which was in turned 90%-owned by a French company.

A French Court found that C's COMI was in France and opened rescue proceedings (procedure de sauvegarde, a court-controlled rescue proceeding analogous to the US Chapter 11 regime). An appellant bank (B), a creditor of C, asked the Polish Court to open secondary insolvency proceedings against C, or in the alternative, to open winding-up proceedings under Polish law.

The French Court approved a rescue plan, following which C contended that secondary proceedings should be discontinued since the main proceedings had closed. C also claimed that it was fulfilling its obligations under the rescue plan, so there were no outstanding claims under Polish law and therefore no grounds supporting a declaration of insolvency.

The Polish Court asked the French Court if the French insolvency proceedings were still pending. The answer by the French Court did not provide clarification so the Polish Court stayed the Polish proceedings and made a reference to the CJEU.

The CJEU made the following ruling on the interpretation of the Insolvency Regulation:

1. In respect of the concept of ‘closure of the insolvency proceedings’ in Art 4(2)(j), it was for the national law of the Member State, in which insolvency proceedings had been opened to determine at which moment the closure of those proceedings occurs;

2. Art 27 permits the opening of secondary insolvency proceedings in the Member State in which all of the debtor’s assets are situated, where the main proceedings have a protective purpose. It is for the Court having jurisdiction to open secondary proceedings to have regard to the objectives of the main proceedings and take account of the scheme of the Insolvency Regulation; and

3. A Court to which an application to open secondary insolvency proceedings is made cannot look behind the main proceedings, even where the main proceedings have a protective purpose. A prerequisite for the opening of main proceedings is that the Court has established that the debtor is insolvent under its national law; this is binding on any other Courts before which an application to open secondary proceedings is made.

Updates from around the World

Kuwait / England and Wales
The English High Court has sanctioned a scheme of arrangement restructuring a Kuwaiti investment company. Under the scheme, Global Investment House's English law-governed conventional and Islamic debt are to be treated as a single class. This is the first Islamic finance facility to be restructured in this way.

Having consulted widely, the European Commission has released its proposals for modernising the EU Insolvency Regulation. The proposed new rules would shift focus away from liquidation and develop a new approach to helping businesses overcome financial difficulties.

The Ministry of Economy has introduced new insolvency laws to try to eliminate existing loopholes and assist in the rehabilitation of insolvent companies. The new laws will change the rules on the disposal of bankruptcy assets and on the bankruptcy of entrepreneurs. The changes are expected to come into force on 25 January 2013.

In Commonwealth Bank of Australia v Oswal, the Court confirmed that, under Australian law, if a debtor was carrying on business in Australia at the time of an act of bankruptcy he continues to carry on business until his debts have paid in full. Leaving the country will not necessarily avoid the bankruptcy jurisdiction.

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David Pomeroy
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Alan Bennett
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