All over the commercial world these days, businesses of all shapes and sizes trade internationally. Globalisation is not just the preserve of multi-nationals. The result is that sorting out business failures in one country often involve dealing with a range of issues in another; in particular, realising the value of an asset located in a foreign jurisdiction.
If those overseas issues are domiciled in England, the question is how the insolvency professional appointed as office holder in the original country can take whatever steps are necessary to deal with such matters as taking control of and selling assets here, compromising English creditor claims or settling litigation being conducted under English law.
Fortunately, English law provides for the recognition of Foreign Insolvency Professionals (FIPs) and the proceedings under which they have been appointed. Because of this, FIPs can take recovery actions in England as part of a foreign insolvency procedure, without the costs and duplication of appointing an additional UK insolvency professional under a UK procedure. Once they have been recognised, English Courts will provide the appropriate assistance to FIPs.
There are two main ways for FIPs to obtain recognition and a third possible approach, which involves reversing this cross-border co-operation by appointing a UK insolvency practitioner over a foreign company or corporation. As with so many innovative insolvency solutions, the implementation devil is in the detail, but these options can produce surprisingly positive outcomes for stakeholders.
Cross-Border Insolvency Regulations 2006 (CBIR)
The gold standard and most widely applied international insolvency regime is the UNCITRAL Model Law on Cross-Border Insolvency 1997, which was imported into English law by the CBIR. This legislation offers a streamlined process for recognising foreign insolvency proceedings and granting relief to FIPs appointed in jurisdictions that have adopted the Model Law in one way or another through local legislation. Almost fifty other countries have versions of the Model Law, including the USA, Australia, Canada, various offshore jurisdictions and many in Africa.
An application for recognition can be made to a low level of English court and is procedurally simple. It cannot be challenged provided that the FIP has been properly appointed in their home jurisdiction. Once recognised, a FIP may take actions under English jurisdiction similar to those available to an English insolvency practitioner, including:
- Freezing bank accounts based in England
- Taking enforcement action on property or other assets
- Obtaining documents and information from a debtor to support proceedings in other jurisdictions
Section 426 Insolvency Act 1986 (s.426)
s.426 is an alternative route for recognition of and assistance to FIPs in certain specified jurisdictions under English law. It has some additional advantages over the CBIR process, although is more procedurally complex and requires an application to a higher level of Court in England.
Because the UK is a sovereign state consisting of multiple countries, the objective of s.426 is to allow an insolvency office holder from any part of the UK (such as Scotland) to be recognised in England. The “any part of the UK” definition in the Insolvency Act 1986 includes a list of several other countries outside the UK but which have a legal connection to it. For example, the schedule includes the Cayman Islands, Hong Kong and Ireland, countries which are not covered by the CBIR process.
The main benefit of recognition via this route is that the FIP can use the powers of an English insolvency office holder in the United Kingdom, instead of only being able to rely on the assistance of the English courts in support of the FIP’s existing domestic powers, as would happen under CBIR.
By way of an example, a FIP can bring English claw back claims, which may have greater value and have a longer look-back period than similar claims available in the FIP’s home jurisdiction. Investigative powers available under English law may also be more extensive than those available to a FIP domestically.
Applying an English insolvency process to a foreign entity
The English court can appoint a Liquidator or Administrator under the Insolvency Act 1986 over a foreign company, provided it rules that it has the jurisdiction to do so. The usual test is the location of assets within English jurisdiction. A key feature is demonstrating to the Court that the creditors of the foreign entity understand that its centre of main interests is in England and not in the country where it is registered.
Many jurisdictions lack the legal infrastructure to provide a prospective insolvency office holder with the tools they may need to carry out a complex restructuring, whilst also ensuring the efficient survival of the company’s business and maintaining value for stakeholders. In some cases, applying the relevant English insolvency process to a foreign company can facilitate and even enhance recovery options, which would not be available under its domestic regime.
If you are seeking professional advice for your business, we are here to help. We can arrange for you to speak to one of our Partners, who can discuss options with you. We have offices nationwide and by contacting us on 0203 995 6380, you will be able to get immediate assistance from our Partner-led team.