Relief as Court of Appeal orders administration of an insolvent Jersey company

We reported recently that the High Court had called into question the availability of administration for Jersey and certain other offshore companies: see our client alert on the decision in HSBC Bank v Tambrook Jersey Ltd [2013] EWHC 866.  This first instance judgment caused some concern, particularly in relation to real estate structures involving Channel Islands companies, as Mann J had concluded that the English court did not have the jurisdiction to  make an administration order in respect of a Jersey company whose centre of main interests (COMI) remained in Jersey, unless there were  (potentially value destructive) existing or planned insolvency proceedings in Jersey.  The judgment, which was based on a narrow interpretation of the statutory assistance mechanism contained in section 426 of the Insolvency Act 1986 (“section 426”), was considered surprising in the light of earlier authorities including Re Dallhold Estates (UK) Pty Limited [1992] BCLC 621 and a number of (unreported) decisions where administration orders had been made under section 426 in relation to Jersey companies.

The Court of Appeal Judgment

The Court of Appeal has now unanimously overturned that decision, rejecting what it saw as an “unduly and unnecessarily restrictive” interpretation of section 426. The Court of Appeal decided that an administrator could be appointed over a Jersey company (or any other company in a country designated under section 426) without the need for separate insolvency proceedings in that country. Its reasoning, which is now available (HSBC Bank v Tambrook Jersey Ltd [2013] EWCA Civ 576), focussed on both the purpose of section 426 and its precise wording.

In relation to the purpose of section 426, the Court of Appeal took the view that giving assistance by agreeing to appoint an administrator would accord with the principle  of “modified universalism” reflected  in the Cork Report, which recommended  that there should be only one set of insolvency proceedings where practicable. Why, given this background,  would the statute require a separate formal insolvency process in the requesting state before any assistance could be provided under section 426, even where a separate insolvency process “was not desired, would serve no purpose (indeed, would be counter-productive) and would run up needless costs”?

Turning to the wording of section 426, the Court of Appeal considered that:-

  • section 426 should be given “a broad interpretation” and its wording  was wide enough to encompass the assistance requested in this case;
  • specifically, the court should not equate “having” jurisdiction (the wording used in section 426(4)) with “exercising” jurisdiction. Assistance under section 426 did not therefore require there to be formal insolvency proceedings in the requesting state. It was, however, acknowledged that section 426 did not permit an English court to provide assistance when requested in matters unrelated to insolvency; and
  • in any event, the Royal Court of Jersey had exercised its insolvency jurisdiction, even without there being any formal insolvency proceedings opened or contemplated. It had clearly considered the interests of the insolvent company and its creditors and was seeking to facilitate the most efficient collection and administration of its assets when it requested the English court to make an administration order.


Comment

The High Court decision had raised concerns about what insolvency options were open to the stakeholders of Jersey and other foreign companies with assets in England but whose COMI was elsewhere (and could not be moved). The Court of Appeal decision will therefore be welcomed as a ‘return to business as usual’ and validates the approach which English courts have previously taken in unreported cases when section 426 was used to assist insolvency courts in Jersey and other designated jurisdictions by appointing an administrator over a company in that jurisdiction.

Please ask your usual Linklaters contact if you have any queries regarding this alert.