COMI considerations in an opposed administration

Overview

This case considers when a court will grant an administration order in circumstances where a foreign court has already appointed an insolvency practitioner.

Background

On 9 June 2023, Münchener Hypothekenbank eG (the “Bank”) sought an order petitioning Seventeen Yellow Crowns SÀRL (the “Company”) into administration. The petition was opposed by Christian Steinmetz, who had been appointed as curateur de faillite (the “Luxembourg Bankruptcy Trustee”) of the Company by the Luxembourg District Court on 22 March 2023.

The Company is a Luxembourg company with its centre of main interests in Luxembourg, but its principal asset (a large office building which it rents out to several tenants) in Bothwell Street, Glasgow. In 2017, the Bank made a £34,350,000 term loan available to the Company. The Company failed to repay the loan by the due date of 13 December 2022. £32,666,612.96, plus default interest of 4.74%, was due under the facility agreement.

The Luxembourg Bankruptcy Trustee opposed the administration petition, maintaining that the Court ought not to exercise its discretion to appoint administrators because he has already been appointed bankruptcy receiver in the Luxembourg proceedings. The Luxembourg Bankruptcy Trustee also pointed out that, until his appointment, the day-to-day administration of the Company was carried out in Luxembourg by managers working there, with the Company's VAT and tax registration also being in Luxembourg. The Company's ownership of the Glasgow property was its only connection to Scotland - it had no employees there, and no decisions as to the operation of the Company’s business have been taken there.

The Court’s Decision

The parties acknowledged that the question to be answered was how the Court ought to exercise its discretion to make or refuse an administration order in the circumstances of this case.

The Court distinguished certain authorities cited by the Bank on the basis that these authorities were not dealing with a situation where there was, in effect, a prospective competition between an insolvency practitioner already appointed by a foreign court of competent jurisdiction and administrators whose appointment was sought in the Scottish Court. The Court noted that a single jurisdiction, normally that of the country or state of incorporation, should have overall control. The Court also emphasised that the views of the majority of creditors in number and value should be given great weight.

Drawing those strands together, the Court found that it should only install an insolvency practitioner in competition with (as opposed to ancillary to) one already put in place by a foreign court of competent jurisdiction if: (1) there is some matter attending the appointment of the foreign practitioner which the Scottish Court ought not to tolerate, or (2) the ability of the foreign practitioner to perform his appropriate functions in Scotland can be shown objectively to be likely to be attended by such difficulties as to make the installation of a domestic practitioner an expedient course of action.

Here, the Luxembourg court exercised its jurisdiction to commence a liquidation process over a company registered in the Grand Duchy and which carried on its business there. Such an exercise of jurisdiction could under no circumstances be considered exorbitant according to ordinary principles of international law. The courts of the place of registration of a company are the natural forum for its winding up.

The Luxembourg Court had been apprised of the fact that the Scottish proceedings had commenced and chose nonetheless to appoint an officer of its own to conduct the Company's liquidation under its supervision. The Scottish Court acknowledged that this situation likely would not have occurred, and likely would have been unwound had it occurred, within the domestic jurisdictions of the UK because of the provisions of Schedule B1 to the Insolvency Act 1986.

However, no suggestion was made that the Luxembourg Court's order was pronounced in breach of Luxembourg law, or that the Scottish Court could not properly expect a Luxembourg court to abide by the laws and practices of the UK in an analogous situation. There was, thus, nothing exceptionable about the actions of the Luxembourg Court in appointing the Luxembourg Bankruptcy Trustee.

Conclusion

There was in these circumstances no objectively good reason to set up an unnecessary and undesirable competition between insolvency practitioners in Scotland and Luxembourg. For these reasons, the Court refused the Bank’s petition.

Judge: Lord Sandison

Counsel: Ower; Brodies LLP for the Luxembourg Bankruptcy Trustee

DM Thomson, KC; Burness Paull LLP for the Bank