In Carter v Bailey and Hutchinson (as foreign representatives of Sturgeon Central Asia Balanced Fund Ltd)  EWHC 123 (Ch), the English High Court found that a foreign solvent liquidation could not be recognised under the Cross-Border Insolvency Regulations 2006 (CBIR) (which enacted the UNCITRAL Model Law on Cross-Border Insolvency in Great Britain). Accordingly, the court terminated the recognition order granted previously.
Key points to note
- It was held to be contrary to the purpose and object of the UNCITRAL Model Law to interpret “foreign proceedings” as including solvent debtors and proceedings directed to producing returns for members instead of creditors.
- In order to fall within the CBIR, a foreign proceeding must be ‘pursuant to a law relating to insolvency’, being a law that deals with or addresses insolvency or severe financial distress.
- Foreign insolvency office-holders administering cross-border estates looking to seek relief under English law via the CBIR will need to carefully consider the nature of the proceedings in respect of which they are appointed.
A Bermudan company, Sturgeon Central Asia Central Fund, Ltd (Sturgeon) is in liquidation in Bermuda. The joint provisional liquidators were appointed by the Supreme Court of Bermuda on just and equitable grounds following a dispute between shareholders. At no point was the company insolvent.
The liquidators of Sturgeon were seeking recognition of the liquidation in England in order to avail themselves of investigatory powers under the UK Insolvency Act in order to examine a retired director of the company.
At first instance, following an ex parte hearing, the High Court granted the recognition sought. The retired director then sought to have the recognition order terminated. The present decision took the form of a review of the earlier decision and not an appeal.
A foreign proceeding may be recognised in England under the CBIR if it is “a collective judicial or administrative proceeding in a foreign State, including an interim proceeding, pursuant to a law relating to insolvency in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganisation or liquidation.”
In summary, the Court held that:
- Although the proceeding can be “pursuant to a law relating to insolvency”, where the law relating to insolvency permits solvent companies to be wound up, such winding up is not suitable for recognition and consequently not a “foreign proceeding” for the purpose of the CBIR. The foreign procedure must relate to the resolution of insolvency or financial distress.
- As such, it is necessary not to simply rely on the fact that the relevant process may be conducted under insolvency legislation, rather it is necessary to go one step further and ask whether the company was insolvent or in severe financial distress.
- Sturgeon was undoubtedly solvent having been wound up on just and equitable grounds and accordingly the recognition order granted previously should be terminated.
The judgment also includes a useful analysis of the Guides to Enactment of the Model Law and related materials and moves away from the approach adopted previously in the US (In Re Betcorp Ltd (2009) 400 BR 266).