Cayman Islands: Divided By A Common Language? English Court Goes In Different Direction To U.S On "COMI"

Last Updated: 5 October 2009
Article by Sam Dawson

The recent decision of In the Matter of Stanford International Bank Limited and Others [2009] EWHC 1441 (CH) raises important considerations for liquidators of offshore investment vehicles who seek recognition and assistance from the English Courts pursuant to the Cross-Border Insolvency Regulations 2006 (the "2006 Regulation"). In Stanford the High Court of England and Wales ("High Court") was required to consider, amongst other things, the basis upon which it would determine where a foreign debtor had the "centre of its main interests" or "COMI" for the purposes of the 2006 Regulation. The interpretation settled on by the High Court is not only noteworthy in itself, but also suggests that the difficulties currently facing liquidators of offshore investment vehicles who seek recognition in the United States may not arise in applications to England and Wales, notwithstanding that both jurisdictions operate under legislation which is based on the UNCITRAL model law on cross-border insolvency.

Background

The Stanford case relates to control of over £100 million of assets in England owned and/or controlled by Stanford International Bank Ltd. ("SIBL"). SIBL is a company registered in Antigua and was one of the main companies in a group of companies operated by the American businessman, Allen Stanford. On 16 February 2009 the United States District Court for the Northern District of Texas appointed a Receiver (the "U.S Receiver") over all Stanford related assets and entities worldwide, including SIBL, in response to allegations of widespread fraud and mismanagement within the Stanford group of companies. On 15 April 2009 the Antiguan Court ordered that SIBL be placed into liquidation and Antiguan liquidators were appointed (the "Antiguan Liquidators").

In seeking recognition of their respective appointments in England, and therefore control of SIBL's English assets, both the U.S Receiver and the Antiguan Liquidators sought to convince the High Court that SIBL's COMI was the jurisdiction in which they were appointed.

COMI

Liquidators appointed over multi-national companies will be aware that a company's COMI is an important factor for any liquidator who intends to seek recognition and assistance from a country which has enacted the relevant provisions of the model law on cross-border insolvency ("Model Law") produced by the United Nations Commission on International Trade Law ("UNCITRAL"). The Model Law provides that a foreign insolvency proceeding will be granted recognition as a "foreign main proceeding" where it can be shown that the foreign insolvency proceeding was commenced in the jurisdiction where the debtor has the "centre of its main interests" or "COMI". While the effect of being granted recognition as a foreign main proceeding differs slightly from jurisdiction to jurisdiction as each adopting country is entitled to vary the relief which results from such recognition, generally recognition as a foreign main proceeding will result in the recognising court staying all dealings with the foreign debtor's assets within their jurisdiction.

In England and Wales the Model Law is enacted through the 2006 Regulation which provides that recognition as a foreign main proceeding will automatically result in:

  1. a stay against the commencement or continuation of all actions against the debtor; and

  2. a stay of all execution against the debtor's assets; and

  3. a suspension of the debtors right to transfer, encumber or dispose of its assets.

In the case of SIBL, the question of whether the U.S or Antigua was SIBL's COMI was integral to whether it was the U.S or Antiguan proceeding which would gain the recognition of the High Court and the control of SIBL's assets in England.

The Decision

The 2006 Regulation does not define COMI, however it does include a presumption that the COMI of a foreign debtor is, in absence of proof to the contrary, presumed to be the jurisdiction where the debtor has its registered office. In SIBL's case its registered office was in Antigua.

In coming to his decision on how to determine a foreign debtor's COMI, and how to apply the presumption provided for in the 2006 Regulation, Lewison J took time to consider the U.S approach to COMI. Under U.S law the provisions of the Model Law relating to recognition of foreign insolvency proceedings are contained in Chapter 15 of the Federal Bankruptcy Code ("Chapter 15"). Like the 2006 Regulation, Chapter 15 does not define COMI but instead has a similar (but not identical) presumption that in the absence of evidence to the contrary a foreign debtor's COMI will be presumed to be the jurisdiction of its registered office.

The U.S Receiver argued that the High Court should interpret COMI in the same way as the U.S Courts in that a debtor's COMI should be the jurisdiction in which the debtor had the most "material contacts". "Material contacts" included the location of the debtors' headquarters, the location of the debtor's management, the location of the debtor's primary assets, the location of a majority of the debtor's creditors, and/or the jurisdiction whose law would apply to most disputes. Additionally, under the U.S. jurisprudence, the burden of satisfying the court of a Debtor's COMI falls on the party seeking recognition. However, Lewison J was not convinced that the U.S approach was the correct one for the High Court to follow. Instead, the Judge preferred the approach taken by the European Court of Justice in Re Eurofood IFSC [2006] Ch 508. The Eurofood decision related to the interpretation of the term COMI as contained in the EC Regulation on Insolvency Proceedings (an insolvency regime for the European Community). Lewison J determined that the term COMI had its origins in the European Union Convention on Insolvency Proceedings (which was then superceded by the EC Regulation) and therefore Eurofood's interpretation of COMI was good precedent for determining COMI under both the 2006 Regulation and the EC Regulation on Insolvency Proceedings. He also noted that the 2006 Regulation and the EC Regulation on Insolvency Proceedings were intended to be complimentary regimes thereby giving support to a uniform approach. Following the decision in Eurofood Lewison J decided that the COMI of a foreign debtor for the purposes of the 2006 Regulation was to be determined as follows:

  1. In the absence of proof to the contrary the location of the registered office of a company will be presumed to be its COMI;

  2. The burden of rebutting the presumption is with any party trying to disprove it;

  3. The presumption can only be rebutted by factors that are both objective and ascertainable by third parties;

  4. What is ascertainable by third parties is that which is in the public domain and could be determined in the ordinary course of business with the company.

Applying these principles to the facts, the Judge noted that SIBL's physical headquarters were in Antigua and most of its employees were located there. SIBL's contracts with both investors and financial advisors were governed by the laws of Antigua and its marketing material gave prominence to its presence in Antigua. The court also noted that SIBL was regulated by Antiguan regulators and its accounts were audited by Antiguan accountants. Therefore, the Lewison J determined that the public face of SIBL, as ascertainable by third parties, was that of an Antiguan corporation and that these factors reinforced the presumption rather than rebutted it.

While the Judge accepted that the marketing of SIBL's investments (certificates of deposit) took place mainly in the U.S and that management of SIBL's assets was undertaken by non-Antiguan companies, this was still insufficient to rebut the presumption that Antigua was SIBL's COMI. On this basis the Judge granted the Antiguan Liquidation recognition as the foreign main proceeding and the Antiguan Liquidators gained control of SIBL's assets in England.

Effect of the Decision

The decision of the High Court to go in a different direction than the U.S Courts in regard to determination of COMI should not be underestimated by liquidators of offshore investment funds. There is no question that the U.S jurisprudence on COMI has caused considerable difficulties for liquidators of offshore investment funds seeking recognition and assistance in the U.S pursuant to Chapter 15 of the Bankruptcy Code, as often the management, assets, and day to day business operations of offshore investment funds are found outside the jurisdiction of the registered office. The "material contacts" approach of the U.S Courts as described in Re Stanford, and the evidential burden placed on the foreign liquidator to positively satisfy the U.S Courts of a foreign debtor's COMI, make recognition as a foreign main proceeding pursuant to Chapter 15 a difficult prospect for many foreign liquidators of offshore investment funds regardless of whether the foreign insolvency proceeding was commenced in the jurisdiction where the registered office of the investment vehicle was located or not.

By placing considerable emphasis back on the location of the registered office in accordance with the presumption and by confirming that the burden of proof for rebutting that presumption lies with the party opposing recognition, applications by foreign liquidators of offshore investment vehicles for recognition and assistance under the 2006 Regulation would appear to face less hurdles than applications to the U.S Courts pursuant to Chapter 15, provided the foreign insolvency proceeding was commenced in the jurisdiction where the registered office of the debtor is located.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions