UK: Assurances made abroad in an international administration

On 9 June 2006, the High Court gave directions allowing Administrators of a number of related companies incorporated and previously carrying on business in several European jurisdictions, to respect local provisions of law in the relevant jurisdictions. This will be of interest to insolvency practitioners and bank creditors because the Administrators were permitted to respect the law of the relevant jurisdictions rather than only English law when making distributions.

The case is interesting because it demonstrates how the court was able to be flexible and support the Administrators’ strategy which had resulted in a better outcome for creditors. However, the outcome could have been very different had the Act specifically prohibited the conduct the subject-matter of the assurances. Therefore, insolvency practitioners will still need to ensure that any proposal is not inconsistent with the provisions of the Act.

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On 9 June 2006, the High Court gave directions allowing Administrators of a number of related companies incorporated and previously carrying on business in several European jurisdictions, to respect local provisions of law in the relevant jurisdictions. This was so notwithstanding the fact that those provisions differed from English law which was the law of the main proceedings under Articles 3 and 4 of the Counsel Regulation of 29 May 2000. This will be of interest to insolvency practitioners and bank creditors because the Administrators were permitted to respect the law of the relevant jurisdictions rather than only English law when making distributions.

The Collins & Aikman group was a leading supplier of automotive components. In Europe, the group comprised of 24 companies spread over 10 countries. It also carried on business within the USA. However, in May 2005, the US businesses filed voluntarily petitions for reorganisation under Chapter 11 of the US Bankruptcy Code. That in turn placed financial pressure on the European companies who applied for administration orders on 15 July 2005 and such orders were made.

At a very early stage, the Administrators recognised that the European companies formed a closely integrated group and many of its operations were organised on a Pan European basis rather than a national one. Because of this, the Administrators decided to take a co-ordinated approach to the continuation of the businesses, to the funding of the administration and to the selling of the businesses and assets of the European companies in the belief that such a strategy would lead to the best possible return to creditors. In support of that strategy, the Administrators gave oral assurances to creditors at creditors’ meetings and creditors’ committees to the effect that if there were no secondary proceedings in the relevant jurisdictions, then the local creditors’ respective financial positions as creditors under the relevant local law would, as far as possible, be respected in the English administration. In the main, creditors did not seek to open secondary proceedings on the basis of the assurances given which allowed the Administrators to conduct sales achieving far higher realisations than initially estimated.

The question for the court was whether it could, and if so, should make directions allowing the Administrators to honour the assurances that were given.

Following an analysis of (a) the inherent jurisdiction of the court; (b) Ex parte James; and (c) the relevant provisions of the Insolvency Act 1986 (the "Act"), the court decided it could make directions allowing the Administrators to honour the assurances that were given and make distributions accordingly.

The case is interesting because it demonstrates how the court was able to be flexible and support the Administrators’ strategy which had resulted in a better outcome for creditors. However, the outcome could have been very different had the Act specifically prohibited the conduct the subject-matter of the assurances. Therefore, insolvency practitioners will still need to ensure that any proposal is not inconsistent with the provisions of the Act.

Law Re: Collins and Aikman [2006] EWHC 1343 (Ch

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

The original publication date for this article was 20/06/2006.