An EC Regulation First

In an important legal development, the High Court has ruled that a company incorporated in England and Wales has neither its COMI nor its "establishment" in the jurisdiction.

The case highlights how important it is to carefully consider where a company’s COMI and/or establishment are in advance of instigating an insolvency process, and the danger of making assumptions based on the location of the registered office.

It also demonstrates the problem of appointing administrators out of Court when there are issues as to the whereabouts of a company’s COMI or establishment.

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An EC Regulation First

In an important legal development, the High Court has ruled that a company incorporated in England and Wales has neither its COMI nor its "establishment" in the jurisdiction.

The case highlights how important it is to carefully consider where a company’s COMI and/or establishment are in advance of instigating an insolvency process, and the danger of making assumptions based on the location of the registered office.

It also demonstrates the problem of appointing administrators out of Court when there are issues as to the whereabouts of a company’s COMI or establishment.

The Appointments

At lunchtime on 4 August 2006, the directors of the company effected an out of court appointment of administrators stating that the company’s COMI was in England. Just one hour later, the company’s employees in Germany appointed a preliminary insolvency administrator on the basis that the COMI was in Germany.

Two weeks later, the English administrators applied for a declaration COMI of the company was in fact in Germany, based on their further investigations.

The Judge declared that the company’s COMI was in Germany as the business’ main functions were there. Consequently, the administration in England was not a main proceeding. The Judge, however, declined to determine whether territorial proceedings had been commenced in England, as the relevant procedural hurdles had not been overcome. These hurdles included the question of whether the company had an establishment in England.

The status of the English administrators remained uncertain until the administrators made a further application in October to clarify the position. Regardless of the uncertainty at the time, on 1 September 2006, the (same) directors sought to appoint a second set of English administrators (the "Second Administrators").

A Question of Establishment

The appointment of the Second Administrators sought to commence secondary proceedings in England under the EC Regulation. Secondary proceedings can only be opened in member states where the debtor has an establishment as defined by the EC Regulation.

The German administrator took the view that the registered address was little more than a nameplate and the company’s activities in the UK were more for the benefit of the company’s directors than its business. The German administrator was particularly concerned that an English administration would lead to the duplication of costs particularly as less than 1% of the Company’s €77million creditors were in the UK.

The German officeholder, on this basis, made an application to Court for a declaration that the appointment of the Second Administrators was void. On 8 December 2006, Mr Justice Lightman made the declaration on the basis that the company had no establishment in England or Wales.

Conclusion

This case has made it clear that a Court is prepared to test whether a directors’ statement as to the location of the company’s COMI or establishment is correct, and that the whereabouts of its registered office is not necessarily relevant.

Law and Guidance: In the Matter of Hans Brochier Holdings Limited [unreported]

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

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 12/12/2006.