Jurisdiction - "CoMI" doesn't give the English courts jurisdiction over Scottish companies
Which law applies is a question that must be addressed early in relation to any insolvency issues or process. Where a company is incorporated in Scotland the Scottish courts will have jurisdiction in relation to the insolvency process and the Scottish Insolvency Rules will apply. This means that a petition for winding up, a notice of appointment of an administrator or a proposal for a company voluntary arrangement must be filed with the Court of Session in Edinburgh or, if the company has paid up capital of less than £120,000, the local Sheriff Court of the place of the registered office of the company.
The EU Council Regulation on Insolvency Proceedings (1346/2000/EC) provides that insolvency proceedings may be opened in the courts of the EU member state in which the debtor has its centre of main interests ("CoMI"). As will be the case in England, the Scottish courts will not have jurisdiction if another state has jurisdiction under the EU Regulation. Accordingly in all court applications it is necessary to plead the jurisdiction of the Scottish courts. The place of the registered office of a company is presumed to be its CoMI in the absence of proof to the contrary.
These rules of jurisdiction establish only international jurisdiction and designate the EU member state in which proceedings may be opened. The rules do not allocate jurisdiction within a member state which has more than one legal system. For this purpose the UK is an EU member state. In that respect, national laws apply and in terms of the Insolvency Act 1986 winding up and similar procedures in relation to Scottish companies are to be dealt with in the Scottish courts and under the Scottish Insolvency Rules.
This can be relevant for a group of companies where some are incorporated in Scotland and others in England and Wales. Separate Scottish proceedings will be required for the Scottish registered companies.
However, all UK recognised insolvency practitioners (wherever resident in the UK) may act in relation to the insolvency of a Scottish company. The rule requiring the trustee in a bankruptcy of a Scottish person to reside in Scotland has recently been repealed.
Ancillary Proceedings and Cross Border insolvencies
The Scottish courts are also willing to open ancillary proceedings where main proceedings are open elsewhere in respect of companies incorporated outside Scotland. The concept of an ancillary winding up is recognised in Scots law although not specifically provided for in the Insolvency Act 1986 ("IA"), and such proceedings can assist in the realisation of assets in Scotland of a company being wound up elsewhere.
Whereas s72 of the IA gave a receiver appointed in England and Wales power to act in relation to assets in Scotland, no equivalent provision exists for liquidations or administrations. In those cases the liquidator or administrator must rely on s426 of the IA, which provides that the courts having jurisdiction in relation to insolvency law in any part of the United Kingdom shall assist the courts having the corresponding jurisdiction in any other part of the United Kingdom or any relevant country or territory. Whereas an order of a court in England shall be enforced as if it is an order of the court in Scotland, the Scottish courts are not required to enforce any order in relation to property situated in Scotland.
The Scottish Insolvency Rules and Court Procedure
Insolvency procedure is a matter devolved to the Scottish Parliament and Scotland has its own Insolvency Rules which, whilst often substantially similar to the English rules, are not identical, particularly in terminology. These rules apply to all Scottish liquidations, administrations and company voluntary arrangements. In addition, the Acts of Sederunt of the Scottish Courts regulate the procedure for matters which must be laid before the courts, the manner and timing of filing of documents and the holding of court hearings. It is important in all cross border insolvencies to be aware of whether these rules apply and to take account of them in planning the timetable for insolvency procedures.
Security rights under Scots law
Scottish law recognises only certain forms of security and (with some statutory exceptions, notably ships and aircraft) in relation to tangible moveable assets there can be no fixed security without actual or constructive delivery of the asset. As a result, an English company which has purported to give fixed security over its Scottish tangible moveable property by way of an English form debenture may find that such a charge is ineffective over those Scottish assets.
Any liquidator or administrator dealing with rights over Scottish property should investigate the enforceability of charges before determining the rights in a distribution.
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.