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Insolvencies of large companies are increasingly international in nature. However the domestic or 'home' insolvency laws may not have the international reach needed or the tools required to maximise the return to creditors. In those circumstances, the English insolvency regime may be useful to foreign insolvency officeholders.
England has a sophisticated cross border insolvency regime which gives a whole host of powers to insolvency officeholders. The Cross-Border Insolvency Regulations 2006 (the "Regulations") are the gateway for foreign liquidators and administrators (or similar appointees) to access the powers available to insolvency officeholders under English insolvency law.
The powers under English insolvency law may be useful to foreign officeholders who are investigating suspicious or curious transactions. For example, a foreign officeholder may wish to examine a person who has fled to England about suspicious or fraudulent transactions of the company. The English insolvency laws may assist a foreign officeholder to compel that person to give information about those transactions.
Additional powers which may be useful to foreign officeholders include the powers to:
- Require or compel a person to give evidence or produce documents relating to the company
- Claim back assets that were transferred or disposed of by the company so as to defraud creditors of the value of that asset.
- Claim back assets that were disposed of by the company for less than what they were worth, or for nothing at all.
- Claim back assets that were disposed of by the company so that one creditor obtained an unfair advantage over all other creditors.
The success of each of these claims would depend on the facts and evidence available and the timing of the relevant transfers and disposals of the assets.
To obtain access to such powers under the Regulations, a foreign officeholder must apply to the English court for recognition of the domestic insolvency proceeding. If the English court recognises the domestic insolvency proceeding, then:
- The foreign officeholder may access the powers described above, and more.
- An automatic stay will apply to prevent certain actions by creditors in England. This may include preventing creditors from commencing proceedings against the company's assets and preventing the transfer or disposal of the company's assets.
In order to obtain recognition in England of the domestic insolvency proceeding, the foreign officeholder must show the English court that:
- The company is a legal entity in its ‘home’ jurisdiction.
- The insolvency proceeding is a ‘collective’ process – that is, the process affects all creditors of the company, for the benefit of all creditors (rather than a particular creditor).
- The application for recognition has been made by a person or body who is authorised to administer the domestic proceeding or who is authorised to act as a representative of the domestic proceeding.
The effect of recognition by the English court depends on whether the domestic insolvency proceedings are in a jurisdiction where the company has its centre of main interest (often shown by its registered address being in that jurisdiction) or an ‘establishment’ in that jurisdiction such that it carries out economic activities with personnel and assets or services, but either way the English court's powers are wide.
Upon recognition by an English court of a foreign insolvency proceeding the foreign officeholder can use the English insolvency laws to reach further than what may be available under the domestic insolvency laws. Such powers may be especially useful if key individuals connected to the insolvent company have fled the home jurisdiction or assets of the insolvent company have been transferred out of the reach of the domestic insolvency proceeding.