Eurodis Electron Plc & Ors, Re The Insolvency Act 1986

This is an application arising in the administration of Eurodis Texim Electronics SA, (“Texim”, or “the company”) a Belgian company. In it the administrators seek a mechanism for perpetuating the English administration of a Belgian company in circumstances in which it has, ostensibly at least, been through a process which has ended in its ostensible dissolution in Belgium. I say “ostensible” at this stage in this judgment because one of the points which has arisen is whether an English court should treat that as having happened.

Texim is one of the companies in a group whose shared name is Eurodis. The group comprises companies incorporated in various jurisdictions. Some 8 or more have been in administration in this jurisdiction since mid-July 2005. One of the secured creditors had security taken across the group, and one of the most important activities conducted by the administrators has been a marshalling exercise to ensure that the ultimate burden of that security was apportioned appropriately across the group. The exercise has apparently been complex, and is nearing its end. I am told that its finalisation is awaiting my decision in this case.

Texim is a company incorporated in Belgium. However, the administration that was commenced here is the main insolvency proceeding for the purposes of the Insolvency Regulation because Texim had its centre of main interests (COMI) here. Rimer J made an administration order over it on 26^th July 2005.

That order ought to have operated so as to prevent other insolvency proceedings being launched, save for secondary proceedings properly launched under Article 3(2) of the Regulation. However, on 5^th September 2008 the Belgian Crown Prosecutor presented a form of winding up petition in respect of the company in the Belgian Commercial Court, and the Belgian court made a winding up order on 23^rd September. The proceedings were apparently not expressed as being secondary proceedings. The English administrators did not know of this until December. When they found out they set about questioning the Belgian trustee. They corresponded through their own Belgian Lawyers, Laga. There was some correspondence during which the trustee indicated that he thought that the English court had no “competence” over the Belgian company. Laga argued the case in correspondence that the Regulation operated so as to give the English court jurisdiction over Texim and that its decisions were entitled to automatic recognition. The trustee apparently remained resistant to the notion that the English courts had anything to with Texim’s insolvency, and to the notion that if he contested the jurisdiction of the English court he needed to apply in the English court in order to do so. There was some desultory correspondence and on 1^st July 2009 Laga told the trustee that the administrators would not transfer any assets to him, and they asked for his confirmation that he recognised the English administration as main proceedings, that he would not take any steps to interfere with the ongoing work of the administrators, and that he “will not take any steps yet to dissolve the Company”. He provided no such confirmation, but also did not expressly refuse to. He was not pursued further, or at least not beyond the odd letter or email.

It then appears that, without any notice to the administrators, the trustee applied to the court for an order closing the Belgian bankruptcy on the footing that there were not enough assets to pay the costs of the bankruptcy, and an order to that effect was granted on 29^th January 2010. The administrators did not know of that order for many months. I was told that the result of the relevant Belgian legislation is such that the company is thereby automatically dissolved without any apparent further intervention of anyone, though there is a period of one month’s suspension to allow an interested party to challenge the decision to close the bankruptcy proceedings. Laga have reported that the period of suspension expired on 9^th March. The closure order can no longer be challenged. By 18^th May 2010 the administrators still did not know what had happened because an email of that date asked Laga to find out what had happened to the Belgian proceedings. Thereafter they were told what had happened. In their letter reporting the point Laga suggested that in the circumstances the only alternative route for proceedings was a complaint under section 31 of the Regulation. They did not express a view as to the extent to which such an application would be successful, but it does not seem that it would reverse the effect of the dissolution provision.

It therefore appears that the company has been subject to procedures and legislation in Belgium (its place of incorporation) which have brought about its ostensible dissolution. Apparently it is now accepted that that is irreversible in Belgium because all relevant time limits have passed. It has apparently happened because the administrators did not pursue their challenge to the status of the Belgian proceedings and the trustee, and did not follow up on the refusal of the trustee to give them assurances that he would not bring about the dissolution of the company, despite the fact that he had apparently repudiated any notion that they had any relevant jurisdiction in relation to the company. They probably took their eye of the ball, leading to the situation in which they now find themselves.

That situation is that they are apparently administrators over a company which no longer exists. They have not quite finished their necessary activities. They hold no assets other than about £150,000 in bank accounts, but need to finalise the implementation of the marshalling arrangements and draw their own outstanding remuneration and expenses before paying out the balance of those funds under the marshalling arrangements. If all were well they would do all those things shortly (before the end of this month) and the administration could come to an end.

The uncertainty that has been generated by the dissolution of the company under Belgian law has meant that they do not know whether or to what extent they are entitled to do any of those things, or whether other steps have need to be taken in order to put themselves in a position in which they can achieve them, and they seek directions and other relief to that end. They ask for two things in the alternative. First (and their preferred relief) they seek a determination that they are entitled to continue to act as administrators notwithstanding the dissolution in Belgium. Second, and in the alternative, they seek a winding up order in respect of Texim, the appointment of themselves as liquidators and authorisation to pay the expenses and remuneration of the administration as if they were an expense of the liquidation.

The essence of the first of the administrators’ claims is that the acts in Belgium, and in particular the Belgian proceedings, fail to give proper effect to the primacy of the English insolvency proceedings as main proceedings under the Regulation. Accordingly, it is argued, the effect of the orders made in Belgium should be ignored. This means that the consequential (apparent) dissolution should also be ignored, and I should actually find that the Belgian company still has a corporate existence. The order sought under this head is a declaration “that the administration shall continue to have effect, and all acts of the [administrators] shall continue to be valid notwithstanding that Texim SA has been dissolved in Belgium”. In his skeleton argument Mr Moss QC, who appeared for the administrators submitted that “the English court would not be obliged to recognise the subsequent dissolution of the company or its extra-territorial effect in England”. The latter formulation is said to justify the form of the declaration. It encapsulates the basis on which this part of the case is put.

Mr Moss starts by accepting that the normal private international law rule is that the law of state of the incorporation of a company determines whether or not it has been dissolved – see Lazard Bros v Midland Bank [1933] AC 289. Under that principle, if applied here and without modification, the existence of the company would have been brought to an end and the English courts would have to acknowledge that, no matter how inconvenient it might be for the administrators appointed here.

However Mr Moss submits that that rule does not apply in the present case because it is effectively trumped by the operation of the Insolvency Regulation. The reasoning underpinning this part of the case starts with the administration being the main proceedings for the purposes of the administration. Article 3 of the Regulation provides:

“1.

The courts of the Member State within the territory of which the centre of a debtor’s main interests is situated shall have jurisdiction to open insolvency proceedings …

2.

Where the centre of a debtor’s main interests is situated within the territory of a Member State, the courts of another Member State shall have jurisdiction to open insolvency proceedings against that debtor only if he possesses an establishment within the territory of that other Member State. The effects of those proceedings shall be restricted to the assets of the debtor situated in the territory of the latter Member State.

3.

Where insolvency proceedings have been opened under paragraph 1, any proceedings opened subsequently under paragraph 2 shall be secondary proceedings. These latter proceedings must be winding-up proceedings.”

Article 16 deals with recognition:

“1.

Any judgment opening insolvency proceedings handed down by a court of a Member State which has jurisdiction pursuant to Article 34 shall be recognised in all the other Member States from the time that it becomes effective in the State of the opening of the proceedings …”

Article 17 supplies the effects of recognition (and is headed as such):

“Effects of recognition

The judgment opening the proceedings referred to in Article 3(1) shall, with no further formalities, produce the same effects in any other Member State as under this law of the State of the opening of proceedings, unless this Regulation provides otherwise and as long as no proceedings referred to in Article 3(2) are opened in that other Member State”

Article 26 provides an exception:

“Any Member State may refuse to recognise insolvency proceedings opened in another Member State or to enforce a judgment handed down in the context of such proceedings where the effects of such recognition or enforcement would be manifestly contrary to that State’s public policy, in particular its fundamental principles or the constitutional rights and liberties of the individual.”

Mr Moss submits that as a result of that legislation, which (on the facts of this case) makes England and Wales the place of the main proceedings, the Belgian proceedings are flawed to the extent of the order being “invalid” in Belgium and elsewhere. The proceedings there cannot have been main proceedings (because the main proceedings were here) and they could not be secondary proceedings because they did not purport to be (which is right – they did not) and the facts necessary to support secondary proceedings did not exist (which the administrators’ Belgian lawyers have reported as being the case – the company had no establishment and no assets in Belgium). Accordingly, the Belgian proceedings could not have been properly maintained in Belgium and the Belgian courts had no jurisdiction to entertain them or to make any order in respect of them (other, I suppose, than an order dismissing them). Since the Belgian orders had no effect, then neither did the dissolution. He went so far as to say that that would have to be acknowledged to be the effect in Belgium as well, though it has not been tested there and, apparently, can no longer be tested. All this is the result of a combination of the entitlement of the English appointment (and order) to recognition in Belgium and the Belgium courts apparently having no power to make the orders that it did. The normal conflicts principles have been displaced.

This is a striking conclusion. Mr Moss was unable to produce any authority which supported the propositions and chain of reasoning under which an English court can hold that a Belgian court has no jurisdiction with the result that orders made in Belgium have no force at all, with the further effect that what would otherwise be a statutory consequence (dissolution) under Belgian law does not in fact follow. The only work that he was able to pray in aid is a paragraph in Virgos and Garcimartin on The European Insolvency Regulation: Law and Practice (paragraph 70). That paragraph, when analysed, is doing something else. It is pointing out how conflicts of claimed jurisdiction should be resolved, setting out the principles involved and how a court would go about resolving them. The purpose of that discussion is to identify how the courts specify which proceedings should be characterised as the main proceedings, and what should happen to other proceedings. It does not support Mr Moss’s argument. Indeed, for present purposes the most significant statement is one that is against Mr Moss’s submissions, namely

“If a party in interest does not agree with the jurisdiction of the courts of the Member State that has opened the proceedings, then it must contest that jurisdiction through the means of appeal that exist in that State.”

While that statement is made in the context of a person who objects to proceedings opened elsewhere as main proceedings, it is a statement which, in my view, governs what the actions of the administrators should have been in the case before me.

In my view Mr Moss’s submissions cannot be right. The purpose of the Regulation is to produce a degree of uniformity and consistency of approach to insolvency matters across the Member States that are subject to it. It works by requiring the courts of one country to give effect to the orders of another, or to decline to make orders where they ought to be made in another. It does not give the courts in one country the power to determine that the orders of another are actually invalid and to act in all respects as though they were not made, at least to the extent required by Mr Moss’s arguments in the present case. It may be (indeed it almost certainly is) the case that the winding up order should not have been made in Belgium, but it was made, and must stand as a valid order of the Belgian court until set aside. The discharge order must similarly stand. That has an effect in the national law of Belgium and that effect must necessarily follow and be respected. Under the jurisdictional provisions of the Regulation the Belgian courts ought to have declined to make the order, or treated the Belgian proceedings as secondary proceedings, and to have declined to make an order whose effect would be a dissolution contrary to the requirements of the main proceedings. Alternatively, the dissolution should have been stopped in Belgium. All that requires someone to ask the Belgian court to do something. Had they done so, the Belgian court ought to have acted accordingly, and I have little doubt it would. But no-one asked it, so it made orders which, until set aside, must be taken to be valid. As recital 22 of the Regulation puts it:

“Recognition of judgments delivered by the courts of the Member States should be based on the principle of mutual trust.”

I do not think that it lies in the power of the courts of one Member State to treat the orders of another in all respects as if they were a nullity.

Mr Moss sought to say that one could get to such a result via the concept of recognition. The courts of one member state are required to recognise the orders of another in relation to main or valid secondary proceedings. He argues that since the Belgian orders were in neither type of proceedings, they should not be recognised, with the results he contends for. This argument requires me to find that the Belgian orders should not be recognised here, and that the opposite of recognition is determining they are invalid under Belgian law. That is not a true antithesis. The opposite of “recognised” for these purposes is not “treat as if invalid and never happened for all purposes of Belgian law”. His argument therefore fails, and I therefore reject it.

Mr Moss’s second claim is a little more subtle. He entitles it the “English Law Submission”. He starts from the position that an English court can wind up a dissolved foreign company under sections 221(5)(a) and 225 of the Insolvency Act 1986 and it copes pragmatically with the concept of a liquidator appointed over a company which has ceased to exist under the law of its state of incorporation. He argues that the pragmatism that underlies that attitude ought to apply in the present case. I ought to deem the company still to exist for the purposes of completing the administration.

There is no doubt that Mr Moss is right in his description of the position in relation to a winding up. Section 221 provides:

“(1)

Subject to the provisions of this Part, any unregistered company may be wound up under this Act …

(5)

The circumstances in which an unregistered company may be wound up are as follows -

(a)

if the company is dissolved, or has ceased to carry on business …” (emphasis supplied)

Section 225(1) provides:

“(1)

Where a company incorporated outside Great Britain which has been carrying on business in Great Britain ceases to carry on business in Great Britain, it may be wound up as an unregistered company under this Act notwithstanding that it has been dissolved or otherwise ceased to exist as a company under or by virtue of the laws of the country under which it was incorporated.” (emphasis supplied)

So it is plain that a dissolved company can be wound up here. This is notwithstanding the fact that the liquidator will, or may, need to do a lot of things which require him to be acting on behalf of the company or otherwise use the company’s name and personality – see the range of powers in Schedule 4 of the Act. This poses a number of theoretical, if not metaphysical, difficulties – how can a person be acting on behalf of, or so as to bind, or so as to administer the assets of, another person who does not exist? In fact, as Prof Fletcher has pointed out in Insolvency in Private and International Law at paras. 3.46-3.49, the courts have adopted a pragmatic approach to the resulting situation.

The basis for doing this appears from the speech of Lord Atkin in Russian and English Bank v Baring Bros & Co Ltd [1936] AC 405, where he said (at p 427-8):

“The Legislature has provided that a dissolved corporation may be wound up in accordance with the provisions of the Companies Act. The provisions of the Companies Act as to winding-up are only applicable to companies which are in existence. Are we to say that the legislative enactment is entirely futile: or is there another solution? My Lords, I think that we are entitled to imply, indeed I think is a necessary implication, that the dissolved foreign company is to be wound up as though it had not been dissolved, and therefore continued in existence. This seems to be with respect the necessary result of saying that it shall be wound up in accordance with the provisions of the Act. There is nothing abnormal in such a provision. The municipal law of this country, as of other countries, accepts the principle of international law that countries ordinarily accept the existence of juristic persons brought into being or recognised as existing in their country or origin. But if the municipal law choose it may in defined conditions refuse to accept or may accept only under conditions either the creation or destruction of a foreign juristic person: whether it has done so is for the municipal Courts to decide, but if it has, then the municipal Court must accept the situation. I see nothing incongruous in the Legislature saying in effect, we accept the existence of a foreign corporation coming to trade in this country; we shall only impose a condition of registration. But if the corporation does trade here, acquires assets here and incurs debts here, we shall not accept its dissolution abroad without a stipulation that if desirable it may be wound up here so that its assets here shall be distributed amongst its creditors … and for the purposes of the winding-up it shall be deemed not to have been dissolved; for that event would defeat our municipal provisions for winding up a corporation. This does not appear to me to be recreating or reconstituting a new corporation; it is for particular and limited purposes refusing to recognise the dissolution of the old.”

It is apparent from this citation that he felt it necessary to adopt the implication referred to because of the express terms of the statute, which in terms contemplated something that would otherwise have seemed on its face to be impossible – the winding up of something that did not exist. But it is plain that this is because of the plain words of the statute, which in terms (and now in two places) anticipates what would otherwise be an odd concept. Those words require an implication, and that is what Lord Atkin gave effect to. Lord Macmillan was obviously doing the same thing:

“ But when the Legislature has authorised the making of a winding-up order in the case of a dissolved company it must be presumed to have intended such an order to be effective and to result in the collection and distribution of assets. To hold that the Legislature has authorised the collection of the assets of dissolved company, but has withheld the power of recovering those assets, would be to attribute a singular ineptitude to Parliament.” (page 437)

Mr Moss invites me to do the same sort of thing in the present situation. In my view that cannot be done. The implication was necessary in that case in order to give effect to the express words of the statute. Without it the very concept of what Parliament had provided for (the winding up of a dissolved company) could not have worked (unless one adopted the different techniques of the minority which would have led to a less satisfactory and practical result). There are no similar or corresponding express words in either the English legislation or in the Regulation on which to hang such an implication. Parliament has not expressly authorised the appointment of administrators over a dissolved company. If anything, the legislation envisages the continuation of the corporate existence of the company if an administration is to work.

So there are no express words on which Mr Moss can hang the implication that he needs. Nor can he rely on some sort of implication from the structure of the Regulation. It is no doubt very inconvenient if the law of the country of incorporation causes a dissolution of a company where the main insolvency proceedings are elsewhere, but the answer to that is not to deem to company still to exist for the purposes of the insolvency proceedings, but to have procedures which make sure that that does not happen. That is what the Regulation really envisages, in my view. The recognition of the main proceedings, and the orders made therein, in the other member states would give the administrators the right to apply for whatever relief they may need to make sure that dissolutions do not happen, or that they are unscrambled if they do. Of course, I do not know how that would be done in practice in each and every member state, but I am confident that that is the sort of thing which is envisaged, not the sort of deeming that has to go on in relation to the winding up of a dissolved company. If, as has happened in this case, something slips through the net, then it has slipped through the net, but that is not a reason for creating the artificiality urged on me by Mr Moss. It is liable to create enough difficulties when one has to do it in a section 221/225 sort of case. There is no good reason to extend the realms of such difficulties where there is no apparent express legislative sanction.

I therefore reject this line of argument too. It follows that the declaration sought by Mr Moss cannot be given.

In order to ensure the proper termination of the affairs of the company the administrators, as a final alternative, seek the winding up of the company under section 221(5)(a), and the appointment of the administrators as liquidators. They have presented a winding up petition, which is before me. I do not need to dwell long on this. I am satisfied that the conditions for making such a winding up order are satisfied, and that it would be right to make such an order (dispensing with advertisement). It would also be right to order that the administrators become liquidators; no other course would make any sense. I shall therefore make a winding up order.

I am also asked to direct that the outstanding expenses of the administration be paid as an expense of the liquidation. Mr Moss points to the jurisdiction exercised by Templeman J in In re Associated Travel Ltd [1978] 1 WLR 547. I am satisfied that I have jurisdiction so to order. If I do not order it then the fees and expenses (or some of them) of the administrators will be unpaid. That would be unfair on them. The reason that the administration has become ineffective as such is because of a sort of accident elsewhere, and although I think that they could have prevented that accident from occurring I do not think that that is a sufficient reason for not giving them their proper fees and expenses as administrators out of the liquidation which now has to ensue in order to bring the affairs of this company to an end. I shall therefore so order.