English courts have jurisdiction to appoint administrators in respect of a company incorporated in Gibraltar which had its centre of main interests in the UK (Re Nektan (Gibraltar) Limited)

English courts have jurisdiction to appoint administrators in respect of a company incorporated in Gibraltar which had its centre of main interests in the UK (Re Nektan (Gibraltar) Limited)

Nektan (Gibraltar) Limited was incorporated in Gibraltar. Its primary business was providing online gambling platforms to customers to businesses and individual players. These business activities led to tax liabilities to HMRC for remote gaming duty, which had increased from 15% to 21% on 1 April 2019, and the tax burden gave rise to a proposed restructuring involving an administration of the company.

Did a company incorporated in Gibraltar fall within the definition of ‘company’ in paragraph 111 of Schedule B1 to the Insolvency Act 1986 (IA 1986) such that the court has jurisdiction to make an administration order in England?

Falk J concluded that it did, and that it was appropriate to make an administration order on the basis that the centre of main interests (COMI) was in the UK, to the extent that was relevant, and found jurisdiction on that basis. Falk J added as obiter that the English court would still have had jurisdiction even if the COMI had been in Gibraltar.

Written by Robert Paterson, partner at Moon Beever LLP.

Re Nektan (Gibraltar) Ltd [2020] EWHC 65 (Ch), [2020] All ER (D) 53 (Jan)

What are the practical implications of this case?

The High Court’s ruling confirms for the first time that:

  • the court has jurisdiction to make an administration order in relation to a Gibraltar-incorporated company, even although Gibraltar is only a territory of the UK and not itself an European Economic Area (EEA) State  
  • the COMI can be in a jurisdiction where the company has no fixed premises, if the evidence shows that key management and administrative functions are nonetheless carried out there in a manner ascertainable by third parties

The Nektan case is therefore significant for two reasons:

  • the door is now firmly open for Gibraltar-incorporated companies to be successfully restructured using the administration process in England  
  • modern ways of working and the increasing provision of services online mean that a physical address in a jurisdiction (or lack of) does not determine COMI—each case turns very much on its objective and ascertainable facts

The looming Brexit date of 31 January 2020 and finite transition period thereafter may well accelerate the resolution of any distressed situations.

What was the background?

This case raised a new question for the English courts: what is the precise status of Gibraltar in the context of EU insolvency law? Gibraltar is not expressly referred to in the Recast EU Insolvency Regulation (EU 2015/848) (the Recast Regulation on Insolvency). It is a territory of the EU to which the regulation applies, as the UK—which at the time of writing is still a member—includes Gibraltar. Gibraltar passed its own legislation stating that the regulation should apply as if Gibraltar and the UK were separate Member States (see Re Regent Centre Ltd [2015] BPIR 730), but legislation passed within Gibraltar is not binding in England and has not led to any changes in the Recast Regulation on Insolvency.

EU case law states that Gibraltar is a European territory and that the UK was responsible for its external relations (Spain v United Kingdom Case C-145/04). That is not the same as Gibraltar itself being a Member State, it simply means that the regulation applies to Gibraltar as a territory of the UK.

Turning to domestic law, the court only has power to make an administration order in relation to a ‘company’ (IA 1986, Sch B1, para 111), and ‘company’ is defined as:

‘(a) a company registered under the Companies Act 2006 (CA 2006) in England and Wales or Scotland,

(b) a company incorporated in an EEA State other than the United Kingdom, or

(c) a company not incorporated in an EEA State but having its centre of main interests in a Member State other than Denmark.

(1B) In sub-para (1A), in relation to a company, ‘centre of main interests’ has the same meaning as in Art 3 of the EU Regulation.’

Which limb applies? Not the first, because a Gibraltar company would obviously not be incorporated under CA 2006. The second limb doesn’t work, because Gibraltar isn’t an EEA State in its own right. Even the third limb is difficult, because the company isn’t ‘not incorporated’ in an EEA State. But we know from case law that provided the COMI is in the UK, the English courts can make an administration order in relation to English companies, companies incorporated in the EEA (for example Germany) and companies not incorporated in the EEA (Delaware for example: see Re BRAC Rent-a-Car International Inc [2003] 2 All ER 201). The ambit of the definition is now very wide: why would Parliament seek to exclude Gibraltar?

What did the court decide?

Administration

The court had no doubt that the company was insolvent on the evidence, and that an administration order would be reasonably likely to achieve the purpose of the administration. The conditions for an administration order as set out in IA 1986, Sch B1, para 11 had been met.

Jurisdiction—Gibraltar

The court considered that ‘Member State’ in the third limb of the definition of ‘company’ should be read in the context of Art 3 of the Recast Regulation on Insolvency, referring to Gibraltar as a territory of the UK. Article 3 states: ‘The courts of the Member State within the territory of which the centre of the debtor's main interests is situated shall have jurisdiction to open insolvency proceedings (“main insolvency proceedings”)…’ (emphasis added).

The definition of ‘company’ in IA 1986, Sch B1, para 111 has been amended on a number of occasions, but the court noted that the definition had recently been broadened, rather than narrowed, and that it would be odd if the effect was that the court could no longer place a Gibraltar-incorporated company in administration unless its COMI were in the UK. Falk J therefore stated as obiter dicta that the English courts do have jurisdiction in relation to Gibraltar companies, even if the COMI is in Gibraltar rather than the UK (but not elsewhere).

COMI

On that basis, it did not matter whether the company’s COMI was in Gibraltar or the UK, but the court nonetheless went on to consider COMI in some detail. The registered office was in Gibraltar, and the regulation contains a rebuttable presumption that COMI is located in the same place. The court found on the evidence that COMI was in the UK. Falk J did not re-analyse the COMI requirements (which are now well known and well summarised by Snowden J in Re Videology Ltd [2018] EWHC 2186 (Ch), [2018] All ER (D) 149 (Aug)) but highlighted that:

  • although the company did not have premises in the UK anymore, its key management and administrative functions were undertaken in England. Key staff were based there including the chief financial officer (CFO), accounts manager, human resources manager and sales manager  
  • when these key staff members interacted with third parties they did so in the UK—for example through sales meetings and post-contract enquiries  
  • financial decisions were made by the CFO predominantly in the UK. While the bank accounts were located in Gibraltar, the banking arrangements were mainly dealt with in the UK. The bank was not itself a creditor  
  • the chief executive officer was resident in Gibraltar but spent a significant amount of business hours in the UK (within permitted tax limits)  
  • while the wider corporate group had a Gibraltar office with 32 members of staff, its role in relation to the company specifically was that of a call centre, dealing with customer queries and ‘after-care’—passwords, accounts and IT issues. Customers were provided with a UK telephone number which passed them automatically onto a Gibraltar call-centre  
  • board meetings were split equally between the UK and Gibraltar, but that was not material because third parties would not necessarily have known that  
  • the largest creditor was HMRC in the UK, and communications were handled via the company’s tax advisers in London  
  • the majority of customers were situated in the UK, although some contractual arrangements were governed by the law of Gibraltar  
  • the company was licenced by the Gibraltar Licensing Authority, but was primarily licenced by the UK Gambling Commission given the extent of its UK activities

Therefore, despite the company having no physical address in England, the court found that the COMI was in England because the sales, accounts, human resources and finance functions were located in England. That was ascertainable by third parties because they met with key personnel in England, and were supplied with a London telephone number. That outweighed the primarily ‘call-centre’ function of the Gibraltar office.

Case details

  • Court: Chancery Division  
  • Judge: Falk J  
  • Date of judgment: 17 January 2020

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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About the author:

Zahra started working as a paralegal at LexisNexis in the Lexis®PSL Banking & Finance and Restructuring & Insolvency teams in April 2019 and moved to the Corporate team in June 2020, where she currently works as a Market Tracker Analyst. Zahra graduated with 2.1 honours in BA French and Spanish and completed the GDL at BPP University. She has undertaken voluntary work for law firms in London, Argentina and Colombia.