How to establish jurisdiction in Scottish insolvency cases (Bank Leumi (UK) plc, petitioner)

Ben Zielinski, senior associate at Shoosmiths, considers the decision in Bank Leumi (UK) plc, petitioner. He says the decision provides a helpful clarification that a company’s centre of main interests (COMI) is irrelevant to determine territorial jurisdiction in Scotland.

Original news

Bank Leumi (UK) plc, petitioner [2017] CSOH 129, 2017 Scot (D) 6/10

What is the background to the case and issues within it that are pertinent to insolvency professionals?

The case concerned a petition which was presented in the Court of Session in Scotland by a secured creditor, seeking the making of an administration order against an English registered company. The petitioner averred that the Court of Session had jurisdiction to hear the petition because the company’s COMI, as defined in Regulation (EU) 2015/848 (the Recast Regulation on Insolvency), was in Scotland. An order for intimation and service of the petition and certain interim orders was granted. However, when the petition returned to court, senior counsel for the petitioner candidly drew the court’s attention to the issue of whether the court had jurisdiction to make the administration order as it was uncertain whether the Recast Regulation on Insolvency and the concept of COMI were relevant to determining jurisdiction between the courts of the constituent parts of the UK.

What were the main legal arguments raised?

The Insolvency Act 1986 (IA 1986) says that the court that may make an administration order in respect of a company is a court that has jurisdiction to wind that company up. IA 1986, s 120 provides that the Court of Session has jurisdiction to wind up any company registered in Scotland. IA 1986, s 117 makes similar provision in respect of the High Court and companies registered in England and Wales. Both sections are qualified with a sub-section stating:

‘This section is subject to Article 3 of the EU Regulation’.

Article 3 of the Recast Regulation on Insolvency provides the courts of the EU Member State where a company has its COMI with jurisdiction to open main insolvency proceedings. The petitioner argued that the qualification meant that Article 3 had been adopted in national law for the purpose of determining jurisdiction between the parts of the UK.

What did the judge decide, and why?

Lord Doherty found that the Court of Session did not have jurisdiction and dismissed the petition. He noted that there was no case law on the point, but that academic writers universally disagreed with the petitioner’s argument. However, his decision was based primarily on an ordinary reading of the legislation. Article 3 of the Recast Regulation on Insolvency clearly only applies to establish territorial jurisdiction between EU Members States and not within them. The petitioner’s argument as to the meaning of the qualification in IA 1986, ss 117 and 120 was wrong. All it meant was that if a UK-registered company had its COMI in another Member State, the courts of that Member State would have jurisdiction, rather than the UK court that otherwise would.

What are the practical implications for insolvency lawyers advising their clients?

The key point is that, when advising on which court has jurisdiction in insolvency proceedings involving an English or Scottish registered company whose COMI is in the UK, jurisdiction as between the constituent parts of the UK is based solely on where the company is registered. Therefore, the Scottish courts do not have jurisdiction in respect of an English registered company, even if its affairs are administered in Scotland and it would be more convenient to apply to a Scottish court. Likewise, the English courts have no jurisdiction in respect of Scottish registered companies. Also, as the different insolvency rules for England and Scotland apply to companies based on which courts can wind them up, it is also important to ensure that out-of-court administrations, voluntary liquidations etc are carried out using the rules applicable to the jurisdiction in which the company in question is registered.

To what extent is the judgment helpful in clarifying the law in this area?

Arguably, the law was never unclear. The judge decided the case on an ordinary reading of the legislation and his view is supported by a large number of academic texts, with no apparent dissent. However, the fact that this petition was presented in Scotland in the first place suggests that there was confusion among some practitioners. Also, I and some of my colleagues have been asked previously by IPs and other lawyers whether COMI could be used to found jurisdiction to wind up an English company in Scotland. Therefore, this case does provide helpful clarification that COMI is irrelevant to determining territorial jurisdiction between the parts of the UK.

To what extent is the judgment unhelpful, and what practical lessons are there to be learned?

The judgment will be unhelpful to anyone intending to or in the process of winding up or putting into administration a company registered in one part of the UK using the courts or rules of a different part. While my colleagues and I have always advised against this, anecdotally we have heard that there are cases where this has been done. While a court might be expected to be alive to questions of jurisdiction, this may be more of an issue with administrations by the out-of-court route and voluntary liquidations, which have followed the wrong set of rules. In recent times, the English and Scottish rules have diverged, particularly regarding the requirements in respect of meetings and decision making. This may mean that steps taken in an administration or liquidation, or even the whole process, could be invalid and IPs may need to seek assistance or guidance from the courts.

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

Further Reading

If you are a LexisPSL Subscriber, click the links below for further information:

Recast Regulation—establishing the centre of main interests (COMI) for corporates

Recast Regulation—main, secondary and territorial proceedings

Not a subscriber? Find out more about how LexisPSL can help you and click here for a free trial of LexisPSL Restructuring and Insolvency. This is an abridged version on that first published on LexisPSL Restructuring and Insolvency

Relevant Articles
Area of Interest