How foreign insolvency office holders can operate in England
Nick Hood
by Nick Hood
In the modern commercial world, even the smallest businesses engage in cross-border trade. A consequence is that some assets, creditors, and a range of other issues involved in an insolvency procedure in one country often must be dealt with in another jurisdiction because that is where they are located.
When those overseas issues are situated in England, the question is how the insolvency professional appointed as office holder in the original country can take the appropriate action to deal with matters such as realising assets or settling litigation.
The good news is that English law makes provision for the easy recognition of insolvency office holders who have been appointed in foreign jurisdictions – foreign insolvency professionals (FIPs). Because of this, FIPs can take the necessary recovery actions in England as part of a foreign insolvency procedure without the costs and duplication of appointing an additional UK insolvency professional. Once they are recognised, English courts will provide appropriate assistance to FIPs.
There are two main ways for FIPs to obtain recognition, and a third possible approach which involves reversing this cross-border co-operation by appointing a UK insolvency practitioner over a foreign company or corporation.
Cross-Border Insolvency Regulations 2006 (CBIR)
The gold standard and most widely applied international insolvency regime is the UNCITRAL Model Law on Cross-Border Insolvency 1997, which was introduced into English law by the CBIR. This provides a streamlined process for recognising foreign insolvency proceedings and granting relief to FIPs appointed in jurisdictions that have adopted the Model Law in one way or another through local legislation. Almost fifty other countries have versions of the Model Law, including the US, Australia, Canada, various offshore jurisdictions, and many countries in Africa.
Application for recognition is conducted at a low level of English court, is procedurally simple, and cannot be challenged if the FIP was properly appointed in their home jurisdiction. Once recognised, a FIP may take actions similar to those available to an English insolvency practitioner, such as:
Freezing bank accounts based in England;
Undertaking enforcement action on property or other assets; and
Obtaining documents and information from a debtor to support proceedings in other jurisdictions.
Section 426 of the Insolvency Act 1986 (s.426)
s.426 is an alternative route for recognition of and assistance to FIPs in certain specified jurisdictions under English law. It has additional advantages to the CBIR process, although is more procedurally complex and requires an application to a higher level of Court in England.
The UK is a sovereign state consisting of multiple countries and the intention of s.426 is to allow an insolvency office holder from any part of the UK (such as Scotland) to be recognised in England. The “any part of the UK” definition in the Insolvency Act 1986 includes a list of several other countries outside the UK which have a legal connection to it. For example, the schedule includes the Cayman Islands, Hong Kong, and Ireland, countries which are not covered by the CBIR process.
The main benefit of recognition by this route is that the FIP may use the powers of an English insolvency office holder in the UK, instead of only being able to rely on the assistance of the English courts in support of the FIP's existing domestic powers, as would be the case under CBIR.
One example is that a FIP can introduce English claw-back claims, which may have greater value and have a longer look-back period than similar claims available in the FIP's home jurisdiction. Investigative powers available under English law may also be more extensive than those available to a FIP domestically.
Using an English insolvency process for a foreign entity
Under the Insolvency Act 1986, the English court can appoint a liquidator or administrator over a foreign company, provided it can be persuaded that it has jurisdiction to do so. This will usually depend on the location of the assets. A key feature is proving that creditors of the foreign company understand its centre of main interests is in England and not in the country where the company is registered.
Many jurisdictions lack the legal infrastructure to provide a prospective insolvency office holder with the tools they may need to carry out a complex restructuring, whilst also ensuring the efficient survival of the company's business and maintaining value for stakeholders. In many instances, the English Administration process of a foreign company can facilitate recovery options that would not be available under its domestic regime.
GGI member firm Opus Business Advisory GroupLondon, UKT: +44 7967 658 296Advisory, Corporate Finance
OPUS Business Advisory Group is an advisory practice offering restructuring and insolvency (R&I), corporate advisory and forensic accounting services. It includes the UK’s largest independent R&I practice, and currently has 14 offices, 37 partners and a headcount of 150+.
Nick Hood is Senior Adviser to the Opus Business Advisory Group. He was a Chartered Accountant for over fifty years and a licensed insolvency practitioner between 1992 and 2010, specialising in mid-market and SME business problems. He is a committed internationalist, having previously created and run the largest international association of specialist business rescue firms. Contact Nick.
