Jurisdiction in insolvency proceedings - new case law

Jurisdiction in insolvency proceedings - new case law


Author: Ben Zielinski

Applies to: Scotland

A recent Court of Session case has made clear that a Scottish court cannot wind up or make an administration order in respect of an English registered company, and the same applies to English courts and Scottish companies.

We are occasionally asked whether a company, registered in England but which conducts most of its business in Scotland, can be wound up or put into administration by the Scottish courts or under Scottish procedures. Whenever asked, we have always taken the view, based on our reading of the Insolvency Act 1986 that it could not and that the English courts and procedures would have to be used. Until now, we have been unable to point to case law supporting this. However, an opinion of Lord Doherty in the Outer House of the Court of Session, delivered last week, has provided helpful confirmation of this point.

The case concerned a petition which was presented in the Court of Session in Scotland by a secured creditor, seeking an administration order against an English registered company (the Company). The petitioner averred that the Court of Session has jurisdiction to hear the petition because the Company's centre of main interests (COMI), as defined in Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (the EU Regulation), was in Scotland.

Article 3 of the EU Regulation states: '1. 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'). The centre of main interests shall be the place where the debtor conducts the administration of its interests on a regular basis and which is ascertainable by third parties."'

The issue that arose was whether Article 3 had any relevance to determining which court had jurisdiction in insolvency matters within the UK.

The relevant UK law is section 120 of the Insolvency Act, which says:

'(1) The Court of Session has jurisdiction to wind up any company registered in Scotland.(6) This section is subject to Article 3 of the EU Regulation (jurisdiction under EU Regulation)."' Section 117 of the Insolvency Act provides the High Court with the same jurisdiction in respect of any company registered in England and Wales. Under section 251, the court that has jurisdiction to wind up a company can also make an administration order in respect of that company.

Senior counsel for the petitioner argued that section 120(6) had the effect of bringing Article 3 into UK law, where necessary for the purposes of determining jurisdiction between the courts of different parts of the UK, meaning that where a company had its COMI in Scotland, even though it was registered in England, the Court of Session could wind it up or put it into administration.

Lord Doherty rejected this argument, describing it as 'untenable'. He made clear that Article 3 only determined jurisdiction between member states and not within them. The UK is treated as one jurisdiction for the purposes of the EU Regulation. Section 120(6) of the Insolvency Act means only that where a company registered in Scotland has its COMI in another member state, the courts of that member state, rather than the Court of Session, have jurisdiction to open insolvency proceedings. Section 117(7), which is in identical terms, has the same meaning in respect of companies registered in England and Wales. Within the UK, jurisdiction in insolvency proceedings is determined solely by where the company is registered. While there was no previous case law on this point and his conclusion was based on an ordinary reading of the legislation, Lord Doherty noted a large number of academic texts that agreed with his view.

Although the conclusion reached by Lord Doherty is not unexpected, this case does provide useful clarity on this issue. While on this occasion the issue arose in relation to which court could make an administration order, clearly the same principle would apply when determining which insolvency rules to follow when using the out-of-court administration route or voluntary liquidation. The Scottish and English rules differ in key respects, which insolvency practitioners and legal advisers need to be alive to.

Case: Bank Leumi (UK) Plc v Screw Conveyor Ltd [2017] CSOH 129


This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.

About the Author

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Ben Zielinski

Senior Associate

03700 868127

Ben is an associate in our dispute resolution and compliance team. Ben specialises in commercial disputes and is based in our Edinburgh office. He is qualified as a solicitor in both Scotland and England & Wales. Ben advises on a wide variety of commercial disputes including, in particular, information technology and energy sector matters.

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