The recent decision of In the Matter of Stanford International Bank Limited and Others  EWHC 1441 (CH) raises important considerations for liquidators of offshore investment vehicles who seek recognition and assistance from the English Courts pursuant to the Cross-Border Insolvency Regulations 2006 (the "2006 Regulation"). In Stanford the High Court of England and Wales ("High Court") was required to consider, amongst other things, the basis upon which it would determine where a foreign debtor had the "centre of its main interests" or "COMI" for the purposes of the 2006 Regulation. The interpretation settled on by the High Court is not only noteworthy in itself, but also suggests that the difficulties currently facing liquidators of offshore investment vehicles who seek recognition in the United States may not arise in applications to England and Wales, notwithstanding that both jurisdictions operate under legislation which is based on the UNCITRAL model law on cross-border insolvency.
The Stanford case relates to control of over £100 million of assets in England owned and/or controlled by Stanford International Bank Ltd. ("SIBL"). SIBL is a company registered in Antigua and was one of the main companies in a group of companies operated by the American businessman, Allen Stanford. On 16 February 2009 the United States District Court for the Northern District of Texas appointed a Receiver (the "U.S Receiver") over all Stanford related assets and entities worldwide, including SIBL, in response to allegations of widespread fraud and mismanagement within the Stanford group of companies. On 15 April 2009 the Antiguan Court ordered that SIBL be placed into liquidation and Antiguan liquidators were appointed (the "Antiguan Liquidators").
In seeking recognition of their respective appointments in England, and therefore control of SIBL's English assets, both the U.S Receiver and the Antiguan Liquidators sought to convince the High Court that SIBL's COMI was the jurisdiction in which they were appointed.
Liquidators appointed over multi-national companies will be aware that a company's COMI is an important factor for any liquidator who intends to seek recognition and assistance from a country which has enacted the relevant provisions of the model law on cross-border insolvency ("Model Law") produced by the United Nations Commission on International Trade Law ("UNCITRAL"). The Model Law provides that a foreign insolvency proceeding will be granted recognition as a "foreign main proceeding" where it can be shown that the foreign insolvency proceeding was commenced in the jurisdiction where the debtor has the "centre of its main interests" or "COMI". While the effect of being granted recognition as a foreign main proceeding differs slightly from jurisdiction to jurisdiction as each adopting country is entitled to vary the relief which results from such recognition, generally recognition as a foreign main proceeding will result in the recognising court staying all dealings with the foreign debtor's assets within their jurisdiction.
In England and Wales the Model Law is enacted through the 2006 Regulation which provides that recognition as a foreign main proceeding will automatically result in:
- a stay against the commencement or continuation of all actions
against the debtor; and
- a stay of all execution against the debtor's assets;
- a suspension of the debtors right to transfer, encumber or
dispose of its assets.
In the case of SIBL, the question of whether the U.S or Antigua was SIBL's COMI was integral to whether it was the U.S or Antiguan proceeding which would gain the recognition of the High Court and the control of SIBL's assets in England.
The 2006 Regulation does not define COMI, however it does include a presumption that the COMI of a foreign debtor is, in absence of proof to the contrary, presumed to be the jurisdiction where the debtor has its registered office. In SIBL's case its registered office was in Antigua.
In coming to his decision on how to determine a foreign debtor's COMI, and how to apply the presumption provided for in the 2006 Regulation, Lewison J took time to consider the U.S approach to COMI. Under U.S law the provisions of the Model Law relating to recognition of foreign insolvency proceedings are contained in Chapter 15 of the Federal Bankruptcy Code ("Chapter 15"). Like the 2006 Regulation, Chapter 15 does not define COMI but instead has a similar (but not identical) presumption that in the absence of evidence to the contrary a foreign debtor's COMI will be presumed to be the jurisdiction of its registered office.
The U.S Receiver argued that the High Court should interpret COMI in the same way as the U.S Courts in that a debtor's COMI should be the jurisdiction in which the debtor had the most "material contacts". "Material contacts" included the location of the debtors' headquarters, the location of the debtor's management, the location of the debtor's primary assets, the location of a majority of the debtor's creditors, and/or the jurisdiction whose law would apply to most disputes. Additionally, under the U.S. jurisprudence, the burden of satisfying the court of a Debtor's COMI falls on the party seeking recognition. However, Lewison J was not convinced that the U.S approach was the correct one for the High Court to follow. Instead, the Judge preferred the approach taken by the European Court of Justice in Re Eurofood IFSC  Ch 508. The Eurofood decision related to the interpretation of the term COMI as contained in the EC Regulation on Insolvency Proceedings (an insolvency regime for the European Community). Lewison J determined that the term COMI had its origins in the European Union Convention on Insolvency Proceedings (which was then superceded by the EC Regulation) and therefore Eurofood's interpretation of COMI was good precedent for determining COMI under both the 2006 Regulation and the EC Regulation on Insolvency Proceedings. He also noted that the 2006 Regulation and the EC Regulation on Insolvency Proceedings were intended to be complimentary regimes thereby giving support to a uniform approach. Following the decision in Eurofood Lewison J decided that the COMI of a foreign debtor for the purposes of the 2006 Regulation was to be determined as follows:
- In the absence of proof to the contrary the location of the
registered office of a company will be presumed to be its
- The burden of rebutting the presumption is with any party
trying to disprove it;
- The presumption can only be rebutted by factors that are both
objective and ascertainable by third parties;
- What is ascertainable by third parties is that which is in the
public domain and could be determined in the ordinary course of
business with the company.
Applying these principles to the facts, the Judge noted that SIBL's physical headquarters were in Antigua and most of its employees were located there. SIBL's contracts with both investors and financial advisors were governed by the laws of Antigua and its marketing material gave prominence to its presence in Antigua. The court also noted that SIBL was regulated by Antiguan regulators and its accounts were audited by Antiguan accountants. Therefore, the Lewison J determined that the public face of SIBL, as ascertainable by third parties, was that of an Antiguan corporation and that these factors reinforced the presumption rather than rebutted it.
While the Judge accepted that the marketing of SIBL's investments (certificates of deposit) took place mainly in the U.S and that management of SIBL's assets was undertaken by non-Antiguan companies, this was still insufficient to rebut the presumption that Antigua was SIBL's COMI. On this basis the Judge granted the Antiguan Liquidation recognition as the foreign main proceeding and the Antiguan Liquidators gained control of SIBL's assets in England.
Effect of the Decision
The decision of the High Court to go in a different direction than the U.S Courts in regard to determination of COMI should not be underestimated by liquidators of offshore investment funds. There is no question that the U.S jurisprudence on COMI has caused considerable difficulties for liquidators of offshore investment funds seeking recognition and assistance in the U.S pursuant to Chapter 15 of the Bankruptcy Code, as often the management, assets, and day to day business operations of offshore investment funds are found outside the jurisdiction of the registered office. The "material contacts" approach of the U.S Courts as described in Re Stanford, and the evidential burden placed on the foreign liquidator to positively satisfy the U.S Courts of a foreign debtor's COMI, make recognition as a foreign main proceeding pursuant to Chapter 15 a difficult prospect for many foreign liquidators of offshore investment funds regardless of whether the foreign insolvency proceeding was commenced in the jurisdiction where the registered office of the investment vehicle was located or not.
By placing considerable emphasis back on the location of the registered office in accordance with the presumption and by confirming that the burden of proof for rebutting that presumption lies with the party opposing recognition, applications by foreign liquidators of offshore investment vehicles for recognition and assistance under the 2006 Regulation would appear to face less hurdles than applications to the U.S Courts pursuant to Chapter 15, provided the foreign insolvency proceeding was commenced in the jurisdiction where the registered office of the debtor is located.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.