McKellar v Griffin
emphasises the importance for IPs of establishing the Centre of Main Interests (COMI) of a foreign company before accepting an appointment as administrators.
(decided in June 2014) the court, on the application of a foreign liquidator, declared that the administrators’ appointment was invalid because the company’s COMI was not in England and Wales. So where does that leave unfortunate insolvency practitioners in similar situations?
They could be held liable to the company in trespass. They could also face potential costs liability for any court proceedings. They will certainly have to inform their insurers. And they won’t be able to draw their remuneration.
What protection do they have?
Where an appointment (whether by a charge-holder or a company/its directors) is found to be invalid the court has power to order the appointer to give an indemnity against any liability arising solely by reason of the appointment’s invalidity (paras 21 and 34 of Schedule B1 to the Insolvency Act 1986).
But the court’s power is discretionary, and the indemnity is restricted in scope, so there is no certainty that an indemnity will be granted, and limited comfort and protection even if it is. Where the appointer is the company itself, the statutory indemnity is probably worthless anyway!
What should office holders do?
- Where the location of COMI might be an issue, rigorously review the evidence before consenting to act. The points considered by the court in McKellar (below) are a handy summary of the relevant issues.
- Don’t simply rely on what the proposed appointer is saying: take independent advice.
- If there is any doubt, an IP should seek a full contractual indemnity from the appointer before accepting the appointment. If they decline, this could suggest there really is an issue!
- If there is real confusion over COMI, the IP could insist that the appointer makes an application to court for an administration order. The court will need to consider COMI in deciding whether it has jurisdiction. If an order is made, this should protect the office holders from a later challenge.
Facts of McKellar v Griffin
The company had its registered office in the BVI. Its major asset was a large commercial property located in England which was subject to a charge in favour of Credit Suisse (CS). CS appointed administrators who sold the property, although there was a substantial shortfall to the charge-holder.
A liquidator was subsequently appointed in the BVI. He applied to the High Court in England for recognition of his appointment and a declaration that the administrators’ appointment was invalid.
The court was quick to recognise the liquidator’s appointment and so was able to consider the validity of the administrators’ appointment.
Schedule B1 administrations are available to a company (a) registered in England and Wales or Scotland under the Companies Act 2006; (b) incorporated in another EEA state or (c) not incorporated in an EEA state but having a centre of main interests in a member State (other than Denmark) (para 111(1A)(c)).
The administrators claimed that the company’s COMI was in England and Wales.
The court found that the presumption that the company’s COMI was in the BVI had not been rebutted. It followed that the administrators’ appointment was invalid.
In reaching its decision the court considered the following points:
- The company’s registered office was in the BVI.
- The loan documents declared that the company was situated in the BVI and that it would not permit its COMI or registered office to move.
- Evidence indicated that the directors were located in Jersey, Portugal and Ireland, and that head office functions were carried out from these locations.
- Operational, control and management decisions were made from Jersey.
- The presence of an asset in the jurisdiction was of no particular weight when establishing COMI.
- Professional agents’ activities in a jurisdiction might be relevant, but only if they discharged “head office” functions.
The administrators were clutching at straws, relying largely on the location of the property and the activities of commercial agents to evidence COMI. The court was unimpressed, and awarded costs against them.