CBIR not available for solvent liquidations

A solvent company registered in Bermuda was ordered by the Bermudan court to be wound up on the just and equitable ground. The provisional liquidators subsequently applied for and obtained an order recognising the Bermudan winding up as a foreign main proceeding under the Cross-Border Insolvency Regulations 2006 (2006/1030) (“CBIR”) at a without notice hearing.

Subsequently a director applied for the recognition order to be terminated pursuant to the review mechanism contained in article 17(4) of paragraph 1 to Schedule 1 of the CBIR available to any person “affected by recognition”. The director argued in effect that CBIR recognition was not available for solvent liquidations.

The court first considered the issue of standing. The provisional liquidators argued that standing should be limited to persons with an economic interest in the liquidation and the director did not have an economic interest. The court held that there was no requirement to have an economic interest to be a person affected by recognition.

After a very detailed review of background materials bearing on the CBIR, the court concluded as follows:

  • Read in context and employing a purposive approach, the words "for the purpose" in Article 2(i) should be read as meaning the purpose of insolvency (liquidation) or severe financial distress (reorganisation).
  • Recognition under the CBIR is limited to foreign proceedings relating to the resolution of the debtor's insolvency or the debtor's financial distress.
  • As the foreign proceeding in this case was for the purpose of winding up a solvent company, which was not in financial distress, the recognition order should be terminated.

In re Sturgeon Central Asia Balanced Fund Ltd (in liquidation) [2020] EWHC 123 (Ch)

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