Use Section 426 co-operation

This case concerned an Irish company which had entered examinership there (the Irish equivalent of administration) and its examiner had formulated a scheme of arrangement wherein unsecured creditor claims would be crammed down in exchange for a dividend of five pence in the pound.

The Irish court issued a letter of request to the English court under section 426 of the Insolvency Act seeking the English court’s assistance in effect to cram down certain England and Wales creditors, including HMRC, on the same terms as other unsecured creditors, ie for a dividend of five pence in the pound.

The judge considered the section 426 jurisdiction which permits the English court to give assistance to insolvency courts in certain other jurisdictions, principally the Commonwealth jurisdictions and (as in this case) Ireland, by applying either English insolvency law or the foreign insolvency law.

The judge applied the Business City case, holding that the examinership and scheme jurisdiction in Ireland corresponded with the administration regime in England and that in the circumstances, including that England and Wales creditors were to be treated the same as Irish creditors, the English court should exercise its discretion by giving the assistance sought by the Irish court.

The judgment is notable in that it appears to establish a mechanism for effectively circumventing the rule in Gibbs (ie, the rule that an English court will not give effect to a discharge under a foreign insolvency law of an English law governed debt unless the creditor has proved for its debt in the foreign insolvency procedure) by invoking section 426 notwithstanding the recent trend of the English courts to row back on cross-border insolvency assistance in cases such as New Cap, which case included consideration of section 426. It is perhaps notable that the application was not opposed and neither New Cap nor Gibbs was referred to by the judge.

In re Silverpail Dairy (Ireland) Unlimited, 5 April 2023, Chancery Division.

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