East Riding of Yorkshire v KMG: Was there jurisdiction to wind up Lux Sub-Fund?

This case concerned a sub-fund (the Sub-Fund) which was a “dedicated fund” of an investment company (the Fund), the Fund being a company incorporated in Luxembourg. The Fund offered investments in several sub-funds including the Sub-Fund, each sub-fund having their own separate pool of assets and specific investment objectives. 

The appellant invested in the Sub-Fund, receiving in return shares in the Fund on the basis that its rights to capital and income were restricted to the assets of the Sub-Fund. 

Subsequently, the Fund collapsed in value. As it wasn't possible to obtain a winding up order against the Sub-Fund in Luxembourg one of the investors brought a petition seeking winding up as an unregistered company in England pursuant to section 220 of the Insolvency Act 1986 (“IA”).

At first instance, the ICC judge held that they didn't have jurisdiction to make a winding up order:  

• the investor had conceded that the Sub-Fund was neither a company nor association (the Concession) and it followed from that Concession that it did not fall within section 220, IA
• even if wrong about that, the proper characterisation of the Sub-Fund was such that parliament could not reasonably have intended it to be wound up as an unregistered company. The following “negative” characteristics of the Sub-Fund inter alia fed into that conclusion:
  • the investors weren't contributories to the Sub-Fund, whether as shareholder (an investor's shareholding being in the Fund) or, in the absence of applicable rules creating a liability to contribute to the Sub-Fund, as member of an association
  • the Sub-Fund lacked capacity to enter into contractual relations, acquire legal rights or incur legal obligations or liabilities, and didn't itself own any assets nor was it liable for the debts or liabilities of the Fund
  • the Sub-Fund’s management functions were vested in the Fund directors such that, were the Sub-Fund to be wound up, the management powers of the Fund directors would continue leading to potential conflict

The investor appealed, arguing that the first instance judge:

• had wrongly concluded that the investor had conceded that the Sub-Fund was neither a company nor association
• had failed properly to consider whether parliament could reasonably have considered that bodies such as the Sub-Fund should be amenable to the court’s winding up jurisdiction

The appeal court (Richard Smith J) held:

• section 220, IA didn't encompass entities that were neither a company nor an association
• the first instance judge had fairly summarised the investor’s position when finding that it had made the Concession
• the grounds of appeal didn't challenge the first instance judge's recording of the Concession and it was only in oral argument before the appeal court that the investor had sought to row back on this position
• it followed that, given the Concession, the first instance judge’s conclusion that the Sub-Fund didn't fall within section 220 couldn't be faulted, and the given that the Concession hadn't been challenged in the grounds of appeal, the judge’s conclusion could only be challenged if the Investor was permitted to amend its grounds of appeal
• nonetheless, having regard to the caselaw on raising new points of appeal, it was appropriate to give permission for the investor to amend its grounds to raise these points anew
• the judge then considered the first instance judge’s assessment of the characteristics of the Sub-Fund including the “negative” aspects set out above and concluded that he agreed with the first instance judge’s conclusion that the Sub-Fund was not an entity that parliament reasonably intended to be wound up as an unregistered company. Accordingly the appeal was dismissed.

East Riding of Yorkshire Council As Administrating Authority of the East Riding Pension Fund v KMG Sicav-Sif-GB [2024] EWHC 2845 (Ch), Chancery Division

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