459 Re Rodenstock GmbH

Transcription

1 459 Re Rodenstock GmbH Chancery Division (Companies Court) 6 May 2011 [2011] EWHC 1104 (Ch) [2012] B.C.C. 459 Briggs J. : May 6, H1. Schemes of arrangement Jurisdiction Solvent company German company with centre of main interests in Germany Company had no establishment in the UK Majority of senior lenders in UK Senior lenders facility agreement subject to English law and subject to jurisdiction of English court Scheme approved by requisite majority of scheme senior creditors Whether court had jurisdiction to sanction scheme in relation to solvent company Whether foreign company a company within statutory requirement Whether the company liable to be wound up in the jurisdiction Whether a sufficient connection with the jurisdiction Whether court should sanction the scheme Insolvency Regulation 1346/2000 Judgments Regulation 44/2001 arts 1, 22, 32, 33 Companies Act 2006 Pt 26. H2. This was an application for the sanctioning of a scheme of arrangement pursuant to Pt 26 of the Companies Act 2006 of a solvent German company where an issue was whether the English court had jurisdiction to effect the sanction. H3. The company was registered in Germany with its headquarters in Munich as the main operating company in a group which was Europe s fourth largest manufacturer and distributor of spectacle lenses and frames. The company s turnover was about 258 million, out of a group turnover of over 365 million. The company had outstanding senior debt of over 305 million

2 which was advanced under a facilities agreement expressed to be governed by English law and subject to the jurisdiction of the English court. It suffered a deteriorating financial position which led it to fall into breach of its financial covenants under the senior facilities agreement. A scheme of arrangement under Pt 26 of the Companies Act 2006 was proposed with the purpose of binding the senior lenders to a variation of their rights under the terms of the senior facilities agreement sufficient to enable the company to implement a restructuring which its directors believed would enable it to avoid going into a German insolvency process. Following an application to the English High Court the latter ordered a single scheme meeting which was held and at which 88.6 per cent in number representing per cent in value of the senior creditors voted in favour of the scheme. The company applied to the English court to approve the scheme. The dissentient creditors no longer opposed the scheme but did not state that they supported it. An issue for the English court was whether it had jurisdiction to sanction the scheme. The company was incorporated in Germany and had its centre of main interests ( COMI ) there. It had no establishment in the UK and no assets here likely to be affected by the scheme. There was no comparable jurisdiction under German law to sanction solvent schemes of arrangement and the German court had recently declined to recognise an English judgment sanctioning a solvent scheme pursuant to Ch.III of the Judgments Regulation 44/2001 on the ground that an order for *460 sanction by the English court was not a judgment within the meaning of arts 32 and 33 of the Regulation. H4. The senior creditors who had voted against the scheme asserted that the English court had no jurisdiction to entertain the application or, in the alternative, that the court should not do so as a matter of discretion. Some 56.5 per cent by value of the senior lenders with whose rights the scheme was solely concerned were situated in England and the remainder across Europe. The company had significant relationships with seven customers in England, generating total annual direct revenues for the company of some 4 million, in addition to those generated from England by its subsidiaries. H5. Held, sanctioning the scheme: H6. 1. Under s.895(2)(b) of the Companies Act 2006, a company for the purposes of schemes of arrangement under Pt 26 of the Act meant any company liable to be wound up under theinsolvency Act An unregistered company could be wound up under s.220 of the Insolvency Act 1986 and it was apparent that the Insolvency Act conferred jurisdiction on the English court to wind up both insolvent and solvent unregistered companies, with no express jurisdictional restriction referable to the company s place of incorporation, COMI or establishment. However the English court did not treat the very broad provisions of the Insolvency Act as giving it carte blanche to wind up foreign companies regardless of any connection with England but

3 applied, in relation to the exercise of the court s sanction, three judge-made conditions that: (i) the company has a sufficiently close connection with England (usually in the form of assets within the jurisdiction); (ii) there was a reasonable possibility of benefit accruing to creditors from the making of a winding-up order; and (iii) one or more persons interested in the distribution of assets were persons over whom the English court could exercise jurisdiction. H7. 2. There was no doubt that the combined effect of the Insolvency Regulation 1346/2000 and the Judgments Regulation 44/2001 was very substantially to curtail the international jurisdiction of the English court to wind up insolvent companies. Under the Insolvency Regulation the winding up of insolvent companies with their COMI in a Member State outside the UK was restricted to where the company possessed an establishment within the UK. H8. 3. The position in relation to the English court s jurisdiction to wind up a solvent company was less clear. Article 22(2) of the Judgments Regulation excluded proceedings which have as their object the dissolution of companies. In this context dissolution meant liquidation and so the English court s jurisdiction to wind up a solvent company was, by art.22(2), excluded in circumstances where, as here, the company had its seat in a Member State other than the UK. The only form of winding-up proceedings not affected, in terms of jurisdiction, by either theinsolvency Regulation or the Judgments Regulation was winding up on the public interest ground, because such proceedings were brought in the public interest and were not therefore a civil and commercial matter within the meaning of art.1(1) of the Judgments Regulation. Therefore, for as long as the company continued to have both its seat and COMI in Germany, and no establishment in the UK, the English court had no jurisdiction to wind it up, whether solvent or insolvent save on the public interest ground. H9. 4. However, proceedings seeking the court s sanction of a scheme in relation to a solvent company did fall within the scope of the Judgments Regulation : they were plainly civil and commercial matters within art.1 and it was no part of the purpose of the bankruptcy exclusion in art.1(2)(b) to exclude any civil or commercial matter which was not to fall within the scope of the Insolvency Regulation or, more generally, which was not connected with bankruptcy or insolvency. There was nothing in Ch.II of the Judgments Regulation (relating to jurisdiction) which on its face purported to restrict or exclude the English court s traditional jurisdiction in relation to the sanctioning *461 of schemes of arrangement and, in particular, such proceedings did not fall within the exclusive jurisdiction conferred by art.22(2).

4 H As regards solvent companies, nothing in either the Judgments Regulation or the Insolvency Regulation was intended to impact restrictively upon the scope of the jurisdiction to sanction schemes of arrangement. The touchstone for jurisdiction was whether a company was liable to be wound up. Jurisdiction to sanction the scheme in the instant case was therefore established, since the company, with the majority of the scheme creditors domiciled in England, was liable to be wound up here. H In deciding whether to exercise its discretion to sanction the scheme the court needed a sufficient connection between the company and the jurisdiction. Although a majority in value of the scheme creditors were based in England, the case for a sufficient connection with this jurisdiction essentially depended upon the combination of the senior lenders choice of English law and the English jurisdiction under the facilities agreement as governing their lending relationship with the company. The connection with this jurisdiction constituted by the choice of English law and exclusive English jurisdiction was on its own a sufficient connection for the purposes of permitting the exercise by the English court of its scheme jurisdiction in relation to the company. H On the evidence the formal requirements for the making of an order sanctioning the scheme were complied with: the scheme meeting was properly convened, properly constituted on the basis of a single class and the requisite majorities were obtained in support. As to whether the court should in its discretion sanction the scheme, the scheme met the substantive requirements as being one which had been voted for by creditors acting bona fide in their interests and without coercion of the minority, and was a scheme which, objectively, an intelligent and honest creditor acting in its own interests as such might reasonably approve. It was thus appropriate to sanction the scheme. H13. Cases referred to: DAP Holding NV, Re [2005] EWHC 2092 (Ch); [2006] B.C.C. 48 Drax Holdings Ltd, Re [2004] 1 W.L.R. 1049; [2004] B.C.C. 334 Harrods (Buenos Aires) Ltd (No.2), Re [1992] Ch. 72; [1991] B.C.C. 249 La Mutuelles du Mans Assurances IARD, Re [2005] EWHC 1599 (Ch); [2006] B.C.C. 11 Latreefers Inc, Re ; Stocznia Gdanska SA v Latreefers Inc [2001] B.C.C. 174 Owusu v Jackson (t/a Villa Holidays Bal Inn Villas) (C-281/02) [2005] Q.B. 801

5 Real Estate Development Co, Re [1991] B.C.L.C. 210 Sea Assets Ltd v PT Garuda Indonesia [2001] EWCA Civ 1696 Senator Hanseatiche Verwaltungsgesellschaft mbh, Re [1996] 2 B.C.L.C. 562 Sovereign Marine & General Insurance Co Ltd, Re [2006] EWHC 1335 (Ch); [2006] B.C.C. 774 H14. Representation Richard Snowden QC and Ceri Bryant (instructed by Kirkland & Ellis International LLP ) for the company. Barry Isaacs QC (instructed by Clifford Chance LLP ) for the coordinating committee for the senior lenders. JUDGMENT BRIGGS J. 1 This is an application for the sanction by the court of a scheme of arrangement ( the scheme ) pursuant to Pt 26 of the Companies Act Although in the event unopposed, it gives rise to serious questions of jurisdiction and discretion arising from the facts that: *462 (i) the applicant Rodenstock GmbH ( the company ) is incorporated in Germany and has its centre of main interests ( COMI ) there; (ii) the company has no establishment in the UK, nor any assets here likely to be affected by the scheme; (iii) there exists no comparable jurisdiction under German law to sanction schemes of arrangement concerning solvent companies ( solvent schemes ); (iv) a recent decision of a German court has declined to recognise an English judgment sanctioning a solvent scheme in comparable, but not identical, circumstances, pursuant to Ch.III of the Council Regulation (EC) No.44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters ( the Judgments Regulation ), upon the ground that an order for sanction by the English court is not a judgment within the meaning of arts 32 and 33 of the Judgments Regulation ;

6 (v) the small minority of the company s creditors who voted against the scheme have, through solicitors, asserted that the court has no jurisdiction to entertain the application or, in the alternative, that the court should not do so as a matter of discretion. 2 Due to an apprehension that, if the scheme is not sanctioned, the company may be unable to avoid insolvency significantly beyond the end of April 2011, both stages of the court proceedings relating to the scheme have been undertaken with considerable urgency, with a view to obtaining the court s decision before the end of term, and the onset of the Easter holiday period on April 22, The sanction hearing therefore took place on April 19, 2011, and after considering the matter and concluding that the scheme ought to be sanctioned, I made the appropriate order on April 21, 2011, stating that my reasons for doing so would be provided thereafter in a reserved judgment. 3 This judgment sets out those reasons. Although the creditors who voted against the scheme have since withdrawn their objections I have nonetheless undertaken a detailed review of the jurisdictional and other issues arising from the German location of the company. I have done so at greater length than is usual on an unopposed application, in part out of respect for the very thorough way in which the issues have been presented, in part because those issues may soon fall to be reviewed (in other litigation) by the European Court of Justice (ECJ), and finally because counsel suggested that those engaged in formulating schemes of this type would welcome guidance as to those issues for use in relation to future applications. The facts 4 The company is the main operating company in the Rodenstock group which is Europe s fourth largest manufacturer and distributor of spectacle lenses and frames. Its headquarters are in Munich, its main production facilities are in Europe and Thailand and its products are, outside Germany, distributed by about 40 sales offices across the globe operated by the company s subsidiaries. The company s turnover is approximately million, out of a group turnover of approximately million. 5 The company has outstanding senior debt of approximately 305,335,000 ( the senior debt ) which has been advanced under a facilities agreement ( the existing senior facilities agreement ) which is expressed to be governed by English law and which contains a jurisdiction clause in the following terms: *463

7 42. ENFORCEMENT 42.1 Jurisdiction (a) The courts of England have exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement (including a dispute regarding the existence, validity or termination of this Agreement) (a Dispute ). (b) The Parties agree that the courts of England are the most appropriate and convenient courts to settle Disputes and accordingly no Party will argue to the contrary. (c) This Clause 42.1 is for the benefit of the Finance Parties only. As a result, no Finance Party shall be prevented from taking proceedings relating to a Dispute in any other courts with jurisdiction. To the extent allowed by law, the Finance Parties may take concurrent proceedings in any number of jurisdictions. 6 Some 56.5 per cent (by voting value) of the senior lenders, with whose rights the scheme is solely concerned (and who are described as the finance parties in the existing senior facilities agreement), are situated in England. The remainder are spread across Europe. 7 The company currently has significant relationships with seven customers in England, generating total annual direct revenues for the company of some 4 million, in addition to those generated from England by the company s subsidiaries. 8 The company has for some time suffered a deteriorating financial position which led it to fall into breach of its financial covenants under the existing senior facilities agreement in the second quarter of The company is currently protected from the acceleration of its senior debt by a series of successive waivers, pending the extended consideration and negotiation of restructuring proposals. The waivers presently in place could be terminated at the end of April The purpose of the scheme is to bind the senior lenders to a variation of their rights under the terms of the existing senior facilities agreement sufficient to enable the company to implement a restructuring which its directors believe will enable it to avoid going into a German insolvency process at the end of April 2011, or soon thereafter.

8 10 At a meeting of the scheme creditors on December 6, 2010, at the offices of Clifford Chance (solicitors to the coordinating committee of senior lenders ( Co Com ), the scheme creditors were given a presentation of the options which were (and are) considered open to the company if the scheme were not approved. In each of the four options considered to be open to the company if the scheme did not proceed and no other option could be agreed with the senior lenders, the company would file for some kind of insolvency proceeding. The four options were as follows: (a) Option 1 share pledge enforcement with no insolvency the loss of liquidity consequent upon share pledge enforcement would prompt the managing directors to file for insolvency proceedings. (b) Option 2 share pledge enforcement with exit through liquidation an insolvency administrator would wind down the company with a sale of its assets as soon as possible. (c) Option 3 share pledge enforcement with exit through an insolvency asset deal a preliminary insolvency administrator would seek to sell the company s assets along the lines of an English law pre-pack administration. (d) Option 4 share pledge enforcement with going concern exit following an insolvency plan a rarely used restructuring tool used by an insolvency administrator to preserve the going concern of the insolvent business. * The scheme company was not able to propose a restructuring which would obtain the unanimous support of the senior lenders. However, the scheme was proposed with the support of those senior lenders who had signed up to or acceded to an agreement (the restructuring agreement ) committing them (subject to any material adverse change) to support the restructuring proposed to be implemented primarily through the scheme (the restructuring ). The essentials of the scheme 12 The outstanding senior debt of 305,335,000 is proposed to be restructured as follows:

9 SCHEME CLAIMS NOT SCHEME CLAIMS FACILITY POSITION PRE-RESTRUCTURING POSITION POST-RESTRUCTURING Current Historical Margin Margin (following (prior to the Cashpay Approximate the PLUS PIYW increases Amount Amount increases EITHER Margin OR PIK Margin required Margin required under the under the Waivers) Waivers) Existing Facility B 150,000, % 4.500% 150,000, % PLUS 2.00% OR 3.00% EITHER Existing Facility C 150,000, % 4.500% 150,000, % PLUS 2.00% OR 3.00% EITHER Existing PLUS 5,000, % 4.000% 5,000, % 2.00% OR 3.00% CAR EITHER Ancillary 335, % 4.000% 0 N/A N/A N/A Facility RCF (Undrawn) 39,665, % 0 N/A N/A N/A New Money 0 Facility N/A/ 40,000, % N/A N/A Total 305,335, ,335,000*465 The company will discharge the facilities shown as not being scheme claims, and therefore those facilities are not shown in the right-hand columns. The terms for the borrowing provided by the senior lenders shown as having scheme claims will be amended as shown in the right-hand columns.

10 13 The essentials of the scheme comprise: (a) Amendment of the terms of the existing senior facilities agreement and an inter-creditor deed to permit a 40 million new money facility to be provided to the company on a super senior basis, comprising a super senior revolving facility and a super senior term facility. (b) An increase in interest on the senior term loan facilities in respect of Facility B, Facility C and the CAR Facility to be paid on either a PIYW ( pay if you want ) or PIK ( payment in kind ) basis at the election of the company of either 2 per cent (if on a PIYW basis) or 3 per cent (if on a PIK basis). The cash pay interest that the company is obliged to pay to scheme creditors in cash will remain the same as the scheme creditors were entitled to under the existing senior facilities agreement prior to additional payments required as consideration for the waivers. (c) Resetting the financial covenants in the existing senior facilities agreement so that they are based on revised financial projections. (d) Incorporation of conditional subordination provisions which will be triggered if and to the extent that, by virtue of the company s assets not covering its liabilities, the company would otherwise be in breach of a German insolvency law test of whether a company is over-indebted which is expected to come back into force on January 1, Outside the scheme, the restructuring will provide for: (a) Warrants representing 44 per cent of the company s ordinary share capital to be issued directly to scheme creditors, which if exercised in full would result in a split in ownership of 46 per cent to the current ultimate majority shareholders, 44 per cent to scheme creditors and 10 per cent to management. (b) A step-in right for scheme creditors on breach of performance of minimum liquidity covenants by the company. (c) Issue of guarantees for letters of credit issued under a facility proposed to be cancelled, and repayment of amounts drawn under facilities proposed to be cancelled. (d) Conversion of a loan into a hybrid debt/equity instrument to improve the consolidated group s indebtedness for International Financial Reporting Standards purposes. (e) Release of a restructuring opinion by KPMG confirming that the company is capable of being restructured and that the restructuring is suitable to achieve an effective restructuring. (f) Effectiveness of commitments under the new money facility.

11 (g) Implementation of a new management incentive programme. (h) Cancellation of un-drawn commitments under an existing facility not proposed to be part of the scheme. 15 By an order dated March 23, 2011, the court ordered a single scheme meeting to be held of the senior lenders as the scheme creditors. The meeting was duly held on April 14 pursuant to that order and all the scheme creditors voted, either in person or by proxy. Of those, all but 11.4 per cent in number and 6.64 per cent by value voted in favour of the scheme. The dissentient scheme creditors consisted of entities which were either managed by Alchemy Special Opportunities LLP ( Alchemy ) or which had sold their beneficial interest in their portion of the senior debt to one of those scheme creditors managed by Alchemy. * Alchemy had previously proposed an alternative proposal for restructuring the company s debts which had not found favour either with the directors or, more importantly, with a majority of the senior lenders. The dissenting scheme creditors have until recently expressed an intention to oppose the scheme at the sanction hearing, on grounds relating to jurisdiction, to discretion and to the merits of the scheme. At a late stage they notified their intention no longer to oppose the scheme, but have not stated that they support it. The result is that the court must satisfy itself that the scheme should be sanctioned and, in any event, that it has jurisdiction to do so. Jurisdiction 17 The court s statutory power to sanction a scheme of arrangement is to be found in Pt 26 of the Companies Act Section 895 of the 2006 Act provides (so far as is relevant) as follows: (1) The provisions of this Part apply where a compromise or arrangement is proposed between a company and (2) In this Part (a) its creditors, or any class of them, or (b) its members, or any class of them company

12 o o (a) in section 900 (powers of court to facilitate reconstruction or amalgamation) means a company within the meaning of this Act, and (b) elsewhere in this Part means any company liable to be wound up under the Insolvency Act The formula in s.895(2)(b) has stood substantially unchanged for over a century. In s.120(3) of the Companies (Consolidation) Act 1908 it took this form: In this section the expression company means any company liable to be wound up under this Act. The change in language whereby the reference is to companies liable to be wound up under the Insolvency Act 1986 occurred, of course, in connection with transfer of the court s winding-up powers (in relation both to insolvent and to solvent companies) from the Companies Acts to the Insolvency Act The Insolvency Act confers powers upon the court to wind up both registered and unregistered companies. In relation to unregistered companies the relevant provisions are as follows: 220 Meaning of unregistered company For the purposes of this Part, the expression unregistered company includes any association and any company, with the exception of a company registered under the Companies Act 2006 in any part of the United Kingdom. 221 Winding up of unregistered companies (1) Subject to the provisions of this Part, any unregistered company may be wound up under this Act; and all the provisions of this Act about winding up apply to an unregistered company with the exceptions and additions mentioned in the following subsections. (4) No unregistered company shall be wound up under this Act voluntarily, except in accordance with the EC Regulation.

13 (5) The circumstances in which an unregistered company may be wound up are as follows *467 (a) if the company is dissolved, or has ceased to carry on business, or is carrying on business only for the purpose of winding up its affairs; (b) if the company is unable to pay its debts; (c) if the court is of opinion that it is just and equitable that the company should be wound up. It is apparent therefore that the Insolvency Act confers jurisdiction on the court to wind up both insolvent and solvent unregistered companies, with no express jurisdictional restriction referable to the company s place of incorporation, COMI or establishment. 20 The court did not, however, treat the very broad provisions of the Insolvency Act (formerly in the Companies Acts) as giving it carte blanche to wind up foreign companies, regardless of the presence or absence of any connection with England, or of the utility or otherwise of making a winding-up order. On the contrary, there evolved three judge-made conditions for the making of a winding-up order in relation to a foreign company namely: (i) that the company had a sufficiently close connection with England usually, but not invariably, in the form of assets within the jurisdiction; (ii) that there was a reasonable possibility of benefit accruing to creditors from the making of a winding-up order; and (iii) that one or more persons interested in the distribution of assets were persons over whom the English court could exercise jurisdiction. See Re Real Estate Development Co [1991] B.C.L.C. 210, per Knox J. at 217, approved by the Court of Appeal in Re Latreefers Inc, Stocznia Gdanska SA v Latreefers Inc [2001] B.C.C The second and third of what Knox J. called the three core requirements may be said to serve the practical purpose of ensuring that the court will only make orders where some useful purpose will be served. The first requirement has been repeatedly described as serving the purpose of ensuring that the English court declined to exercise a prima facie exorbitant jurisdiction save where it was appropriate to do so. The exorbitancy arises from the fact that the court has no territorial

14 jurisdiction over the place of incorporation or, as the case may be, place of business of the unregistered company and because, all other things being equal, the appropriate forum for the winding up of a company is the court having jurisdiction in its place of incorporation: see per Knox J. in Re Real Estate Development Co at 217d e, Re Latreefers Inc per Lloyd J. ((above) at first instance) at 180B C and Re Drax Holdings Ltd [2004] 1 W.L.R. 1049; [2004] B.C.C. 334 at per Lawrence Collins J. at [24]. 22 Judicial opinion varied as to whether the three core requirements were judge-made limits on the court s jurisdiction to wind up foreign companies, or factors to be taken into account in the exercise of its discretion: see Re Latreefers Inc at [29] [30] in the judgment of the Court of Appeal, where the matter was left unresolved. Nonetheless in Re Drax Holdings Ltd (above), at [23] [26], Lawrence Collins J. concluded that the three core requirements went to discretion rather than to jurisdiction in relation to the winding up of a foreign unregistered company. He did so in the context of having to decide (apparently for the first time) the question whether the phrase liable to be wound up under this Act as the touchstone for jurisdiction to sanction a scheme under what was then s.425 of the Companies Act 1985 necessarily incorporated by reference all three of the core requirements as limits upon the court s scheme jurisdiction. 23 In that case the two companies in respect of which the judge was invited to sanction schemes were incorporated respectively in the Cayman Islands and Jersey. Although neither scheme was opposed, so that he heard no adversarial argument on the issue, he was nonetheless required to satisfy *468 himself as to his jurisdiction. I consider that the absence of adversarial argument detracts little from the force of the reasoning of the judgment of such a pre-eminent writer in the field of private international law, and I am content to adopt his analysis that the three core requirements go to discretion rather than to jurisdiction in relation to the winding up of foreign companies by the English court, at least in circumstances in which (as he thought in that case) the jurisdictional restrictions imposed by the Council Regulation (EC) No.1346/2000 on insolvency proceedings ( the Insolvency Regulation ) are not engaged. 24 Lawrence Collins J. also considered that, in relation to a Cayman or Jersey company, the Judgments Regulation was not engaged either: see Re Drax Holdings Ltd at [28]. That conclusion was consistent with the then Court of Appeal authority on the point in Re Harrods (Buenos Aires) Ltd (No.2) [1992] Ch. 72; [1991] B.C.C. 249, to the effect that the Judgments Regulation was concerned only to resolve issues as to jurisdiction between contracting states, leaving otherwise intact the common law forum conveniens doctrine in relation to conflicts of jurisdiction between England and non-contracting states. As Lord Collins has since acknowledged in Dicey, Morris & Collins on the Conflict of Laws, 14th edn (Sweet & Maxwell, 2006),

15 at para , it is now impossible to argue that Re Harrods Buenos Aires Ltd (above) has not been comprehensively overruled by the ECJ in Owusu v Jackson (t/a Villa Holidays Bal Inn Villas) (C-281/02) [2005] Q.B As will appear, this leaves unresolved a difficult aspect of the analysis called for by the present case, to which I will have to return. 25 The effect (if any) on the court s international jurisdiction to sanction solvent company schemes created by the passing into English law of the Judgments Regulation and the Insolvency Regulation lies at the heart of the present analysis, but it would have been convenient first to describe how the court applied the liable to be wound up test for its scheme jurisdiction prior to the coming into force of those Regulations, (or in relation to the Judgments Regulation, its predecessors, namely the Brussels and Lugano Conventions ). It is in fact impossible for me to describe a settled approach to the interpretation of that phrase at that time, since counsel could not identify any reported case in which it had been considered at a sufficiently early date. There are nonetheless three more recent decisions in which, on an assumption that (although in force) neither of those Regulations or their predecessors applied, the court has addressed, directly or by implication, the meaning of that elusive phrase. 26 In Sea Assets Ltd v PT Garuda Indonesia [2001] EWCA Civ 1696, the Court of Appeal dismissed an objector s appeal against the sanctioning by Lloyd J. (in an unreported judgment) of a creditors scheme in relation to a solvent Indonesian airline operating company. It was apparently common ground at first instance that, because the company had assets and operations at Gatwick airport, within the jurisdiction, the jurisdictional requirements of what was then s.425 of the Companies Act 1985 were satisfied. Nonetheless, objection was taken on the ground that some of the scheme debts were governed by Indonesian law, and that the Indonesian courts could not be assumed to recognise the scheme if a dissentient creditor pursued a claim in Indonesia against the company for payment in full. The objection was taken as an aspect of the alleged insufficiency of the explanatory statement, but Lloyd J. treated it also as a matter relevant to discretion. 27 He rejected the allegation that the explanatory statement was inadequate, and since the overwhelming majority of scheme creditors had contracted to abide by the scheme, he did not regard the possibility that what he described as a small residue of debt not affected by this contractual provision might be enforced without regard to the scheme as sufficient to cause the court to decline to sanction it, on grounds of ineffectiveness. In fact, the scheme was promoted in conjunction with a similar scheme in Singapore where the company had more substantial airline operations than at *469 Gatwick, and its effectiveness therefore needed to be considered in that wider context, rather than in isolation.

16 28 In the Court of Appeal the same objection on the grounds of ineffectiveness was pursued but summarily rejected: see per Peter Gibson L.J. at [59]. In addition it was argued for the objectors that it was in principle wrong for the English or Singaporean courts to sanction the scheme since the place of incorporation and head office of the company (namely Indonesia) meant that it had no sufficient connection with either England or Singapore. The application for sanction in England was described as forum shopping. Again, the Court of Appeal rejected that allegation on the facts, there being both a sufficient connection with England and good reason for not promoting a parallel scheme in Indonesia. 29 Although therefore the judgments in the Garuda case do not deal directly with the question of jurisdiction (it being apparently common ground that there was jurisdiction) their general approach appears to recognise the need for a sufficient connection to be demonstrated between the Scheme and the English jurisdiction for it to be proper for the English court to sanction a scheme, and appears to treat the question of the efficacy of the court s order as a matter going to discretion. 30 The second case is Drax Holdings itself, decided on the assumption that the Judgments Regulation and the Insolvency Regulation could safely be left out of account although, of course, they were by then in force. Lawrence Collins J. s view that the three core requirements for winding up a foreign company went only to discretion meant that it was easy for him to conclude that the phrase liable to be wound up in s.425 of the Companies Act 1985 required only that the companies the subject of the scheme were unregistered companies. This is implicit in [29] of his judgment, as follows ([2004] 1 W.L.R. 1049; [2004] B.C.C. 334): That the companies fall within the definition of companies for the purpose of s. 425 does not, of course, mean that there are no limitations to the exercise of jurisdiction under s.425. The court should not, and will not, exercise its jurisdiction unless a sufficient connection with England is shown. Thus it is almost impossible to envisage circumstances in which the England court could properly exercise jurisdiction in relation to a scheme of arrangement between a foreign company and its members, which would essentially be a matter for the courts of incorporation At [30], continued: In the case of a creditors scheme, an important aspect of the international effectiveness of a scheme involving the alteration of contractual rights may be that it should be made, not only by the court in the country of incorporation, but also (as here) by the

17 courts of the country whose law governs the contractual obligations. Otherwise dissentient creditors may disregard the scheme and enforce their claims against assets (including security for the debt) in countries outside the country of incorporation. 31 Drax Holdings was a strong case for exercising the scheme jurisdiction, both in terms of sufficient connection and efficacy. The underlying business of the group of which the scheme companies formed part concerned the acquisition of a power station in England. There were parallel schemes being promoted both in the Cayman Islands and Jersey. In common with the present case, the creditors rights were all governed by an agreement which specified English law and contained a non-exclusive submission to the jurisdiction of the English court. 32 The third case which assists in the interpretation of the phrase liable to be wound up on an assumption that the Judgments Regulation and Insolvency Regulation are both irrelevant is Re Sovereign Marine & General Insurance Co Ltd [2006] EWHC 1335 (Ch); [2006] B.C.C. 774 in which Warren J. ordered the convening of a creditors meeting to approve a scheme under *470s.425 of the Companies Act 1985 on the application of 16 insurance companies. All but one of them were solvent. They were incorporated and regulated variously in the UK, France, Ireland, New York and Bermuda. At [62] Warren J. held that the Insolvency Regulation was irrelevant. As for the Judgments Regulation, he concluded only that none of the jurisdictional rules in Ch.II is wide enough to encompass schemes of arrangement. I shall return to that question in due course. For present purposes it is sufficient that Warren J. regarded the Judgments Regulation, like the Insolvency Regulation, as irrelevant to the issue as to the court s solvent scheme jurisdiction. 33 After a lengthy review of Drax Holdings, at [28] [31], Warren J. concluded, at [32], that: Drax is not, therefore, authority for the proposition that a solvent unregistered company is liable to be wound up This was because he concluded that both companies in the Drax case were insolvent. He therefore addressed the meaning of the phrase liable to be wound up afresh in relation to solvent companies in [33], as follows: It was not, however, suggested to me that the court has no jurisdiction to sanction a scheme in relation to a solvent foreign company outside the EU/EEA unless one of the conditions in s.221(5) is in fact fulfilled. That would be a surprising conclusion and one which I consider to be incorrect for the reasons which follow. The question Is this company liable to be wound up

18 under IA 1986? could be taken in two senses: first, in the sense whether it could be subject to a winding-up process under IA 1986 on the facts as they stand at present; secondly, in the sense whether the company is the sort of company which is capable of being wound up under IA In my judgment the latter sense affords the correct approach to the meaning of liable to be wound up in s.425(6)(a) : it is not necessary to show that any of the conditions of s.221(5) is in fact fulfilled. Thus a foreign (non-eu/eea) company is a company which is capable of being wound up in the sense that, if any of the circumstances set out in s.221(5) arises, then the court has power, subject to its discretion and thus, in particular, to the three conditions considered in Drax, to wind it up. 34 It is to be noted that Warren J. was careful to confine the foregoing analysis to non-eu/eea companies. This was not because he regarded the question of jurisdiction in relation to EU/EEA companies as affected by either the Insolvency or Judgments Regulations, but because he was required to (and did) consider whether the Directive 2001/17 on the reorganisation and winding up of insurance companies, and the Insurers (Reorganisation and Winding up) Regulations 2004 (SI 2004/353) made by way of their implementation in the UK, had any relevant effect. The effect of the EU legislation 35 There is no doubt that the combined effect of the Insolvency Regulation and the Judgments Regulation has been very substantially to curtail the international jurisdiction of the English court to wind up companies. In relation to insolvent companies the combined effect of arts 1.2(a), 3.1 and 3.2 of the Insolvency Regulation is that, in relation to a company with its COMI in a Member State other than the UK, the English courts have jurisdiction to wind up only if the company possesses an establishment within the UK. Such a winding up is to have effect only in relation to the assets of the debtor situated within the UK. This is because a winding up by the court constitutes insolvency proceedings within the meaning of art.2(a) and is one of those proceedings listed inannex A. * The position in relation to the English court s jurisdiction to wind up a solvent company is less clear. It is not a form of proceedings excluded by art.1 of the Judgments Regulation, sinceart.1(2)(b) excludes only proceedings relating to the winding up of insolvent companies. The more difficult question is whether such proceedings are, within the meaning of art.22(2) : Proceedings which have as their object the dissolution of companies

19 If so, then exclusive jurisdiction is given to the courts of the Member State (if any) in which the company has its seat. 37 In [55] of the report of Professor Dr Peter Schlosser ( the Schlosser Report ) on the accession of the UK, Denmark and Ireland to the Brussels Convention (the predecessor of the Judgments Regulation ) it is said that: A common feature of all winding-up proceedings is a disposal of assets and the distribution of their proceeds among the persons entitled thereto with a view to bringing the company to an end. The start of winding-up proceedings corresponds, therefore, to what is understood by dissolution on the continent. The dissolution of a company on the other hand is identical with the final result of a liquidation under continental legal systems. At [58] he adds: The term dissolution in Article 16(2) of the 1968 Convention the predecessor of Article 22.2 of the Judgments Regulation] is not to be understood in the narrow technical sense in which it is used in legal systems on the Continent. It also covers proceedings concerning the liquidation of the company after dissolution 38 In my judgment the English court s jurisdiction to wind up a solvent company is, by Art.22.2 of the Judgments Regulation, excluded in circumstances where, as in the case of Rodenstock GmbH, the company has its seat in a Member State other than the UK. 39 The only form of winding-up proceedings not affected, in terms of jurisdiction, by either the Insolvency or Judgments Regulations is winding up on the public interest ground. This is because such proceedings are brought in the public interest and are not therefore a civil and commercial matter within the meaning of art.1(1) of the Judgments Regulation : see Re Senator Hanseatiche Verwaltungsgesellschaft mbh [1996] 2 B.C.L.C. 562, at 577, where Sir Richard Scott V.-C. also concluded (obiter) that if such proceedings had been within the scope of the (then) Brussels Convention, they would have been subject to the exclusive jurisdiction provisions of what was then art.16(2), now art.22(2).

20 40 The result is therefore that, for as long as the company continues to have both its seat and COMI in Germany, and has no establishment in the UK, the English court has no jurisdiction to wind it up, whether solvent or insolvent save on the public interest ground. 41 In Re Sovereign Marine (above) at [41] Warren J. said this: One might therefore think that if some law be it an Act of Parliament or an overriding piece of EU legislation were passed which provided expressly that the English court should not have jurisdiction to wind up a particular class of unregistered company, it could no longer be said that a company within that class was liable to be wound up under this Act. That, I do not doubt, is the literal meaning of the words; and if schemes of arrangement had been invented and introduced only after such a jurisdictional law as I have just mentioned had been made, it is, I *472 venture to suggest, inconceivable that any judge would say that the company was liable to be wound up under this Act. It is only the history of the legislation which opens up the possibility of the argument which Mr Moss puts forward. Mr Moss QC s argument was that since there was nothing in either of the Regulations which was intended to restrict a Member State court s jurisdiction to sanction schemes in relation to solvent companies, and since the liable to be wound up touchstone for jurisdiction had never itself been amended in substance during its 100 years existence, the court should not conclude that the Regulations, or any other EU legislation, thereby accidentally cut down the scope of the court s jurisdiction in relation to solvent schemes. 42 It is apparent from [45] that Warren J. found it unnecessary to resolve this question directly, in particular because all the relevant companies before him were insurance companies governed by a separate regime. 43 Substantially the same question had already been asked and answered by Lewison J. when approving an unopposed scheme of arrangement under s.425 in relation to 18 Dutch companies: seere DAP Holding NV [2005] EWHC 2092 (Ch); [2006] B.C.C. 48. One of them was a re-insurer rather than an insurer, and therefore not excluded from the effect of the Insolvency Regulation byart.1(2).

21 44 Following the lead given by Lawrence Collins J. in Re Drax Holdings (above) Lewison J. concluded, at [11], that the expression liable to be wound up did not depend upon transient considerations which might change from time to time, such as whether the company was or was not solvent, and that the location of a debtor s COMI or establishments were also transient in the same way, because the debtor could perfectly properly choose to relocate its business or open an establishment in the territory of another Member State. He continued: There is logically no warrant for distinguishing between transient matters of that kind and transient matters such as the day-today financial position of the corporation. Consequently, there is nothing in the Insolvency Proceedings Regulation which precludes the court from concluding that a foreign corporation like DAP Holding NV, with neither its centre of main interest in this Member State nor an establishment in this Member State, is liable to be wound up. Of course there must be a sufficient connection with England and Wales in order for this court to exercise jurisdiction, but that is a matter of discretionary exercise of jurisdiction rather than the existence of the jurisdiction itself. 45 Lewison J. took a rather different course in relation to the possible limiting effect on the court s jurisdiction created by the Judgments Regulation. At [14] he said: Article 1(2)(b) of that Regulation excludes from its scope bankruptcy proceedings relating to the winding-up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings. Since judicial arrangements are expressly excluded from the scope of that Regulation, it seems to me to be clear that the court should not, through arguments based on the hypothesis the company may be liable to be wound up when solvent, permit that clear exclusion to be displaced by some sought of implied exclusion. I consider, therefore, that the sanction of a scheme under ss.425 and 426 of the Companies Act is expressly excluded from the scope of the Judgments Regulation. 46 In Re Sovereign Marine (above) at [62], Warren J. took a slightly more cautious approach. He said: *473 Although that Regulation applies in civil and commercial matters (see Art.1) and although there is a dispute between the parties whether the exclusion of judicial arrangements, compositions and analogous proceedings in Art.2(b) extends to schemes of arrangement in relation to solvent companies, I do not need to resolve that difference because, as I have just said, none of the jurisdictional rules in Ch.II is wide enough to encompass schemes of arrangement.

22 Warren J. made no reference in his lengthy judgment to Re DAP Holding NV, in which judgment had been given some nine months previously. I infer that it was not drawn to his attention. Lewison J. had himself drawn comfort from [10] of the judgment of Pumfrey J. in Re La Mutuelles du Mans Assurances IARD [2005] EWHC 1599 (Ch); [2006] B.C.C. 11, in which he had also concluded that the Judgments Regulation was wholly inapplicable to schemes of arrangement. 47 There are a number of difficulties with the conclusion that schemes of arrangement (at least in relation to solvent companies) are wholly excluded from the scope of the Judgments Regulationby art.1(2)(b). The first is that, as is asserted in para.53 of the Schlosser Report, the Judgments Regulation and the Insolvency Regulation were intended to dovetail almost completely with each other. Although what is now the Insolvency Regulation was, at the time of his Report, still in discussion as a planned convention, nothing which thereafter occurred appears to me to have been intended to detract from the plan that the bankruptcy exclusion should exclude from the Judgments Regulation nothing more, and nothing less, than what was included within the scope of theinsolvency Regulation. 48 Secondly, I was shown expert evidence from Hans-Peter Kirchhof, a retired judge of the Bundesgerichtshof (Germany s Federal Supreme Court) to the effect that the German language version of art.1(2) of the Judgments Regulation clearly excludes only such judicial arrangements, compositions and analogous proceedings as arise in a bankruptcy or insolvency context. The same approach is adopted by Miguel Virgós and Francisco Garcimartin in their commentary on the Insolvency Regulation, The European Insolvency Regulation: Law and Practice (Kluwer Law International, 2004), at paras 77 78, on p A further substantial difficulty in the conclusion reached by Lewison J. and Pumfrey J. is that if schemes in relation to solvent companies are wholly excluded from the Judgments Regulation, they are not capable of being recognised or enforced under Ch.III, a conclusion which would be likely to detract from the utility of the sanction by an English court of a scheme relating to a solvent company having its COMI, establishments or assets in other Member States. 50 True it is (as I shall later describe) that in Germany a regional appeal court has concluded that the sanction by this court of a scheme relating to Equitable Life was not liable to be recognised in Germany, but this was because the court took the view that the English court s sanction was not a judgment within the meaning of art.32, rather than because proceedings relating to such schemes fell wholly outside the scope of the Judgments Regulation.