Recent Developments in European Insolvency Law and the Foreign Proceeding Requirement of Bankruptcy Code Section 304:

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1 IBA SECTION ON BUSINESS LAW INSOLVENCY AND CREDITORS RIGHTS VOL.XIV, NO.1, APRIL 2004 Recent Developments in European Insolvency Law and the Foreign Proceeding Requirement of Bankruptcy Code Section 304: Potential Consequences for United Kingdom Collective Administration Proceedings By Brian M. Cogan* Partner, Stroock & Stroock & Lavan LLP BACKGROUND United States Bankruptcy Code (the Bankruptcy Code ) section 304 provides a mechanism by which foreign liquidators, administrators and receivers can seek relief, including injunctive relief and a suspension of domestic bankruptcy proceedings, in United States bankruptcy courts. For a petition to be brought under section 304,and before a court will conduct an analysis of the factors enumerated in 304 (c) to determine if relief is warranted, a court must first be satisfied that a foreign proceeding exists. Recent innovations in United Kingdom and European Union law have both liberalized the form and broadened the jurisdiction of insolvency proceedings in the UK. In the UK, the recently amended United Kingdom s insolvency law the United Kingdom Enterprise Act of 2002 (the Enterprise Act ) provides for the creation of an out-of-court collective administration procedure under which directors, companies and certain floating charge holders can appoint an out-of-court administrator, who is empowered to act with minimal court supervision. This article examines whether and to what extent these developments, by altering the nature of the foreign proceedings to which Section 304 proceedings must be ancillary, could impair the ability of administrators in the United Kingdom to effectively seek relief under Section 304. In particular, this article looks at (a) whether out-of-court collective administration proceedings convened pursuant to the Enterprise Act, are sufficiently court-supervised to qualify as foreign proceedings, and (b) whether UK chancery courts liberal interpretation of the jurisdictional requirements of recently enacted European Union insolvency regulations will reduce the likelihood that these collective administration proceedings will be recognized as foreign proceedings for purposes of Section International Bar Association. Reprinted with permission. For more information, visit

2 DOES AN OUT-OF-COURT COLLECTIVE ADMINIS- TRATION PROCEDURE CONVENED PURSUANT TO THE UNITED KINGDOM ENTERPRISE ACT OF 2002 QUALI- FY AS A FOREIGN PROCEEDING FOR PURPOSES OF SECTION 304? This section examines the new out-of-court collective administration procedure of the Enterprise Act and whether, in light of recent case law, that administration procedure is sufficiently court-supervised to qualify as a foreign proceeding for the purposes of Section 304. The Foreign Proceeding Requirement of Bankruptcy Code Section 304 Under Bankruptcy Code section 304 (a), a case ancillary to a foreign proceeding is commenced by the filing with the bankruptcy court of a petition under this section by a foreign representative (emphasis added). A foreign proceeding for these purposes is defined in section 101 (23) of the Bankruptcy Code as a: proceeding, whether judicial or administrative and whether or not under bankruptcy law, in a foreign country in which the debtor s domicile, residence, principal place of business, or principal assets were located at the commencement of such proceeding, for the purpose of liquidating an estate, adjusting debts by composition, extension, or discharge, or effecting a reorganization. The Importance under United States Bankruptcy Court Decisions of Judicial Involvement and Supervision of the Foreign Administrative Arrangement Although US bankruptcy courts have interpreted foreign proceeding broadly to include out-of-court administration and rehabilitation schemes, a line of cases decided by the Bankruptcy Court of the Southern District of New York, suggests that the level of judicial involvement and supervision of a foreign administrative arrangement is a key factor in determining whether or a foreign proceeding exists for purposes of section Under these cases, a finding that a foreign bankruptcy arrangement is insufficiently court-supervised has on occasion resulted in a denial of relief. Decisions of Bankruptcy Courts in the Southern District of New York For instance, in In re Tam, 170 B.R. 838 (Bankr.S.D.N.Y. 1994), the Bankruptcy Court ruled that a voluntary winding-up procedure conducted by the shareholders of a company pursuant to the Cayman Islands Companies Law did not constitute a foreign proceeding and as a result did not qualify for relief under section 304. Distinguishing the voluntary winding-up at issue in the case from the winding up by the court also available under Cayman Islands law, 2 the Court found that the voluntary winding up was conducted without any regulatory oversight and virtually no creditor participation. Id. at 843. The Court denied relief, taking particular note of the fact that the role of the Cayman Registrar of Companies was ministerial, not supervisory; that shareholders could select a liquidator without any court review; and that short of making a petition to the court that the voluntary winding-up cease and be replaced by a court-supervised process, creditors had no right to be heard or to seek discovery on matters related to the actions of the liquidator. The Court was also troubled by the fact that the liquidator was under no statutory or judicial obligation to report to creditors unless the proceeding continued for more than one year. Id. at In subsequent decisions, the Southern District Bankruptcy Court has declined to further narrow the definition of foreign proceeding, consistently granting 304 relief in cases involving out-of-court schemes. Two years after Tam, in In re Petition of J.S.Ward, 201 B.R. 357 (Bankr.S.D.N.Y.1996), the same bankruptcy judge found that a voluntary winding-up under the Zambian Companies Act, which did not involve a court proceeding at all, qualified as a foreign proceeding. In distinguishing the Zambian arrangement from 2

3 that in Tam, the Court noted that under the Zambian law, creditors can petition the High Court of Zambia for leave to investigate acts of officers and directors, that dissenting creditors have a right to appeal to the Court, which can then amend the arrangement or even remove the liquidator for due cause shown, and that liquidators must submit a preliminary report to the Court. The Court also noted the fiduciary-like duties owed by the liquidator towards creditors and contributories. Id. at In In re Board of Directors of Hopewell International Insurance, Ltd., aff d 238 B.R. 25 (Bankr. S.D.N.Y. 1999), 275 B.R. 699 (S.D.N.Y.2002), the Bankruptcy Court found that a Bermuda scheme of arrangement an out-of-court process of adjusting the contractual rights between a company and its creditors and/or shareholders satisfied the requirements of a foreign proceeding. The Court cited the fact that the Bermudan scheme required both an application hearing, at which the applicant must seek the guidance of the court, and a sanctioning hearing, at which the court must make a determination that the scheme is in the interest of both creditors and members. The Court noted that creditors are afforded opportunity to be heard at the hearings, and also have a right to appeal the final sanction order. Id. at 52. Most recently, In In re Netia Holdings S.A., 277 B.R. 571 (Bankr.S.D.N.Y.2002), the Court found that an application for an out-of-court settlement between a debtor and its creditors conducted pursuant to the Polish Arrangements Proceedings Act was a foreign proceeding, stating in a footnote that it is not, in this Court s view, whether parties actually go to court to enforce rights afforded them that is significant; it is the extent to which the court is open to them if they want to. Id. at 583 [emphasis in original]. 3 The Court distinguished the Polish proceeding from that in Tam, noting that the Polish court appointed a courtsupervisor to oversee the debtor s business and a judge-commissioner to oversee the proceedings, examined witnesses and held hearings, and that creditors had both an opportunity to oppose the bankruptcy application and to appeal. Id. at 577, Decisions of Bankruptcy Courts Outside of the Southern District of New York Outside of New York, case law on the judicial supervision requirement is sparse, though one can discern a broad reading of foreign proceeding in decisions granting section 304 relief. For instance, bankruptcy courts in Texas have recognized proceedings under Cayman Islands and Canadian Law as foreign proceeding[s], but have based their analyses in general principles of comity, without inquiring into the level of court supervision of the foreign action in any detail. 4 The decision in In re Master Home Furniture Company Ltd., 261 B.R. 671 (Bankr.C.D.California 2001), is an important exception to this trend. In Master Home, the Court found that a reorganization proceeding conducted pursuant to the Company Law of Taiwan did not qualify as a foreign proceeding under section 101(23) of the Bankruptcy Code. The Court noted that the application for reorganization in question was pending and that although under Taiwanese law a court would supervise an ultimate restructuring, a court neither supervised nor administered the company while the application was pending. The Court further noted that the investigative procedure required to determine whether a reorganization was warranted would take six to nine months and that although the Taiwanese court did issue an interim decree prohibiting bank creditors from seeking payment, the decree neither prevented the company from paying trade creditors, nor restricted creditors from filing lawsuits. Id. at The Court further noted that the Taiwanese court did not exercise supervision over the business operation of the company. Id. at Although in some US jurisdictions the Master Home ruling may present problems for foreign administrators with applications pending in a foreign court, the 3

4 Southern District of New York, in Netia (which also involved a pending application), has implicitly rejected Master Home s ruling. Although the Netia court distinguished the Polish proceeding from Master Home on the ground that there was significantly more judicial supervision of the process, it also stated that the courts in this district have construed section 304 (a) broadly, and have provided assistance to foreign judicial proceedings with considerably less judicial involvement and supervision than that in Master Home (or here). Id. at Judicial Involvement and Supervision under the United Kingdom Enterprise Act of 2002 The corporate insolvency provisions of the Enterprise Act, an amendment to the United Kingdom Insolvency Act of 1986, came into effect in England, Scotland and Wales on September 15, Part 10 of the Enterprise Act, replacing Part II of the Insolvency Act, introduces substantial reforms to United Kingdom insolvency law. In particular, the Enterprise Act establishes a new out-of-court collective administration procedure and restricts the use of administrative receiverships to a few exceptional circumstances. 7 The Act streamlines the appointment process, providing for the out-of-court appointment of an administrator by directors, companies and qualified floating charge holders. It also significantly expands the power of administrators to take action without first obtaining court permission. For instance, the Act empowers administrators to make distributions to secured and preferential creditors without a court order. Notwithstanding the Enterprise Act s significant reforms intended to increase the efficiency of the administration process and to free it from the burden of excessive court oversight, the court maintains a significant supervisory role over the new administration arrangement, as set forth in Schedule B1 to the Act. Role of Administrator The schedule states that the administrator is an officer of the court, regardless of whether appointed through an in-court or out-of-court process (para. 5), and as such must perform his functions in the interests of the company s creditors as a whole (para. 3). 8 It provides for the administrator to apply to the court for direction in connection with his functions (para. 63), and states that [i]f the court gives directions to the administrator of a company in connection with any aspect of his management of the company s affairs, business or property, the administrator shall comply with the directions (emphasis added), though the circumstances under which the court can give directions are limited (para. 68). 9 The court may also issue an order removing the administrator from office (para. 88). Reporting The schedule provides for regular reporting to the court by the administrator.when an administrator is appointed, a notice of appointment must be filed with the court (para. 18, 29). The administrator must also report any decisions taken at creditor meetings to the court (para ). Court Approval Although the new arrangement expands an administrator s power to act without the court s express permission, court approval still is required for certain key decisions. For instance, if the administrator s proposals are rejected by a majority vote at the initial creditor meeting, the administrator must report to the court, after which the court may take a variety of actions, including inter alia ending the administrator s term of appointment or issuing any order that the court thinks appropriate (para. 55). The administrator can make distributions to secured creditors of the company,but must obtain court permission to make a distribution to a non-secured creditor (para. 65), to dispose 4

5 of property subject to a security other than a floating charge (para. 71), or to dispose of goods in the possession of the company under a hire-purchase agreement (para. 72). Creditor Access to Court Perhaps most importantly, creditors or members of the company may petition the court if they believe that the administrator has acted or proposes to act in a way that has or may unfairly harm the interests of the applicant or is not performing his functions as quickly and efficiently as is reasonably practicable. In response, the court may grant any relief or make any order that it thinks appropriate (para. 74). Similarly, upon application by an official receiver, administrator, liquidator, creditor or contributory of the company alleging misfeasance or breach of fiduciary duty, the court can order appropriate relief, including restitution (para. 75). On application of a creditor alleging an improper motive, the court may also provide for the appointment of an administrator to cease at a specified time (para. 81). Time Limitations Finally, the schedule places a time limit of one-year on the administration process, and requires the administrator to send a statement of proposals to all creditors and members of the company, and to hold a creditors meeting, within 8 and 10 weeks of appointment respectively (para. 49, 51). Is Judicial Involvement and Supervision under the Enterprise Act Sufficient under United States Bankruptcy Court Decisions? Bankruptcy courts in the Southern District of New York continue to interpret section 304 s foreign proceeding requirement broadly to include out-of-court winding-up and restructuring arrangements with minimal or no active court supervision. The most cogent factors in this analysis seem to be the presence of some mechanism by which dissatisfied creditors can access the supervising court, and the ability of the court to intervene in a meaningful way, if necessary. Although hearings and other in-court proceedings also are important indicia of judicial involvement, New York bankruptcy courts have recognized out-of-court processes that do not involve formal proceedings before a court. Other factors that the courts have considered in their analyses have included statutory or court-ordered reporting requirements, an opportunity to appeal, and the existence of a fiduciary relationship. Of course, there remains the possibility that other jurisdictions will follow Master Home more closely and require active supervision by the foreign court, particularly where applications are pending. Master Home suggests that some active court intervention could be necessary, possibly including some supervision of the operation of the business itself and the issuance of a court order stay equivalent to an automatic stay under US bankruptcy law. Under Master Home, the length of time that an application may remain pending is also a factor. The collective administration procedure of the Enterprise Act should qualify as a foreign proceeding, at least under Southern District of New York case law. Schedule B1 s reporting requirements, mandatory court involvement in certain decisions and provisions for dissatisfied creditors to apply directly to the court likely constitute sufficient indicia of judicial involvement to satisfy the requirements of the Southern District case law, including Tam. The role of the administrator as an officer of the court with fiduciary duties towards all creditors, and the establishment of clear time limits on the process also distinguish the Act s procedures from the arrangements in Tam and Master Home. However, it is far too early to declare the new procedure unassailable. United States bankruptcy courts, especially those outside of New York, may ultimately decide that the Act s out-of-court appointment process, which does not require a formal hearing, and its lack of active court business supervision or inter- 5

6 vention absent a petition by creditors or other interested parties, provide insufficient safeguards, particularly for unsecured creditors. COULD UNITED KINGDOM CHANCERY COURTS LIB- ERAL INTERPRETATION OF THE CENTRE OF MAIN INTERESTS REQUIREMENT OF THE EUROPEAN UNION INSOLVENCY REGULATION RESULT IN THE DENIAL OF RELIEF UNDER BANKRUPTCY CODE SECTION 304? A collective administration scheme convened pursuant to the Enterprise Act also will have to conform with the jurisdictional requirements of the European Union Council Regulation 1346/2000 on Insolvency Proceedings (the Regulation ), which requires that a principal insolvency proceeding be established where a debtor s centre of main interests ( COMI ) is located. Recent decisions in the chancery courts of the United Kingdom have interpreted this requirement broadly, finding jurisdiction over companies, and their subsidiaries, that are incorporated, registered and conducting business in other EU Member States and in non-eu countries. United States bankruptcy courts are required to make a similar determination regarding the jurisdiction of a foreign insolvency proceeding when deciding whether to open an ancillary proceeding pursuant to section 304. Specifically, section 101 (23) requires that a foreign proceeding be located in the country where the debtor s domicile, residence, principal place of business, or principal assets were located at the commencement of such proceeding. This section of the article considers whether, in light of the liberal interpretation UK courts have given to the jurisdictional provisions of the Regulation, US bankruptcy courts might find that a UK administration proceeding convened pursuant to the Regulation does not satisfy the domicile, residence, principal place of business, or principal assets prong of the foreign proceeding requirement. Jurisdiction under Article 3 of the European Union Council Regulation 1346/2000 on Insolvency Proceedings As of May 31, 2002,a collective administration proceeding convened under the provisions of the Enterprise Act must comply with the jurisdictional requirements of the European Union Council Regulation 1346/2000 on Insolvency Proceedings. Pursuant to Article 3 (1) of the Regulation, a UK court can exercise jurisdiction over a debtor company only if the company s centre of main interests, presumed to be the place of the registered office in absence of proof to the contrary, is situated in the United Kingdom. 10 The preamble to the Regulation clarifies that the COMI should correspond to the place where the debtor conducts the administration of his interests on a regular basis and is therefore ascertainable by third parties. 11 In addition, under Article 3 (2), a subordinate proceeding, limited to the disposition of a debtor s local assets, can be opened in a Member State where the debtor possesses an establishment, defined as any place of operations where the debtor carries out a non-transitory economic activity with human means and goods. 12 Article 16 (1) of the Regulation requires all EU Member States to recognize the authority of an insolvency proceeding convened in accordance with these provisions. United Kingdom Case Law on Centre of Main Interest Courts in the UK have read Article 3 (1) s centre of main interests requirement broadly, suggesting that the rebuttable presumption that the COMI is the place of registration can be easily overcome. As early as July 2002, the High Court, Chancery Division, in Enron Directo Sociedad Limitada, authorized the opening of a main proceeding under Article 3 after finding that the COMI of the debtor, an Enron-related company incorporated in Spain, was located in the UK because inter alia its head office, the company s center of administrative decision-making, was located in London. 13 6

7 Subsequently, in Re: Brac Rent-A-Car International Inc.,[2003] EWHC 128 (Ch. January 14, 2003), the High Court, Chancery Division, found that a debtor company incorporated in the United States with its registered office in the state of Delaware had its COMI in the UK, noting inter alia that its operations were conducted almost entirely in the UK,nearly all of its employees were in England, and it had entered into contracts governed by English law. Id. at 4-5. In making its ruling, the court held that the only test for the application of the Regulation in relation to a given debtor is whether the centre of the debtor s main interests is in a relevant Member State, and not where a debtor which is a legal person is incorporated. Id. at 31. See also, Re Salvage Association,[2003] EWHC 1028 (Ch. May 9, 2003) ( centre of main interests requirement applies to a UK corporation it matters not where the company was incorporated. ) Most notably, in Re: Daisytek-ISA Ltd,[2003] All ER (D) 312 (Jul)(Ch. May 16, 2003), the Chancery Division, Leeds District Registry, found the UK to be the COMI of the French and German subsidiaries of an English holding company, despite the fact that the subsidiaries had their registered offices and conducted their business in France and Germany, noting inter alia that potential creditors were aware that most administrative decisions, including purchasing approval, were made at the European head office in Bradford, England. Id. 14 In September 2003, the French Court of Appeal in Versailles recognized the administrative order issued by the Leeds court and overturned a lower ruling of the Tribunal de Commerce de Sergy-Pontoise, which had declared the English order invalid. 15 Bankruptcy Code section 304:A Universalist Approach to Jurisdiction? Principles of comity and recent case law in the Second Circuit suggest that an English court s determination of its jurisdiction over a proceeding pursuant to the Enterprise Act and Article 3 of the Regulation will be recognized in US bankruptcy court. The broad language of section 101 (23) also suggests a liberal, universalist, approach to jurisdiction (domicile, residence, principal place of business, or principal assets) compatible with, and potentially even broader in scope than, a centre of main interests analysis. Nonetheless, it is possible that some courts will weigh the relevant factors differently, and in particular give primary, or even dispositive, consideration to the place of incorporation and registration of the debtor company. In In re: Petition of Shavit, 197 B.R. 763 (S.D.N.Y.Bankr. 1996), the Court recognized an Israeli bankruptcy proceeding as a foreign proceeding where the debtor was an American corporation with assets in Israel. The Court found that the corporation need only have a substantial connection with the host country, noting that the debtor undergoing foreign judicial or administrative liquidation (or rehabilitation) must meet only one of four criteria. Two of the criteria principal place of business and principal assets do not depend on the place where the debtor was formed or resides. Id. at 767. Similarly, in In re Petition of Mid East Trading Ltd., 1997 U.S.Dist. LEXIS (S.D.N.Y. 1997), the District Court affirmed a bankruptcy court s order for jurisdictional discovery on the issue of whether a debtor company without domicile, residence or principal place of business in the UK had sufficient assets (in the form of claims against third parties) in the UK to warrant recognition as a foreign proceeding under section See also, In re Maxwell Communication Corporation, 170 B.R. 800, 817 (S.D.N.Y.Bankr. 1994) ( in an age of multinational corporations one could not simply employ the nation of incorporation alone as the determinant for the identification of the home country for the purposes of Bankruptcy Code section 305). 7

8 In In re: Bullmore, 300 B.R. 719 (D.Nebraska 2003), a bankruptcy court in the state of Nebraska refused to apply a centre of main interests test for section 304, and focused its analysis exclusively on the place of incorporation, which it read into the domicile language of section 101 (23). In reaching its decision, the Court considered expert testimony on the EU Regulation, concluding [n]either the centre of main interests as defined under European law nor the center of main interests as defined by the ALI and the proposed Chapter 15 of the Bankruptcy Code represents the current state of the law in the United States with regard to the definition of domicile of a corporation under United States law. Id. at 729. Importantly, the Court asserted section 304 jurisdiction despite its finding that the only legal or factual connection between the debtor company and the Cayman Islands, where the principal proceeding had been brought, was that the company had been registered and incorporated in the Cayman Islands. Id. at 727. Discussion United Kingdom courts, by clearly rejecting a place of incorporation standard and showing a willingness to extend jurisdiction even to foreign subsidiaries situated outside of the UK,have established a permissive interpretation of the COMI requirement, and set a low threshold to rebut the presumption that the COMI is a company s place of registration. Factors taken into account in identifying a company s centre of main interests have included inter alia the location of the company s headquarters, its operations and employees, its decision-making apparatus and the rights and expectations of potential creditors. US bankruptcy courts are likely, and arguably required, to scrutinize a UK court s jurisdiction determination as part of a section 304 foreign proceeding analysis. While the concepts underlying section 304 and the COMI requirement are sufficiently similar that US courts are unlikely to deny recognition of a foreign proceeding, there is at least evidence that some US courts might grant more deference to place of registration and incorporation than a court in the UK. Although the Bullmore decision illustrates the reluctance on the part of US courts to adopt a centre of main interests -type analysis, it is important to note that the court in that case recognized the foreign proceeding (on facts that would not have satisfied a centre of main interests analysis), a result consistent with principles of comity, the deferential stance taken by courts in the Second Circuit, and a literal reading of the statute. It may be more difficult for US courts to reconcile the language of the foreign proceeding requirement with rulings such as Daisytek, in which the COMI was found to be neither the company s place of incorporation, nor its regular place of business. While a predominant concern for the interests of creditors is common to both the UK and US jurisprudence, jurisdiction based exclusively on the place of administrative decision-making, or the expectations of potential creditors, does correspond as neatly with the language of section 101 (23). One should watch the UK courts closely for further developments expanding on the Daisytek decision. 17 CONCLUSION There is a definite movement in European and international insolvency law towards both a liberal recognition of out-of-court administration procedures and the adoption of a centre of main interests standard for asserting jurisdiction. Looking toward the future, it is worth noting that the language of the proposed Chapter 15 to the Bankruptcy Code adopts the center of main interests language of the Regulation and the UNCITRAL Model Law on Cross-Border Insolvency. 18 To the extent that an amended Bankruptcy Code might include an explicit court supervision requirement, it is also worth noting that 8

9 the proposed chapter s definition of foreign court is broad, including any judicial or other authority competent to control or supervise a foreign proceeding (emphasis added). As the foregoing analysis illustrates, one should not be overly concerned that US bankruptcy courts will refuse to recognize administration schemes convened pursuant to the Enterprise Act, or to reject out-of-hand UK courts jurisdictional determinations. All the same, until a comprehensive law governing the recognition of foreign insolvency proceedings is enacted, US courts will continue to apply section 304 s foreign proceeding requirement on a case-by-case basis. For the time being, UK-based administrators seeking to open an ancillary proceeding pursuant to section 304 should proceed with caution. Notes *The author would like to thank Fred Rawski for his contribution to this paper. 1. In re Netia Holdings S.A., 277 B.R. 571, 581 (Bankr.S.D.N.Y. 2002); In re Board of Directors of Hopewell International Insurance, Ltd., 238 B.R. 25, 50 (Bankr.S.D.N.Y. 1999). 2. In In re MMG LLC, 256 B.R. 544, 549 (Bankr.S.D.N.Y. 2000), the Cayman Island winding up by the court process was found to be a foreign proceeding. 3. See also, Vesta Fire Insurance Corporation v. New Cap Reinsurance Corporation Limited, 244 B.R. 209, 215 (S.D.N.Y. 2000) [ voluntary administration under Australian law, which did not demand automatic judicial intervention, was nonetheless a foreign proceeding as judicial oversight was available upon request to protect the disparate interests of the creditors ]. 4. In re Fracmaster, Ltd., 237 B.R. 627 (Bankr.E.D.Texas 1999); In re Petition of Len B. Blackwell, 270 B.R. 814 (Bankr.W.D.Texas 2001). 5. The Netia court took issue with Master Home s consideration of these last two factors, suggesting that the Master Home court was prematurely engaging in a section 304 (c) analysis meant to determine whether injunctive relief is warranted, stating Section 304 (a) makes no mention of those requirements [automatic stay and court supervision of business operations] this Court believes it to be inappropriate to judicially craft such requirements now. In re Netia Holdings, S.A. at this Court has some doubt as to whether the Master Home court would decide this case as it decided [the petition in Master Home] if the Master Home court were deciding this case now and was subject, as this Court is, to the law in the Southern District of New York and Second Circuit Id. at Such as pursuant to an agreement part of a capital market arrangement, and some public-private partnership projects Chapter 40 section B-72G. 8. The Administration Guidance Notes to the Act ( the Notes ) state explicitly that the court has a supervisory jurisdiction. Administration Guidance Notes at 4.3.1, available at GuidanceNotes.doc. 9. If directions are given after a proposal has been approved through the administrative process, such directions must be consistent with the existing proposal or revision, or necessary because of a change of circumstances or a misunderstanding (para. 68). 10. Article 3 (1):The courts of the Member State within the territory of which the centre of a debtor s main interests is situated shall have jurisdiction to open insolvency proceedings. In the case of a company or legal person, the place of the registered office shall be presumed to be the centre of its main interests in the absence of proof to the contrary. 11. Preamble at paragraph Article 2(h). 13. Gabriel Moss Q.C., Case Comment re: Enron Directo Sociedad Limitada, available at The court read the third parties language of the Regulation s preamble to mean potential creditors, noting the need for third parties to be able to ascertain the centre of the debtor s main interests was important, because, if there were to be insolvency proceedings, the creditors would need to know where to contact the debtor. Re Daisytek-ISA Ltd, [2003] All ER (D) 312 (Jul)(Ch. May 16, 2003). See also, In the Matter of KT Skjevesland v. Geveren Trading,2003 WL , *8-9, [2002] EWHC 2898 (QB November 11, 2002), citing Geveran Trading Company Limited v. Kjell Tore Skjevesland, [2003] B.C.C. 209 (Ch. D. July 15, 2002) ( International jurisdiction is based on a place known to the debtor s potential creditors. This enables the legal risks which would have to be assumed in the case of insolvency to be calculated ). 15. The Versailles court did not engage in an independent centre of main interests analysis but noted that the English Judge had considered the presumption in favor of the registered office and found that significant acts (les actes significatifs) had been executed in Bradford sufficient to defeat the presumption. Dans L Affaire entre E. Klempka et a., CA Versailles, 24e ch., Sept. 4, 2003, JCP G 2003, No. 41,Actu. 482 (Fr.). 9

10 16. The discovery permitted by the Bankruptcy Court is undoubtedly broad, but that arises out of the Bankruptcy Code s definition of foreign proceeding which makes relevant the question whether, at the time of the commencement of the United Kingdom winding up proceeding, Mid East had its principal assets, in the form of claims against third parties, in the United Kingdom, so that jurisdictional discovery accordingly becomes relatively broad. Id. at The recognition of a secondary proceeding pursuant to Article 3 (2) of the Regulation is another matter. In such a case, it is considerably more likely that a court would reject an application for section 304 relief in conjunction with a secondary proceeding convened in the UK if the centre of main interests was located elsewhere. For most courts, the existence of an establishment would likely be insufficient indicia of a foreign proceeding to satisfy the requirements of section 101 (23), although a US court could theoretically accept jurisdiction if the secondary proceeding was opened in the country of incorporation. See, e.g., In re Netia Holdings S.A., 277 B.R. 571, 581 (S.D.N.Y.Bankr. 2002) citing Collier on Bankruptcy 101 (23)( an ancillary proceeding pending in a foreign jurisdiction may be excluded from the definition of foreign proceeding ). 18. Proposed Chapter (4): foreign main proceeding means a foreign proceeding pending in a country where the debtor has the center of its main interests. H.R. 975, 108th Congress, 1st Sess. (2003), available at 15.pdf. UNCITRAL Model Law on Cross-Border Insolvency, available at Proposed Chapter (3): foreign court means a judicial or other authority competent to control or supervise a foreign proceeding. 10

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