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High court rules centre of main interests of Jersey SPVs is in England and Wales

The High Court has ruled that the centre of main interests (COMI) of three Jersey registered companies is in England and Wales, in Thomas v Frogmore and others [2017] EWHC 25 (Ch).

The administrators of the companies, who were appointed out of court in England by Nationwide, applied for a declaration that their appointment was valid.  The court confirmed the validity of the appointment and declined to end it on other grounds.

This case is a welcome confirmation for creditors seeking to appoint English administrators that a debtor's COMI must be objectively ascertainable by third parties.  This position will be reflected in the Recast Insolvency Regulation which comes into force on 26 June 2017 (Regulation (EU) 2015/848).

Background

In November 2016, Nationwide appointed administrators in England over three companies (the SPVs).  The SPVs were special purpose vehicles, formed for the acquisition of shopping centres in England. 

Each SPV:

  • was incorporated in and had its registered office in Jersey;
  • had a bank account in Jersey;
  • was registered with HM Revenue & Customs as a non-resident landlord;
  • had its principal asset (the shopping centre) in England;
  • employed a UK-based managing agent to manage its respective shopping centre and file all paperwork on its behalf;
  • had a joint, English law governed facility with Nationwide;
  • granted an English law governed debenture to Nationwide;
  • had the same UK-incorporated parent company; and
  • had three common directors (two Jersey based professional directors and the UK-based Frogmore group treasurer).

None of the SPVs:

  • had any employees;  or
  • carried on any trading operations. 

The applications

The administrators applied to court for a declaration that the SPVs' COMI was in England and Wales.  An English administrator may only be appointed if the company has its COMI in an EU member state (other than Denmark). 

The shareholders and directors of the SPVs sought:

  • a declaration that the COMI was in Jersey (meaning the administrators' appointment was invalid); or, alternatively, 
  • an order terminating the administrators' appointment. 

Both sides accepted that the court would only have jurisdiction to consider the application to end the administration if the SPVs' COMI was in England and Wales.

Why did the location of the registered offices matter?

There is a presumption that a company's COMI is the place of its registered office.   This can be rebutted if there is evidence that the company conducts the administration of its interests elsewhere.

In this case, the presumption was that the SPVs' COMI was in Jersey.  If this could not be rebutted, the administrators would not have been validly appointed. 

Why was COMI held to be in England and Wales?

The court reviewed both European and domestic case law regarding COMI.  It held that the registered office presumption can only be rebutted if factors which are both objective and ascertainable by third parties show that the administration of the company's interests takes place somewhere else. 

This is a particularly difficult issue to determine in the case of an overseas-incorporated SPV where its UK real estate assets are managed entirely by a third party.   In these situations, the SPV does not "trade" nor does it administer its own activities.  These functions are delegated to professional directors and managing agents of the property.  In effect, the role of the SPV is reduced to that of a shell to hold the real estate and nothing more. 

Having considered the relevant authorities (in particular Interedil Srl (in liquidation) v Fallimento Interediil Srl and another [2011] EUECJ C-396/09, which considered similar issues) the High Court ruled that, in this case, the presumption was rebutted and the SPVs' COMI was in England.  This was because:

  • The SPVs' day to day conduct (including property management, finance, marketing and business strategy) was carried out by an agent appointed and operating in England under an English law governed agency agreement;
  • The SPVs' VAT returns and communications with third parties gave the managing agent's London address as the SPVs' address;
  • The SPVs had entered into a facility agreement and debentures with Nationwide, their largest creditor, which were governed by English law, subject to English jurisdiction and contained express reference to the appointment of administrators under the Insolvency Act 1986;
  • Management of the relationship between the SPVs and Nationwide took place in London through the UK-based group treasurer and with the UK shareholder as agent for process service; and
  • The location of board meetings was irrelevant because a third party would not have known about them.

Why did the court decline to end the administrations?

The court considered the application for an order ending the appointment of the administrators under paragraph 81 of Schedule B1 Insolvency Act 1986 (improper motive on the part of the appointor).

Prior to the appointment of administrators, Nationwide had sold its debt to a third party.  The SPVs claimed that they had pre-emption rights to buy Nationwide's debt at market value, that they had commenced legal proceedings to enforce those rights, and that the administrations had been commenced to thwart those proceedings. 

The court decided that:

  • Establishing an improper motive on the part of the appointor will not of itself lead to an order ending the administration;
  • A motive will be improper if it is not in harmony with the statutory purpose of administration and led or contributed to the decision to appoint administrators; and
  • If the statutory purpose of administration is likely to be achieved, notwithstanding the motives of the appointor, it is unlikely to lead to an order that the administration cease.

The court declined to make an order terminating the appointment of the administrators.  It determined that there was no evidence that Nationwide had an improper motive.  Even if this was not the case, no order would have been made.  This was because there was no satisfactory evidence that the statutory purposes of the administrations were not likely to be achieved.

The implications

This decision endorses the principles set out in Interedil about what factors should be considered as objectively ascertainable where a company's central administration is not the same as its registered office, or is not carried out by the company at all. 

As ever, each case should be carefully considered prior to making an administration appointment, in order to avoid the risk of an invalid appointment.  However, given the legal advantages of being able to place overseas SPVs into UK administration without having to apply to the UK courts, this decision serves as a welcome confirmation of the existing approach.

Contributor: Tessa Glover

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at April 2017. Specific advice should be sought for specific cases. For more information see our terms & conditions


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