Bloom & Ors v Harms Offshore AHT "Taurus" GmbH & Co KG & Anor

It is unconscionable for creditors to rely on foreign attachment orders to obtain security over payments made in an English administration where they knew of the administration but failed to disclose the orders to the administrators. Such reliance may seriously prejudice the administrators’ statutory functions and obstruct the proper conduct of the administration. The court may restrain further steps in the foreign attachment proceedings and require reasonable efforts to release the attachments. Relief should be confined to the payments and period affected by the administrators’ lack of notice.

An English company entered administration, and its administrators were authorised to pay post-administration liabilities. Two German companies, knowing of the administration, obtained ex parte maritime attachment and garnishment orders in New York without informing either the New York court of the English administration or the administrators of the attachments.

The administrators later made a payment in New York towards a post-administration debt. The German companies claimed that the payment was caught by the attachments and thereby gave them secured status. The High Court ordered them to stop taking steps in the New York proceedings and to use best endeavours to release the attachments. The central issue on appeal was whether that relief was justified and, if so, its proper scope.

1. Appeal dismissed. The Court of Appeal upheld the High Court’s order in substance, with a variation limiting it to assets paid by the administrators into New York in respect of post-administration liabilities before 25 March 2009, when the administrators became aware of the attachments.
2. Where creditors know that an English administration is continuing and that the administrators will need to incur and discharge post-administration liabilities, they must not use undisclosed foreign attachment orders to capture payments made in the ordinary functioning of that administration.
3. Reliance on such attachments, in circumstances where it would seriously prejudice the administrators’ functions and obstruct the administration order, is unconscionable. The fact that the conduct might be permitted under foreign law does not make reliance upon the resulting security acceptable in the English proceedings.
4. The court was therefore entitled to restrain further steps in the New York attachment proceedings and to require the German companies to use best endeavours to procure release of the attachment orders and attachments already made. The order required appropriate temporal and subject-matter limits once notice had been given.
5. The application for a stay required no separate determination because the substantive appeal had been heard and dismissed.

• Court of Appeal (Civil Division): Appeal from the order made on 15 May 2009 by Robert Englehart QC, sitting as a Deputy High Court judge in the Chancery Division, Companies Court. Appeal dismissed, subject to variation.