Connock & Anor v Fantozzi, Re Alitalia Linee Aeree Italiane SPA

Assets within the scope of English secondary insolvency proceedings are ordinarily distributed under English insolvency law. The duty of co-operation between main and secondary liquidators does not require the secondary liquidator to apply assets contrary to the rules governing those proceedings. The court has no general common-law power to remit assets to a foreign office-holder where this would displace the statutory English distribution scheme. The exceptional principle in Ex parte James should not be extended beyond its established scope. Authorities concerning flexible distributions in administrations do not justify equivalent relief in a compulsory liquidation.

Alitalia entered extraordinary administration proceedings in Italy, where its centre of main interests was situated. Winding-up proceedings were later opened in England as secondary proceedings, and the applicants became the English liquidators. The respondent sought to use money in English bank accounts to pay former English employees in accordance with Italian insolvency priorities.

The application raised whether the money was held on trust, whether the duty of co-operation under the Insolvency Regulation or the principle in Ex parte James required payment, and whether principles governing ancillary liquidations permitted remittance to the Italian administrator.

1. Application granted. The funds in the Barclays accounts fell to be distributed in the English liquidation under English domestic insolvency law. The court directed counsel to agree the form of order.
2. The evidence did not establish the three certainties necessary for a trust. An intention to use money in a particular account to pay creditors was insufficient. The administrator’s evidence showed an intention to administer assets in accordance with Italian insolvency law, not an intention to declare a trust.
3. The duty of co-operation under Article 31 of the Insolvency Regulation was expressly subject to the rules applicable to each proceeding. Articles 4 and 28 contemplated that assets within the scope of secondary proceedings would be dealt with under the law of the Member State in which those proceedings were opened. Co-operation could not require a distribution contrary to that scheme.
4. The cases concerning Re MG Rover Espana SA, Re MG Rover Belux SA/NV and Re Collins & Aikman Europe SA were distinguishable. They concerned administrations in which flexible distributions advanced the purposes of the administration. The present case concerned a compulsory liquidation and involved the proposed application of assets under the law of the main proceedings rather than the law governing the secondary proceedings.
5. The principle in Ex parte James was anomalous and should be extended cautiously. The Liquidators had received no money to which the estate was not entitled, were merely contending for the application of the Insolvency Regulation, and were not acting dishonourably. The principle therefore did not apply.
6. The authorities on ancillary liquidations did not confer a common-law power to remit assets for distribution otherwise than under English insolvency law. In light of the divided opinions in In re HIH Casualty and General Insurance Ltd, the court followed In re Bank of Credit and Commerce International SA (No. 10) in proceeding on the basis that no such inherent power existed. Section 426 of the Insolvency Act 1986 was inapplicable.
7. Creditors were not limited to creditors in the United Kingdom. The English assets were distributable among Alitalia’s creditors worldwide, consistently with Article 32 of the Insolvency Regulation and English law.