ARM Asset Backed Securities SA, Re

The court may appoint provisional liquidators to an unregistered overseas company where the statutory jurisdictional conditions are met and appointment is appropriate in the circumstances. The jurisdiction is not confined to cases where company assets are at immediate risk. It extends to cases where independent office-holders are needed to secure an orderly realisation and distribution of assets, or to facilitate a restructuring.

For the purposes of the EC Regulation on Insolvency Proceedings, a company may be insolvent even where creditors’ contractual recourse is limited to specified assets. The relevant question is whether the company’s liabilities exceed the assets available to meet them and whether creditors would prove for those liabilities in a liquidation.

ARM Asset Backed Securities S.A., a Luxembourg-incorporated company, applied for the appointment of provisional liquidators after presenting a winding-up petition in England. Its business involved issuing Luxembourg-law bonds and investing the proceeds in United States life insurance policies. The company had no place of business in Luxembourg, while its management and administration were conducted principally from London.

The application raised questions concerning the company’s centre of main interests, whether the EC Regulation on Insolvency Proceedings applied, whether the company was insolvent despite limited-recourse bond terms, and whether provisional liquidators should be appointed under the Insolvency Act 1986.

1. The court had jurisdiction under the EC Regulation on Insolvency Proceedings. The company’s centre of main interests was in England because the decisions governing its administration and management were taken in London and that fact was ascertainable by third parties. The registered-office presumption in favour of Luxembourg was therefore rebutted. The court applied the approach in Eurofood IFSC Ltd, C-341/04, [2006] Ch 508, as emphasised in Stanford International Bank Ltd, [2011] Ch 33.

2. Although the question whether the Regulation required insolvency-based proceedings was not finally resolved, the company was insolvent on both a cash-flow and balance-sheet basis. Limited recourse did not prevent insolvency. The bondholders would prove in a liquidation for the face value of their bonds and accrued interest, while the company had insufficient assets to meet those liabilities.

3. The company was an unregistered company. Under sections 221 and 222(1) of the Insolvency Act 1986, the court had jurisdiction to wind it up. The evidence supported winding-up on just and equitable grounds, on the ground that the company was unable to pay its debts, and because it had ceased business or was carrying on business only for the purpose of winding up its affairs.

4. Section 135 conferred a broad jurisdiction to appoint a provisional liquidator after presentation of a winding-up petition. Immediate jeopardy to the company’s assets was the paradigm case, but it was not an exclusive requirement. Applying Revenue & Customs Commissioners v Rochdale Drinks Distributors Ltd, [2011] EWCA Civ 1116, the appointment was appropriate because professional office-holders were better placed to realise assets, resolve the issue concerning frozen funds, and pursue a CVA, scheme of arrangement or other orderly solution.

5. Provisional liquidators were appointed. The order was made despite the absence of consent or appearance from the Luxembourg regulator and prosecutor, who had received notice.