Videology Ltd, Re Cross-Border Insolvency Regulations 2006

For recognition of foreign insolvency proceedings, a company’s centre of main interests is determined by a comprehensive assessment of where it regularly administers its interests, viewed objectively and from the perspective of third parties. The registered-office presumption is not displaced merely because strategic management is located elsewhere, particularly where the company trades, employs staff, holds assets and deals with customers and creditors at its registered office.

A company may nevertheless have an establishment in another state where it conducts stable, externally visible economic activity through human means and assets. Relief under Article 21 may exceptionally protect a debtor with its COMI in England from creditor action and permit its assets to be realised through foreign non-main proceedings where there are clear benefits for creditors and their interests are adequately protected.

Videology Ltd was an English company and subsidiary of Videology Inc., a Delaware corporation. Videology Ltd and other group companies commenced Chapter 11 proceedings in the United States. The company sought recognition under the Cross-Border Insolvency Regulations 2006 as a foreign main proceeding, together with relief equivalent to an administration moratorium.

The court was not satisfied that the company’s centre of main interests was in the United States. It therefore considered whether the proceedings could be recognised as foreign non-main proceedings, whether the company had an establishment in the United States, and whether discretionary relief should nevertheless prevent individual creditor action and the commencement of UK insolvency proceedings.

1. COMI. The company’s COMI was in the UK. The registered-office presumption had not been rebutted. The relevant inquiry was broader than the location of board or senior-management decision-making. It required a comprehensive assessment of the place where the company regularly administered its interests, using factors objectively ascertainable by third parties. Relevant factors included trading premises, staff, customer and trade-creditor relationships, receivables, bank accounts and representations in finance documents.
2. Strategic decisions taken in the United States, group control, common branding, ownership of the underlying intellectual property and recent restructuring or sale negotiations did not outweigh the company’s regular UK operations. The evidence did not show a general notification to creditors of any change in COMI.
3. Foreign non-main proceedings. The company had an establishment in the United States under Article 2(e) of the Model Law. It regularly conducted high-level business dealings with publishing creditors from the group’s Baltimore headquarters through its director and group management. Those activities were economic, externally conducted, stable and sufficiently organised.
4. Discretionary relief. Although recognition as a foreign non-main proceeding did not create an automatic stay, relief under Article 21 was appropriate. The coordinated Chapter 11 sale was likely to produce materially better returns than a separate UK administration or liquidation. Creditors’ interests were adequately protected by the allocation and supervision mechanisms in the Chapter 11 process, the influential representation of the company’s creditors on the creditors’ committee, creditor support, and the continuing ability to seek UK proceedings with the court’s permission.
5. Article 21(3) did not prevent relief covering all the company’s assets where the English court had considered the alternatives and concluded that administration through the foreign proceedings was advantageous and appropriate for creditors. The Chapter 11 proceedings were recognised as foreign non-main proceedings, and relief was granted protecting the company from creditor claims in the UK and permitting the sale and distribution process to proceed in the United States.