Carter v Bailey & Anor (Sturgeon Central Asia Balanced Fund Ltd)

A proceeding is a “foreign proceeding” under the Cross-Border Insolvency Regulations 2006 only where it is connected with the resolution of insolvency or severe financial distress. A solvent company’s winding up on just and equitable grounds does not qualify merely because the governing law also contains provisions dealing with insolvency. The purpose of the proceeding matters: recognition is directed to proceedings concerned with restructuring or liquidating a financially distressed debtor for the protection of creditors, rather than proceedings whose purpose is to return surplus assets to members. The court may use the UNCITRAL guides, Working Group materials and Judicial Perspective as interpretative tools and should construe the Model Law purposively.

Joint provisional liquidators of Sturgeon Central Asia Balanced Fund Ltd obtained, without notice, an order recognising the company’s Bermuda liquidation as a foreign main proceeding under the Cross-Border Insolvency Regulations 2006: [2019] EWHC 1215. The company was solvent and had been wound up by the Bermuda court on just and equitable grounds following a dispute concerning shareholders’ voting rights.

Michael Carter, a former director, applied under the review provisions to terminate recognition. The respondents challenged his standing and argued that the review application was unavailable. The central issue was whether a solvent, just and equitable winding up was a “foreign proceeding” within article 2(i) of the UNCITRAL Model Law as enacted by the Regulations.

1. Review and standing. The application fell within the review jurisdiction. It concerned whether the grounds for recognition were lacking when the order was made, rather than an appeal on the merits. Mr Carter was a person “affected by recognition” because recognition could suspend the debtor’s powers, impose a stay, expose officers or former officers to compulsory examination and enable other insolvency remedies. He therefore had standing and permission to be heard under Schedule 2, paragraph 25(1)(j). Alternatively, the court could proceed of its own motion to address a serious jurisdictional challenge.
2. Interpretation. The court applied a purposive approach to the CBIR and Model Law. Regulation 2(2), article 8 and the Model Law’s international origin permitted reference to the Working Group papers, the 1997 Guide, the Guide to Enactment 2014, the explanatory materials and the updated Judicial Perspective. The later guidance was an important interpretative tool, although not legislation.
3. Meaning of foreign proceeding. Article 2(i) requires a collective judicial or administrative proceeding in a foreign State, pursuant to a law relating to insolvency, in which the debtor’s assets and affairs are subject to foreign court control or supervision for the purpose of reorganisation or liquidation. In context, “for the purpose” means for the purpose of resolving insolvency or severe financial distress.
4. Solvent liquidation. Recognition is unavailable for a proceeding concerning a solvent entity where the purpose is simply to dissolve the entity or return value to members. The fact that the foreign statute also permits insolvent liquidations is insufficient. In re Betcorp Ltd was a wrong turn on this issue. The reasoning in Stanford International Bank remained distinguishable because insolvency was an important factor in that case.
5. The Bermuda liquidation was for the winding up of a solvent company on just and equitable grounds. It did not concern insolvency or severe financial distress and was not a foreign proceeding. The recognition order made on 17 May 2019 should not have been made and was terminated.

First-instance review application. The court reviewed and terminated the recognition order made by Falk J on 17 May 2019: [2019] EWHC 1215.