Mendonca v KPMG Corporate Finance Sao Paulo, Brazil

Recognition under the Cross-Border Insolvency Regulations 2006 is not barred merely because the debtor, an English-registered LLP, has been dissolved in England. The court should interpret the Model Law consistently with its international purpose of facilitating co-operation and assistance in cross-border insolvencies. A foreign proceeding may therefore be recognised where the statutory conditions are satisfied, notwithstanding dissolution. Recognition does not, however, itself confer authority on foreign representatives to administer assets which have become bona vacantia. Restoration of the debtor to the register may be required before those assets can be dealt with.

Ms Osana Mendonça and KPMG Corporate Finance LTDA applied under the Cross-Border Insolvency Regulations 2006 for recognition of Brazilian bankruptcy proceedings concerning Deep Black Drilling LLP as foreign main proceedings. The LLP had been incorporated and registered in England but had been dissolved before the Brazilian reorganisation was converted into bankruptcy proceedings. The applicants relied on the LLP’s management, business operations and commercial centre being in Brazil. The central issue was whether the dissolution prevented the LLP from being a debtor, or the applicants from being foreign representatives, for the purposes of the Model Law and whether the Brazilian proceedings could be recognised as foreign main proceedings.

The court made the recognition order, recognising the Brazilian bankruptcy proceedings as foreign main proceedings.

1. Statutory criteria. The proceedings were collective judicial insolvency proceedings under Brazilian law and therefore constituted a foreign proceeding under article 2(i) of Schedule 1 to the Cross-Border Insolvency Regulations 2006. KPMG, represented by Ms Mendonça, was a foreign representative within article 2(j). The application complied with articles 15(2) and 15(3), and the court was entitled under article 16(2) to presume the authenticity of the Brazilian court documents.
2. Foreign main proceeding. The evidence established that Deep Black Drilling LLP’s centre of main interests was in Brazil. The Brazilian proceedings were therefore foreign main proceedings within article 2(g) and article 17.
3. Effect of dissolution. Dissolution in England did not prevent recognition. Sections 221(5) and 225 of the Insolvency Act 1986, together with Re Eurodis Electron Ltd plc [2011] EWHC 1025 (Ch), confirmed that a corporate entity’s affairs may be wound up after dissolution. The reasoning in Re Consumer Trust and others, Rubin and others v Eurofinance and others [2009] EWHC 2129 (Ch) was applied: “debtor” should not receive a parochial interpretation which defeats the Model Law’s international purpose.
4. Limits of recognition. Because the LLP’s English assets had vested bona vacantia, the court declined to entrust their administration and realisation to the foreign representatives. Permission was given to apply to restore the LLP to the register, which was treated as an essential preliminary step before dealing with those assets.
5. Notice. Although notice had not been given to the relevant bona vacantia authority, the court proceeded because urgency was material. In future, absent exceptional circumstances, notice should be served on the relevant authority in good time before the recognition hearing.