IP Briefing : Modified Universalism in Scotland?

Introduction

The recent decision of Lord Sandison in the Outer House of the Court of Session in the Petition of MÜNCHENER HYPOTHEKENBANK eG concerned an attempt by a foreign bank to convince the Court that it should make an administration order in relation to a Luxemburg company. The Luxemburg company had only one asset, an office block in Bothwell Street in Glasgow. It had defaulted on a loan to the bank. The petition was opposed by a bankruptcy trustee who had been appointed in March 2023 by the Luxemburg District Court. The bank argued that Scottish insolvency practitioners would be in a better position to deal with the sale of the asset and should be appointed. This idea was rejected by the Luxemburg trustee. It was maintained that the company had had no place of business in Scotland and had been managed from Luxemburg. It was argued that the Court ought not to exercise its discretion to appoint Scottish administrators because there would be no benefit to the petitioner or for creditors.

The Decision of the Court

Lord Sandison held that the Court had jurisdiction to entertain the petition, and that the bank did have standing as a creditor of the company to make the application. He held “the threshold requirements for the making of an administration order (actual or prospective inability to pay debts and the existence of a real prospect of one or more of the statutory objectives of the administration being realised) are met……..” However he considered the real question was whether the Court’s discretion should be exercised. He held that it should not, opining :-

it appears to me that this court should only install an insolvency practitioner in competition with (as opposed to ancillary to) one already put in place by a foreign court of competent jurisdiction if there is some matter attending the appointment of the foreign practitioner which this court ought not to tolerate, or if the ability of the foreign practitioner to perform his appropriate functions in this jurisdiction can be shown objectively to be likely to be attended by such difficulties as to make the installation of a domestic practitioner an expedient course of action.”

Lessons

Therefore, while under the Cross-border Insolvency Regulations 2006 there may well be times that secondary proceedings could be helpful if opened in Scotland, the Scottish Courts seem to have no interest in getting in to competition between practitioners where a court of a competent jurisdiction has appointed another office holder to deal with matters. The case does emphasise the need to consider strategy carefully where there are Scottish assets and foreign main proceedings.

 

 

BBM Solicitors specialise in advising IP’s in both contentious and non-contentious matters (including transactional work). Contact: Eric Baijal (emb@bbmsolicitors.co.uk).This briefing note is current as at 12 June 2023 and is our understanding of the position described at that date. Legal advice ought to be taken before relying on its terms (particularly to ensure the law has not changed).