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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Salvage Association, Re [2003] EWHC 1028 (Ch) (09 May 2003) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2003/1028.html Cite as: [2003] EWHC 1028 (Ch), [2004] 1 WLR 174, [2004] WLR 174

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION INTERIM APPLICATIONS COURT
Neutral Citation Number [2003] EWHC 1028 (Ch)

		Royal Courts of Justice Strand, London, WC2A 2LL
		9 May 2003

Mr Justice Blackburne:

Introduction

1. On 15 April 2003, in the course of a busy interim applications list, I made an order placing the Salvage Association in administration with a view to the approval of a voluntary arrangement and (or alternatively) a more advantageous realisation of its assets than would be effected on a winding up. I did so on the petition of the members of the Association's general committee. As the petition raised what are, to some extent, novel questions of jurisdiction under the Insolvency Act 1986 ("the 1986 Act"), I indicated that I would set out in writing the reasons why I was satisfied that the court had jurisdiction to make the order. I now set out those reasons. I begin with some background.
2. The Salvage Association is an association of members incorporated by Royal Charter. Its original Charter was granted in 1867. The incorporated body was given the name "The Association for the Protection of Commercial Interests as respects Wrecked and Damaged Property". In 1971 the 1867 Charter was revoked and replaced by a new Royal Charter. It was renamed "The Salvage Association". Its principal objects have been to protect the interests of members and others in respect of shipping, cargoes and marine, non-marine and aviation insurance; and to carry out salvage operations, including in particular surveys of shipping, cargoes and investigations into the causes of loss, damage or injury to such interests. Its membership has comprised Lloyds' underwriters and insurance companies.
3. For reasons which it is unnecessary to relate the Association concluded in late 2000 that its core surveying business was unlikely in the future to generate sufficient profit. In March 2001 it sold its business to a subsidiary of British Maritime Technology. The Association's intention was to conclude a solvent wind-down of its activities, settle outstanding liabilities in full, and, at the end of this process, surrender its Royal Charter. A surplus for distribution to members was expected.
4. Among its liabilities are funding obligations owed to a pension scheme known as The Salvage Association Retirement Benefits Plan for Surveyors. The Plan was set up to provide for the surveyors employed by the Association. In late December 2001 it became apparent that the Association's liability to the Plan was several times greater than the £1.4 million for which provision had been made in its financial projections: £1.4 million was twice the estimated deficiency of which the Association was aware at the time of the sale of its business in March 2001.
5. With the co-operation of members willing to enter into compromises of claims they have arising out of monies which the Association has collected on their behalf, there is a very good prospect of securing a satisfactory resolution of the Association's financial difficulties through a voluntary arrangement. The arrangement would involve members with claims against the Association abandoning a percentage of those claims, thereby enabling the Association to satisfy a greater proportion of its liability to the Plan. The hope is that, by means of a voluntary arrangement implemented under the protection of an administration, the Association may be enabled to wind itself down in a manner satisfactory to its creditors and befitting an organisation established by Royal Charter which has operated throughout its long life as a valued vehicle of the London marine insurance market.
6. These proposals, amply demonstrated as achievable by the evidence before the court, presuppose two matters: first, that the court's jurisdiction to make an administration order under Part II of the 1986 Act and, second, that the ability to enter into a company voluntary arrangement, available under Part I of the 1986 Act, extend, in both cases, to an association incorporated by Royal Charter. There is no precise authority covering either point. After hearing argument from Mr Gabriel Moss QC appearing on behalf of the Association instructed by Messrs Lawrence Graham and being satisfied that the necessary jurisdiction existed, I made an order placing the Association in administration and appointed Ian Christopher Oakley Smith and Mark Charles Batten of PricewaterhouseCoopers to be the joint administrators. As I have mentioned, I indicated when making that order that I would set out in writing why I was satisfied that the necessary jurisdiction existed.

Administration

7. It has for long been a matter of controversy whether the reference to a "company" in section 8(1) - the provision which empowers the court to make an administration order in relation to a company - includes unregistered companies which could be wound up under the 1986 Act. There are arguments both ways: see, for example, Lightman & Moss, the Law of Receivers and Administrators of Companies (Third Edition, 2000) at paragraphs 25-045 to 25-048 favouring an interpretation which would extend the meaning of "company" to include foreign unregistered companies; but see Smart, Cross-Border Insolvency (Second Edition 1998) at pages 130 to 136 concluding that Part II of the 1986 Act is confined to registered companies.
8. With effect from 31 May 2002, however, the 1986 Act has contained in section 8(7) a provision making clear that a reference to a "company" in Part II goes beyond a company registered under the Companies Acts. Inserted by regulation 5 of the Insolvency Act 1986 (Amendment) (No 2) Regulations 2002 ("the 2002 Regulations"), section 8(7) is as follows:

"In this Part a reference to a company includes a reference to a company in relation to which an administration order may be made by virtue of Article 3 of the EC Regulation."

The reference is to Council Regulation (EC) 1346/2000 on Insolvency Proceedings ("the Regulation").

9. Article 3, so far as material, is as follows:

"1. The courts of the Member State within the territory of which the centre of the debtor's main interests is situated shall have jurisdiction to open insolvency proceedings. In the case of a company or legal person, the place of the registered office shall be presumed to be the centre of its main interests in the absence of proof to the contrary.

2. Where the centre of the debtor's main interests is situated within the territory of a Member State, the courts of another Member State shall have jurisdiction to open insolvency proceedings against that debtor only if he possesses an establishment within the territory of that other Members State. ..."

Article 2(a) defines "insolvency proceedings" as "the collective proceedings" listed in Annex A. The proceedings so listed include (in relation to the United Kingdom) administration.

10. The operation of section 8(7) was recently considered by Lloyd J in Re BRAC Rent-A-Car International Inc [2003] 2 All ER 201. That case concerned a company incorporated in Delaware which had its registered office in the USA. It had never traded in the USA. Its operations were conducted almost entirely in the United Kingdom. It was registered under the Companies Acts as an oversea company. The question was whether there was jurisdiction under Part II of the 1986 Act to make an administration order in relation to it. This turned on whether the jurisdiction to open insolvency proceedings conferred by article 3 of the Regulation is limited, in the case of legal persons, to those incorporated within the EU. Lloyd J, for reasons which I need not set out, held that it was not. He rejected a submission that, as regards the expression "... a company or legal person ..." appearing in article 3.1, the Regulation was confined to entities incorporated in a relevant member state. Since, in that case, the company had been incorporated in the USA, the submission, if accepted, would have denied the English courts jurisdiction.
11. The significance of that decision, for present purposes, is that, in the case of "main proceedings" - which are the relevant proceedings in this case - then, provided the centre of main interests of the company is within the United Kingdom, jurisdiction in relation to the various types of insolvency proceedings set out in annex A to the Regulation (so far as capable of relating to a company) is allocated to the United Kingdom and it matters not where the company was incorporated (whether in a member state or elsewhere in the world). Assuming BRAC was correctly decided, the question which arises is whether section 8(7) is only effective in relation to companies incorporated outside the United Kingdom, leaving it to UK domestic law to determine whether, as regards a company incorporated within the jurisdiction (and irrespective of the location of that company's centre of main interests), it has jurisdiction to open any and if so what insolvency proceedings in relation to that company.
12. Mr Moss submitted that, assuming that the purpose of the amendment to section 8 was to avoid discrimination against EU companies in other member states in the application English domestic law once international jurisdiction was allocated to the United Kingdom under the Regulation, it would have made no sense for Parliament to have used the criterion of place of registration in clarifying domestic law jurisdiction when the Regulation itself had rejected it in favour of the concept of the "centre of main interests". On the contrary, he said, it makes sense to regard an EU company for the purposes of English domestic law jurisdiction as one which has its centre of main interests in the EU (including the United Kingdom) and to ignore the place of incorporation. I agree. It would be odd if a company which had the centre of its main interests in the United Kingdom could be the subject of an administration order if incorporated anywhere in the world other than in the United Kingdom but could not be if, although a "company" within the extended meaning of that expression ("... company or legal person ...") and assuming (but without deciding) that the operation of Part II of the 1986 Act (ignoring section 8(7)) is confined to companies registered under the Companies Act 1985 Act or one of its statutory predecessors, it happened not to be a company registered under one of those Acts.
13. Mr Moss submitted that I should follow the decision in BRAC unless I considered it to be plainly wrong. In so submitting Mr Moss nevertheless pointed to what he said was an error in the judge's discussion of section 8(7). He emphasised that the error did not in any way affected the conclusion in that case or the reasoning which led to it. This was Lloyd J's reference (in paragraph 9 of his judgment) to section 8(7) being "strictly speaking unnecessary because the [Regulation] ... has direct effect in all the Member States (except Denmark ...) as of 31 May 2002". Mr Moss said that this implied, incorrectly, that the Regulation lays down criteria for the making of administration orders. This, he submitted, was wrong since article 4.2 of the Regulation expressly provides that the domestic law criteria for "opening" proceedings are to be governed by the law of the state of opening, in this case English domestic law. What section 8(7) does, he submitted, is to clarify (or extend, according to one's view of previous law) English domestic law to state that whenever the courts in the United Kingdom have international jurisdiction under article 3 they also have domestic law jurisdiction. Subject to that minor criticism, the validity of which I accept, I respectfully find persuasive the reasoning which led Lloyd J to his conclusion in the BRAC case and I am content therefore to follow his decision.
14. Applying section 8(7) and the decision in BRAC there is plainly jurisdiction to make an administration order in this case. The centre of the Association's main interests is in the European Union and, more particularly, in the United Kingdom with the result that the Regulation (as regards the proceedings which it covers) applies and article 3(1) allocates jurisdiction for main proceedings to the United Kingdom. Administration is within the list of insolvency proceedings covered by the article. Finally, section 8(7) makes clear that the jurisdiction of the English court to make an administration order applies to companies in the extended sense ("company or legal person") referred to in article 3.1. The Association is just such a company: the Royal Charter by which it was incorporated was effective to constitute the Association a legal person separate from its members, enjoying perpetual succession, having a common seal, capable of suing and being sued in the courts and having power, in addition to the particular powers set out in the Charter, to do all matters and things incidental or appertaining to a body corporate.

Company voluntary arrangement

15. That brings me to the further jurisdictional question which is whether the ability to enter into a company voluntary arrangement under Part I of the 1986 Act extends to unregistered companies.
16. Here also an amendment to the 1986 Act has been made, effective from 31 May 2002, this time by regulation 4 of the 2002 Regulations. This provides for the insertion of a new subsection - subsection (4) - into section 1 of the 1986 Act. Following the same formula as appears in section 8(7), section 1(4) is as follows:

"In this Part a reference to a company includes a reference to a company in relation which a proposal for a voluntary arrangement may be made by virtue of Article 3 of the EC Regulation."

"Voluntary arrangements under insolvency legislation" are among the insolvency proceedings (applicable to the United Kingdom) set out in annex A

17. In my judgment, for the same reasons as apply in relation to the making of an administration order, section 1(4) creates domestic law jurisdiction to open company voluntary arrangement proceedings in this jurisdiction in relation to a legal person such as the Association. It therefore follows that the same factors which operate to confer jurisdiction to make an administration order under Part II in respect of the Association apply no less to the ability of the Association to enter into a voluntary arrangement with its creditors under Part I.
18. I should nevertheless mention one particular matter to which Mr Moss drew my attention. It concerns the apparent assumption in article 3.1, evident from its wording, that the jurisdiction to open insolvency proceedings with which that article is concerned relates to proceedings by reference to "the courts of the Member State".
19. Article 2(d) defines "court" for the purposes of the Regulation as meaning:

"... the judicial body or any other competent body of a Member State empowered to open insolvency proceedings or to take decisions in the course of such proceedings;"

20. The reference to insolvency proceedings is_? as article 2(a) explains (and has already been mentioned), to the collective proceedings listed in annex A. In the case of the United Kingdom they include "voluntary arrangements under insolvency legislation". They also include "creditors' voluntary winding up (with confirmation by the court)" as well as administration and other forms of collective insolvency regime. At first blush it might appear difficult to fit the concept of the "opening" of insolvency proceedings "by the court" or some "other competent body of a Member State" to the process by which a company voluntary arrangement is commenced, or for that matter, with a creditors' voluntary liquidation. A voluntary arrangement is set in motion by a decision of a meeting of the company's creditors to accept a proposal involving a composition in satisfaction of the company's debts or a scheme of arrangement of its affairs. Unless, in the case of a voluntary arrangement, the meeting of creditors at which the relevant resolution is passed is to be regarded as "a competent body of a Member State" it is difficult to see how the Regulation works in relation to proceedings instituted by an out-of-court process of this kind. It will be readily appreciated, however, that this difficulty is not in any way dependant on the fact that the Association is an unregistered company but affects all company voluntary arrangements. It applies no less to individual voluntary arrangements.
21. The answer lies, in my view, in avoiding a too-literal approach to the application of the definition of "court" in the Regulation and in understanding the reference in that definition to "other competent body of a Member State" as applying not merely to some organ of the state but, more widely, to any body recognised as competent in that member state to resolve upon (ie "open") the insolvency proceedings in question. In this connection it is not without interest that paragraph 66 of a Report by Miguel Virgos and Etienne Schmit published in July 1996 on the Convention on Insolvency Proceedings referred, in a commentary on the definition article of the Convention, in particular the Convention's definition of expression "court" (which, I understand, is word for word the same as in the Regulation), to the expression having "a very broad sense" and as covering "not only the judiciary or an authority which plays a similar role to that of a court or public authority ... but also a person or body empowered by national law to open proceedings or make decisions in the course of those proceedings
22. The Convention on Insolvency Proceedings never came into force for want of sufficient signatures by members states although its provisions are closely mirrored in the Regulation. The Virgos-Schmit Report, so far as concerns the meaning of the Regulation, is of questionable status. Nevertheless, the broad approach to matters of interpretation commended in that Report encourages me to adopt a no less broad approach to the meaning of "court" in the definition of that expression in article 2(d). Further encouragement to do so appears from paragraphs 8.17 to 8.19 of The EC Regulation On Insolvency Proceedings - A Commentary and Annotated Guide, edited by Moss, Fletcher and Isaacs, Oxford University Press 2002.
23. Consistently with the application of section 8(7) and adopting a broad interpretation of the definition of the expression "court" in article 2(d) I am therefore satisfied that there is power in the Association under Part I of the 1986 Act to enter into a voluntary arrangement with its creditors.

Conclusion

24. It follows that the court has jurisdiction to make an administration order in relation to the Association and may properly do so for the purpose, inter alia, of approving a company voluntary arrangement under Part I.