Mg Rover Espana S. A. and Others

APPROVED FOR HANDING DOWN

I direct that no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

Date: …………………………

HHJ NORRIS QC: ………………………………………

On the 8 ^th April 2005 the directors of MG Rover Group Limited appointed administrators of the manufacturing arm of MG Rover cars ("the English operation"). On the 18 ^th April 2005 this court appointed administrators of the eight national sales companies through which cars manufactured by the English operation were sold in Europe. The jurisdiction of an English court to make an order affecting the conduct of the affairs of company in another Member State of the European Union derives from Article 3 of the EU Regulation on Insolvency Proceedings. This Article provides that the courts of the Member State within the territory of which the centre of a debtor's main interests is situated shall have jurisdiction to open insolvency proceedings. In the case of each of the national sales companies I was satisfied on the evidence that the centre of its main interests was situated in England. The purposes of an English administration order are set out in paragraph 3 of Schedule B1 to the Insolvency Act 1986. The administrator of a company must perform his functions with the primary objective of rescuing the company is a going concern, and the secondary objective of securing a better return for the creditors as a whole than would be achieved by an immediate liquidation.

When an English administration order comes to be applied to a national sales company operating in another Member State two consequences are immediately apparent. First, that national sales company is subject to the administration regime created by the Insolvency Act 1986, not to any local law. That derives from Article 4 of the EU Regulation which is in these terms:-

"Save as otherwise provided in this Regulation the law applicable to insolvency proceedings and their effects shall be that of the Member State within the territory of which such proceedings are opened…"

Second, under paragraph 2 of Article 3 of the EU Regulation the Member State in which the national sales company operates can also open insolvency proceedings because the national sales company possesses an establishment within that territory. But paragraph 3 of Article 3 provides that where at such proceedings are subsequently opened then they shall be secondary proceedings, and (crucially) "these latter proceedings must be winding up proceedings". There is therefore the possibility of the primary proceedings being conducted with the aim of rescuing the business as a going concern, and the secondary proceedings being conducted with the aim of immediately closing down the business and realising and distributing its assets. Such secondary proceedings have already been commenced in relation to MG Rover Nederland BV and a Dutch liquidator appointed.

The present applications of the joint administrators of the eight national sales companies seek to address the practical difficulties occasioned by the international jurisdiction provisions of the EU Regulation, both in general and in one particular respect. What is sought is that the court recite by Order the duties and powers of the joint administrators and the effect of the moratorium for which Schedule B1 to the Insolvency Act 1986 provides.

The Order appointing the joint administrators provided by paragraph 1 of its operative part that for the period for which the Order was in force "the affairs, business and property of the Company be managed by the administrators" appointed by paragraph 2 of the Order. This is a conventional English form and English practitioners understand that it brings into play the wide powers conferred by Schedule B1 and by Schedule 1 to the 1986 Act. Most European practitioners are more accustomed to seeing the court order appointing the officeholder setting out the powers and responsibilities of the appointee. As a result, the solicitors to the joint administrators are having to explain to the European practitioners representing the managers, creditors and employees of the national sales companies what powers are conferred upon the joint administrators and what effect the administration has on their client's rights and the rights of third parties. Understandably, European practitioners are reluctant to accept this as an authoritative statement, the more so because they do not readily appreciate on whose behalf and in whose interests the administration is being conducted, and so what interest the solicitors to the joint administrators represent. The scale of the difficulty disclosed by the evidence suggests that where in the future orders are made by virtue of the jurisdiction conferred by Article 3 of the EU Regulation such orders should contain a Schedule referring to the authoritative text and containing a summary of the principal provisions relevant to that administration.

In the instant case it would have been possible to amend of the Orders of the 18 ^th of April 2005 to incorporate such a reference and such a summary, and so make them more comprehensible in the jurisdictions in which they respectively have to be applied. But instead I consider it expedient to make supplemental orders. The original form of supplemental Order invited me to declare that the principal duties of the joint administrators were those set out within a summary. This summary sought to reproduce the relevant provisions of schedule B1, and did so as faithfully as any summary could. I was, however, reluctant to declare that the powers of the joint administrators were anything other than those actually set out in Schedule B1, using the very language of Schedule B1. The form of Order I have decided to make therefore declares that the relevant responsibilities and powers of the joint administrators and the material effect of the making of an administration order are those set out in Schedule B1 and in Schedule 1 to the 1986 Act (so that a reader of the Order is directed to the governing text), and recites that the provisions then summarised in the Schedule to the order will apply (so that the reader will have ready access to the import of the principal relevant provisions).

I hope that by this means courts in other member states may come to appreciate that the principal objective of the administration is to rescue the relevant national sales company as a going concern, and if that is not reasonably practicable (or would not achieve the best result for the company's creditors as a whole) then to achieve a better result for that national sales company's creditors as a whole than would be achieved by an immediate winding up. It may be that those advising creditors in some Member States think that the Orders made on the 18 ^th April 2005 were made for the benefit of the English operation; but that is not so. The Order was made in each case under the EU Regulation and for the benefit of the relevant national sales company and its employees and creditors. The joint administrators of the national sales companies operate independently of the joint administrators of the English operation (though they undoubtedly have a large area of common interest and must inevitably consult and may agree a common strategy). The strategy of the joint administrators of the national sales companies is, as I presently understand it, ultimately to achieve the best return for the creditors of each company by a co-ordinated management of European stock (both the realisation of existing stock and securing ongoing supplies in relation to any continuing trade) and the orderly management of claims, and for the time being to preserve each national sales company as a viable part of a distribution network until it can be ascertained whether the English operation can be rescued (and the national sales companies rescued along with it) or some other manufacturer is interested in acquiring the network.

So much for the recitation of the general powers. But one particular issue was raised and is addressed in the summary of powers. It concerns payments to employees. It is proposed that the summary shall contain the following:-

"Under paragraph 66 the joint administrators may make payments to the employees of the...