Michael Carter v Roy Bailey and Keiran Hutchison (as foreign representatives of Sturgeon Central Asia Balanced Fund Ltd)
| Jurisdiction | England & Wales |
| Judge | Briggs |
| Judgment Date | 27 January 2020 |
| Neutral Citation | [2020] EWHC 123 (Ch) |
| Date | 27 January 2020 |
| Court | Chancery Division |
| Docket Number | Case No: CR-2019-002136 |
[2020] EWHC 123 (Ch)
DEPUTY HIGH COURT JUDGE, CHIEF INSOLVENCY AND COMPANIES COURT JUDGE Briggs
Case No: CR-2019-002136
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
IN THE MATTER OF THE CROSS-BORDER INSOLVENCY REGULATIONS 2006
AND IN THE MATTER OF STURGEON CENTRAL ASIA BALANCED FUND LTD (IN LIQUIDATION)
Royal Courts of Justice
Rolls Building, Fetter Lane, London, EC4A 1NLL
James Potts QC AND Conor McLaughlin (instructed by PINSENT MASONS LLP) for the APPLICANT
Joseph Curl (instructed by CLYDE & CO LLP) for the RESPONDENT
Hearing dates: 5 and 6 December 2019
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
DEPUTY HIGH COURT JUDGE, CHIEF ICC JUDGE Briggs
| Introduction | Paragraphs 1–2 |
| Summary | Paragraph 3–8 |
| Sturgeon Central- background | Paragraphs 9–15 |
| Application to recognise | |
| A. Without notice | Paragraphs 16–22 |
| A. Decision of Falk J | Paragraphs 23–32 |
| Review application | |
| A. The provisions | Paragraphs 33–47 |
| B. The standing of Mr Carter to make the application to terminate | Paragraphs 48–54 |
| C. The right of Mr Carter to be heard | Paragraphs 55–56 |
| Inter-partes challenge | |
| A. summary of the challenge | Paragraphs 57–58 |
| B. Working Group Reports | Paragraphs 59–70 |
| C. 1997 Guide and Guide to Enactment 2014 | Paragraphs 71–84 |
| D. Judicial Perspective | Paragraphs 85–88 |
| E. Legislative Guide | Paragraphs 89 |
| Case analysis | Paragraphs 90–103 |
| Text commentary | Paragraphs 104–108 |
| Applicable principles for interpretation | Paragraphs 109–112 |
| Conclusions | Paragraphs 113–124 |
Deputy High Court Judge, Chief ICC Judge
Introduction
The UNCITRAL Model Law for Cross-Border Insolvency adopted by the UN Commission on International Trade Law on 30 May 1997 (“Model Law”) was implemented in England and Wales (and Scotland) by the Cross-Border Insolvency Regulations 2006 (“CBIR”). On an application made under the CBIR, the joint provisional liquidators of Sturgeon Central Asia Balanced Fund Ltd (“Sturgeon”) obtained an order recognising the liquidation of Sturgeon in Bermuda as a foreign main proceeding on 17 May 2019 ( [2019] EWHC 1215). The recognition order made by Falk J is the first order to recognise the liquidation of a solvent company as a foreign proceeding in this jurisdiction. The application before the court is made pursuant to review provisions in schedule 2 to the CBIR under which the applicant seeks to terminate the order made.
The foreign representatives are Roy Bailey of EY Bermuda Ltd and Keiran Hutchinson of EY Cayman Ltd. They were appointed Joint Provisional Liquidators (JPLs) of Sturgeon by an order of the Supreme Court of Bermuda dated 22 January 2019, following an earlier decision of the Court of Appeal for Bermuda that the company should be wound up on just and equitable grounds. The JPLs resist the application to terminate the recognition order.
The key question this application raises is whether the winding up in Bermuda should continue to be recognised in this jurisdiction. This raises the issue as to whether those proceedings are a “foreign proceeding” for the purposes of the Model Law and the CBIR. To assist the reader, I have summarised below my conclusions in this respect immediately below. I have concluded that the proceedings in question should not be so recognised.
Summary
The Model Law, as enacted in Great Britain, is set out in Schedule 1 to the CBIR; unless otherwise stated, references in this judgment to articles of the Model Law are to the text as set out in Schedule 1. Article 2(i) defines a “foreign proceeding”. It means a “collective judicial or administrative proceeding in a foreign State, including an interim proceeding, pursuant to a law relating to insolvency in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganisation or liquidation.” The purpose of the Model Law is to promote modern and fair legislation for cases where an insolvent debtor has assets in more than one State.
It would be contrary to the stated purpose and object of the Model Law to interpret “foreign proceedings” to include solvent debtors and more particularly include actions that are subject to a law relating to insolvency which have the purpose of producing a return to members not creditors.
Read in context and employing a purposive approach, the words “for the purpose” in Article 2(i) should be read as meaning the purpose of insolvency (liquidation) or severe financial distress (reorganisation).
For recognition to be ordered in England and Wales, the proceedings in respect of which recognition is sought, must relate to the resolution of the debtor's insolvency or the debtor's financial distress.
As the foreign proceedings in this case are for the purpose of winding up a solvent company, which is not in financial distress, the recognition order should be terminated. I shall now set out my reasoning in this respect in further detail, starting with a consideration of the background to the winding up.
Sturgeon
The background to the winding up of Sturgeon is not contentious. The JPLs have provided no further evidence since the hearing of the recognition application in May 2019. I gratefully adopt the position as set out in paragraphs 4–10 of the judgment given by Falk J.:
“The Company was incorporated under the laws of Bermuda in March 2007, to act as a closed-ended investment company. It was aimed at Japanese investors wishing to invest in Central Asia. It was listed on the Irish Stock Exchange, but its shares were apparently never traded on it. The Company had a Bermudian corporate company secretary and its administration was carried out there under a corporate services agreement. It had three directors at the time of its liquidation, one in Japan, one in the UK and one in Kazakhstan. A London based investment manager has management of the majority of its assets.
The Company has a small number of management shares with voting rights but no material economic rights. Its share capital principally comprises participating shares which are held on behalf of investors. Of a total of 7.6 million such shares (ignoring shares held in treasury), Capital Partners Securities Co. Ltd (“CPS”), a licensed Japanese securities company, is the nominee for over 7.2 million shares and holds most of the remainder in its own right.
Under the original bye-laws of the Company there was a provision allowing participating shareholders to pass a resolution in 2014 to wind it up from the end of 2015, subject to a deferral of up to two years. At the AGM in 2014 the management shareholder adopted amended bye-laws which had the effect that the participating shareholders lost their power to wind the Company up, without being given notice or permitted to vote. There was an alternative structure under which the Board could allow participating shares to be redeemed, but this was very restricted and under the proposed timetable it would take 40 years for shareholders to redeem in full, and on terms that involved a discount to net asset value.
CPS petitioned for the Company's winding up on just and equitable grounds, contending that there had been a serious breakdown in the basis on which the Company was set up and investors were being denied their rights. There was no suggestion that the Company was insolvent, and that remains the case.
…
Winding up was ordered under section 161 of the Bermuda Companies Act 1981. This is based on section 222 of the Companies Act 1948. It provides for winding up by the court on a number of different bases, including insolvency:
“Circumstances in which company may be wound up by the Court
161. In addition to any other provision in this or any other Act prescribing for the winding up of a company a company may be wound up by the Court if–
…
(e) the company is unable to pay its debts;
…
(g) the Court is of the opinion that it is just and equitable that the company should be wound up.”
Permission to appeal to the Privy Council was refused, and the stay that had previously been imposed was lifted.”
I mention a few further words about the nature of the winding-up proceedings, drawn from the winding up petition, and the judgments in the Supreme Court of Bermuda and Court of Appeal for Bermuda.
First, CPS's petition pleaded at paragraph 76: “in the event that the Fund is wound up there will be a surplus for the benefit of contributors including the Petitioner and UBOs”. Secondly, the Supreme Court of Bermuda said that the merits of the petition “largely depend[ed] upon the interpretation of Bye-Law 78”. It provided that shareholders may resolve by special resolution proposed at an annual general meeting held in the year 2014 to wind up and dissolve the company with effect from 31 December 2015. If Sturgeon was to be wound up, the liquidator may “divide among the shareholders in cash or kind the whole or any part of the assets of the Company”. The exercise of interpretation was not easy. Chief Justice Ian RC Kawaley said (at paragraph 8):
“The draftsman of the Bye-Laws could have denied counsel and this Court the intriguing challenge of having to unravel this this most difficult first limb of the construction conundrum by explicitly providing either (a) that the winding up vote would be approved by a ‘Special Resolution of the Management Shareholders’ or (b) by not using the term “Special Resolution” at all. CPS nevertheless submitted that this term...
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