Re BRAC Rent-A-CAR International Inc.
| Jurisdiction | England & Wales |
| Judge | Mr Justice Lloyd |
| Judgment Date | 07 February 2003 |
| Neutral Citation | [2003] EWHC 128 (Ch) |
| Docket Number | Case No: 0042 of 2003 |
| Court | Chancery Division |
| Date | 07 February 2003 |
[2003] EWHC 128 (Ch)
IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION COMPANIES COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Lloyd
In The Matter Of
Case No: 0042 of 2003
Lexa Hilliard (instructed by Eversheds for the Petitioner,
BRAC Rent-A-Car International Inc) Louise Hutton (instructed by S J Berwin for the Judgment Creditors,
Francesco Dragotto and Giuseppe Dragotto, trading as Italy by Car)
Hearing date: 14 January 2003
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.
On 14 January 2003 I heard a petition for an administration order in relation to BRAC Rent-A-Car International Inc ("the Company"). I made the order but reserved my reasons for holding that I had jurisdiction to do so. This judgment sets out those reasons.
The petition was issued on 7 January, the Company being the petitioner. There was no-one on whom the Insolvency Act 1986 required it to be served other than the proposed administrators. However, the Company's solicitors had been in correspondence with Messrs. S J Berwin, who act for creditors (to whom I will refer as the Judgment Creditors) who have the benefit of an Italian arbitration award in Italy for a sum exceeding £1.1 million, which has been registered as a judgment in England. They also have an interim charging order over property of the Company. Following earlier correspondence, the Company's solicitors supplied copies of the petition and the first affidavit to S J Berwin. That led to the Judgment Creditors being represented by Counsel at the hearing before me.
On their behalf Miss Hutton first applied for an adjournment so that her clients could have more time in which to consider the figures appearing from the report under rule 2.2. I rejected that application for reasons given in a judgment at the time, which I do not need to reiterate. Then she argued that the court had no jurisdiction to make an administration order. Having heard that argument, and contrary submissions from Miss Hilliard for the Company, I was satisfied that the court does have the necessary jurisdiction. I was also satisfied that it was appropriate to make such an order on the facts, for reasons which I do not need to go into in this judgment. Because the question of jurisdiction is novel and of some importance, it seemed to me that I ought to take more time than was then available to express my reasons for holding that the jurisdiction exists.
The Company is incorporated in Delaware, and has its registered address in the United States. However, that is not an address from which it trades, and it has never traded in the US. Its operations are conducted almost entirely in the UK. It was until recently part of the Budget group, and its business is that of managing the European, Middle Eastern and African operations formerly carried on by that group. It has subsidiaries in many Western European countries, each of which has, in turn, agreements with various franchisees. In countries where the company does not have a subsidiary it enters into franchise agreements directly with franchisees.
It trades from an address in Hemel Hempstead, in England. It has for a long time been registered under the Companies Acts as an overseas company. It has no employees in the US, and all its employees work in England, with contracts of employment governed by English law, apart from a small number in a branch office in Switzerland. Its trading activities are carried out by way of contracts with subsidiaries and franchisees. All of these are governed by English law. It has of course other contracts entered into in the course of its business, such as for telecommunications services; these are also governed by English law.
The Company is, with other members or former members of the Budget group, in Chapter 11 administration in the US. That procedure has some similarities with administration under the Insolvency Act 1986, but the moratorium effect as regards creditors is not directly effective in this jurisdiction. Accordingly the need was felt for an administration order by way of protection against creditors in England.
Section 8 of the Insolvency Act 1986 gives the court power to make an administration order in relation to a company. The Act does not define what is meant by a company, and the general definition in the Companies Act 1985 is therefore applied by section 251. Thus it means a company registered under the 1985 Act or an earlier Companies Act. As originally enacted, therefore, an administration order could not be made as regards a foreign company. By contrast, as regards winding-up orders the jurisdiction is expressly extended beyond locally incorporated companies to unregistered companies, which includes foreign companies, by section 221 of the Insolvency Act 1986: see Re Latreefers Inc. [2001] 2 BCLC 116. The only exception as regards administration orders was that such an order could be made pursuant to a request from a court of a relevant country or territory under section 426 of the Insolvency Act 1986: see Re Dallhold Estates (UK) Pty [1992] BCLC 621. In relation to other provisions of the Insolvency Act 1986 different views have been expressed as to whether the general definition in the Companies Act was displaced by a sufficient contrary intention, but in relation to section 8 the view was that the general rule did apply.
Since 31 May 2002, however, the 1986 Act has included a section 8(7) in the following terms:
"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."
This provision is, strictly speaking, unnecessary because the EC regulation referred to, Council regulation 1346 / 2000 of 29 May 2000 on Insolvency Proceedings (which I will call the Regulation), has direct effect in all the Member States (except Denmark, which exercised a right to opt out) as of 31 May 2002. Accordingly, the question whether this court has jurisdiction to make an administration order in relation to a company requires reference to the Regulation.
The context of the Regulation is described in its 33 recitals. These also help to cast light on some of the substantive provisions. I will therefore start by referring to those of the recitals which are relevant for present purposes.
Recital (2) refers to the need for cross-border insolvency proceedings to operate efficiently and effectively, and for the Regulation to be adopted to achieve this objective. Recital (3) speaks of the activities of undertakings having more and more cross-border effects and being therefore increasingly regulated by Community law. It states that the insolvency of such undertakings affects the proper functioning of the internal market and that there is a need for a Community act requiring co-ordination of the measures to be taken regarding an insolvent debtor's assets. In turn, recital (4) refers to the necessity, for the proper functioning of the internal market, to avoid incentives for the parties to transfer assets or judicial proceedings from one Member State to another, seeking to obtain a more favourable legal position. Recital (8) refers to the need to use a Community law measure which is binding and directly applicable.
Recital (12) opens with the proposition that the Regulation enables the main insolvency proceedings to be opened in the Member State where the debtor has the centre of his main interests. That recital is then enlarged on by recitals (13) and (14), as follows:
The 'centre of main interests' should correspond to the place where the debtor conducts the administration of his interests on a regular basis and is therefore ascertainable by third parties.
(14)
This regulation applies only to proceedings where the centre of the debtor's main interests is located in the Community."
Recital (15) points out that the Regulation is only concerned with international jurisdiction, as between the courts of different Member States, and thus does not deal with territorial jurisdiction within a given Member State. Recital (21) deals with creditors, in particular in a situation in which two or more insolvency proceedings have been opened in different Member States. I quote the first sentence:
"Every creditor, who has his habitual residence, domicile or registered office in the Community, should have the right to lodge his claims in each of the insolvency proceedings pending in the Community relating to the debtor's assets."
The question I...
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