Re Ci4net.com Inc.
| Jurisdiction | England & Wales |
| Judgment Date | 20 May 2004 |
| Neutral Citation | [2004] EWHC 1941 (Ch) |
| Date | 20 May 2004 |
| Court | Chancery Division |
| Docket Number | Nos 556 and 557 of 2004 |
[2004] EWHC 1941 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
LEEDS DISTRICT REGISTRY
Nos 556 and 557 of 2004
[Published at 1600 on Thursday 20 May 2004; handed down at Leeds Combined Court Centre at 1400 on Wednesday 2 June 2004: revised Tuesday 8 June 2004]
Introduction
There are before the court applications by HSBC Bank plc ("HSBC") for administration orders in respect of two companies ("the companies") which are both incorporated outside England and Wales. The companies are Ci4net. com Inc ("USA"), which is incorporated in the State of Delaware, and DBP Holdings Limited ("Jersey"), which is incorporated in Jersey. The applications have been opposed by the companies. I am grateful to both counsel, Ms Stonefrost for HSBC and Mr Clarke for USA and Jersey, for their helpful written and oral submissions.
The question which has been debated at most length is one of jurisdiction. This turns on the application to the facts of the case of article 3 of Council Regulation (EC) No 1346/2000 on insolvency proceedings (the EC Regulation). Paragraph 1 of article 3 is in these terms:
"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 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."
The phrase "centre of a debtor's main interests" has been unattractively, but conveniently, reduced to the acronym CoMI. The registered office of USA is in Delaware, and the registered office of Jersey is in St Helier. HSBC contends that the CoMI of the companies is in London and that the presumption mentioned in article 3d has been rebutted by the evidence before the court. USA and Jersey contend that the presumption has not been rebutted and has been buttressed by the evidence.
If in the case of either company the issue of jurisdiction is determined in favour of HSBC, then I must go on to consider the merits of the application. The conditions which must be satisfied before an administration order is made are to be found in Schedule B1 of the Insolvency Act 1986, which was inserted by the Enterprise Act 2000. By paragraph 11 of Schedule B1:
"The court may make an administration order in relation to a company only if satisfied -
(a) that the company is or is likely to become unable to pay its debts, and (b) that the administration order is reasonably likely to achieve the purpose of administration."
"The purpose of administration" is not a defined term, but it is agreed that it is identical with "the objective" which is referred to in paragraph 3(1) of Schedule B1:
"The administrator of a company must perform his functions with the objective of -
(a) rescuing the company as a going concern, or
(b) achieving a better result for the company's creditors as a whole than would be likely if the company were wound up (without first being in administration), or
(c) realising property in order to make a distribution to one or more secured or preferential creditors."
Each company accepts that it is insolvent, so that the first of the paragraph 11 conditions has been satisfied. The dispute between HSBC and the companies relates to the second condition, namely, whether the evidence is sufficient to demonstrate that an administration order would be reasonably likely to achieve the objective set out in paragraph 3(1).
Matters will not necessarily end at this point. It is possible that, in relation to either of the companies, the court will decide that it has jurisdiction but that the case for placing the company in administration has not been made out, The court has power on the hearing of an administration application to treat the application as a winding-up petition: Insolvency Act 1986. Schedule B1, paragraph 13(1)(e). HSBC contends that, if either application fails on the merits, then, as the company concerned is plainly insolvent, it should be wound-up by the court. The answer of the companies, and more particularly of USA, is that, even though a company is unable to pay its debts, the court has a discretion to make or refuse a winding-up order. In this case, it is said, a winding-up order should he refused on the ground encapsulated in the Latin phrase, forum non conveniens The submission is that, if USA is to go into liquidation, it should do so in the United States.
I shall next set out the background against which the applications for administration orders have come before the court. I shall then deal in succeeding sections of the judgment with the issues which arise on jurisdiction and merits. In examining the facts of the case I shall be careful to differentiate between USA and Jersey. As I was rightly reminded by counsel, there is no basis for supposing that, on any issue, the outcome for Jersey must be the same as that for USA.
Background
USA was incorporated (under a different name) in Delaware on 29 December 1995. It did not have any operating activities until 20 December 1999, when it acquired all of the issued shares of another Delaware corporation. In the annual report filed by USA with the Securities and Exchange Commission ("SEC") for the fiscal year ended 31 January 2000, one finds this overview of the business of the company:
"[USA] is an economic network, or Econet, with equity interests in 39 internet-related companies… We have a 50 percent-or-greater interest in 34 of these companies and hold minority interests in the remainder. Our partner companies include eight internet infrastructure companies, 18 business-to-business … e-commerce companies, 12 business-to-consumer… e-commerce companies and one incubator company… Thirty-two of our partner companies service the United Kingdom market. The geographic focuses of our remaining partner companies include Italy, the Netherlands, Europe as a whole, Australia and the United States."
On 1 March 2002 USA's corporate charter was made void under the law of Delaware for failure to pay franchise taxes. Delaware law provides for what in England would be called restoration of a company to the register upon payment of the arrears of franchise taxes and the filing by the company of a certificate of renewal. I was told by Mr Clarke during the hearing that news o. payment of the arrears had just arrived, and accordingly I have not thought it necessary to review in this judgment the interaction between avoidance of the charter and an English administration order.
Jersey is a wholly-owned subsidiary of USA. It was incorporated (under a different name) on 22 August 1997.
A third company features in the history. This is a company which is now called Criterion Management Services Limited ("Criterion") and which is incorporated under the law of England and Wales. Criterion, like Jersey, is a wholly-owned subsidiary of USA. It has since 1 May 2002 been the subject of a company voluntary arrangement.
The applications before the court arise in the context of the collapse of the dot. com market and of the insolvency of a Jersey resident called Kevin Leech. Mr Leech held, through a number of mainly Gibraltar-registered nominee companies, the majority of the issued shares in USA. In October 2002 the property of Mr Leech was declared "en desastre" by the Royal Court of Jersey. HSBC is the largest creditor in Mr Leech's bankruptcy, and has filed a claim for sums in excess of £88 million.
USA and Jersey are also indebted to HSBC. On 19 March 2004 the amount of the debt stood at £4,805,462. The greater part of this debt, £4,094,974, arose from an overdraft facility granted to Jersey by HSBC on an account at HSBC's branch in Jersey. USA is liable for this debt under a joint and several guarantee of 10 January 2001 under which USA and Jersey provided cross-guarantees of each other's liabilities. The balance of the debt, £710,488, was owed on the overdraft of another company in the group, in respect of which USA and Jersey gave a guarantee on 11 January 2001. Demands for payment were made on 12 November 2002 and 23 March 2004, but nothing has been received to extinguish or reduce the debt.
USA has, according to the evidence of the sole director of USA, three assets of value. These are:
(1) 5,060,956 shares in Auto Date Network Inc ("ADN"), which is a Delaware company with a number of subsidiaries. The business of the ADN group is in software for the automobile industry. USA's shares amount to what is about a 20 per cent (or 13 per cent "fully diluted") interest in ADN. ADN's shares are traded on stock exchanges in the United States. On 27 April 2004, USA's shareholding was worth US$16,245,669. That holding is, however, subject to a lock-up agreement between USA and ADN, which prevents USA from selling its shares before 6 October 2005. Further, there is some uncertainty about the ownership of the ADN shares, and I will have to deal with this towards the end of this judgment.
(2) 1,890,000 shares in Evolve Oncology Inc ("Evolve"), which is a Delaware company, the business of which has to do with operating and progressing trials of drugs for the treatment of cancer. Evolve's shares are listed in NASDAQ OTC, and on 27 April 2004 USA's holding was worth US$7,938,000. That value will, not, however, be realisable in full until March 2005 because of restrictions attaching to sales of the shares under rule 144 of the (United States) Securities Act 1933.
(3) Shares worth US$199,992 in a company registered in the Netherlands Antilles.
The sole director of USA is Lee John Cole. He has been a director since December 1999. In his written evidence Mr Cole says:
"I am an investment adviser to various trusts (of which I...
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