Vol 1 (2004) - Issue 5

Article preview

Ci4net.com: Looking Beyond the Brass Plate in Establishing the Centre of Main Interests

For a creditor to prove that the Centre of Main Interests (‘CoMI’) of a company is in a different jurisdiction from its registered office might seem an uphill task, particularly when in opposition to the company’s directors. However, this is precisely what a UK bank (‘the Bank’) achieved as a petitioning creditor in a recent case where I was appointed liquidator of a Delaware (USA)-registered company and administrator of its Jersey-registered subsidiary by the High Court in Leeds, in what is believed to be the first case where the CoMI of a company has been disputed in court in the UK. Reassuringly for creditors, it confirms that the English courts will look behind the brass plate of the registered office and will look at the real centre of activity as ascertainable by the potential creditors of the company.
Ci4net.com Inc (‘Ci4net’) was a US-quoted, Delaware-registered dot.com incubator set up by Jersey businessman Kevin Leech. Its subsidiary, DBP Holdings Limited (‘DBP’), was registered in Jersey. Both companies held investments in mainly technology start-ups, and had suffered huge losses as many of their investments failed following the dot.com crash. A third company in the group, Criterion Management Services Limited (‘Criterion’), was registered and based at Haymarket in London and provided management services to the group; it had entered into a Company Voluntary Arrangement with its creditors in May 2002. The Bank, through its branch in Jersey, had loaned significant sums to Mr Leech, which he invested in supporting these companies, amongst other ventures. In addition, the Bank had directly loaned some GBP 5 million to DBP, which had been guaranteed by Ci4net.
In its SEC filings for 2000, filed in May 2001, Ci4net described its ‘address of principal executive offices’ as being at Haymarket, London. Subsequent draft filings provided to the Bank repeated this statement and the draft 2002 filing contained an internal heading in capital letters stating baldly ‘WE ARE PREDOMINATELY BASED OUTSIDE OF THE UNITED STATES’.
During 2001, having failed to raise further funds with which to support its investments, Ci4net.com withdrew its active funding and management input into the investee companies and changed its activity into that of a ‘passive holding’ company. Its US-based director resigned. Its remaining directors were Mr Leech (based in Jersey) and a UK citizen resident in Spain. In October 2002, Mr Leech was declared bankrupt or ‘en desastre’ in Jersey, with debts of some GBP 90 million, and was therefore forced to resign.
At this time the Bank reviewed its exposure to DBP/Ci4net, but concluded that the value of the companies’ investments (their only assets) was negligible. It made formal demand for repayment, but the companies having no free assets were unable to make any payments. However, by early 2004, it became clear that at least one of the companies’ investments had significant value - potentially enough to repay the Bank and other creditors in full. The Bank renewed its demand. The Bank was also unhappy with the level and accuracy of information that it was receiving on the financial position of the companies, leading to a breakdown of trust between the Bank and the companies’ management and to a conclusion that control should be taken out of the hands of the current management. An application was therefore made for administration orders in respect of the two companies on the basis that their CoMIs were in London.
Although it was admitted that both companies were insolvent in that they were unable to pay their creditors as they fell due, the companies’ director opposed the applications on the grounds that the CoMIs were not in England and the court therefore did not have jurisdiction to open proceedings and that the statutory purpose of administration could not be met. The statutory purpose is defined as:

(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) realizing property to make a distribution to one or more secured or preferential creditors.