Vol 1 (2004) - Issue 1

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Cross-Border Aspects of the New Administration Regime

On 31 May 2002 Council Regulation (EC) No. 1346/2000 of 29 May 2000 on Insolvency Proceedings (“the EC Regulation”) came into force in Member States of the European Union. On 15 September 2003, those parts of the Enterprise Act 2002 dealing with the administration of companies came into force, creating a new administration regime. This article considers certain cross-border issues which arise in the context of the new administration regime and the EC Regulation. These issues are considered under the following headings:
(1) the appointment of administrators;
(2) the process of administration;
(3) the termination of the administration.

(1) The appointment of administrators
(i) To what entities does the new administration regime apply?

Although the EC Regulation has direct effect in Member States (except Denmark), the domestic law of the Member State concerned determines the circumstances in which proceedings can be opened. Hence, in England, English law determines whether the conditions for the opening of proceedings are satisfied or not.
Under Part II of the Insolvency Act 1986 (“the 1986 Act”), an administration order could only be made in relation to a “company”: see section 8(1) of the 1986 Act. Prior to the coming info force of the EC Regulation, the definition of “company” was incorporated in the 1986 Act from section 735 of Part XXVI of the Companies Act 1985, and (unless a contrary intention appeared) meant, in brief, a company incorporated under that Act or any of its predecessors. Whilst that definition continues to apply, with effect from 31st May 2002 a new inclusive definition of “company” was added to Part II of the 1986 Act through section 8(7), which provides that “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 new definition has been carried forward to the new administration regime.
Article 3(1) of the EC Regulation provides:

“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.”

Thus, an entity may now enter administration in England if:
(i) it is a company or legal person; and
(ii) it has its centre of main interests in England.
The first of these criteria is plainly very broad. It appears to exclude only individuals, and any entity which does not have a legal personality. It is clear that as a result of this new definition, the class of entities which may enter administration is broader than that which fell within the former definition adopted from the Companies Act 1985. Thus, in Re The Salvage Association [2003] 2 BCLC 333, an association of members established by Royal Charter, with its own legal personality, was placed into administration and in Re BRAC Rent-A-Car International Inc. [2003] 1 WLR 1421, Lloyd J. held that he had jurisdiction to make an administration order in respect of a US Corporation incorporated in the State of Delaware. In both cases it was plain that the centre of main interests was in England.