Vol 12 (2015) - Issue 1

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Re ARM Asset Backed Securities S.A. (No. 2) [2014] EWHC 1097 (Ch)

Introduction
The directors of Arm Asset Backed Securities S.A. ('the Company') presented a petition to the English Court for an order winding up the Company. At the same time the directors made an application for provisional liquidators to be appointed in respect of the Company. The Court, on that application, appointed provisional liquidators (see Re ARM Asset Backed Securities S.A. [2013] EWHC 3351), with the appointment being made on the basis that the English provisional liquidation proceedings were main proceedings within the meaning of Article 3(1) of the EC Insolvency Regulation as the Company’s centre of main interests was in England. In this regard, Mr Justice David Richards considered that the Company’s main director was based in London, from where, for the most part, decisions in relation to the Company were taken, this being known to third parties dealing with the Company.
Following the provisional liquidator’s appointment, the Luxembourg public prosecutor, to whom notice of the provisional liquidation application and order had been given, applied to the Luxembourg Court to commence liquidation proceedings in Luxembourg under the Luxembourg Securitisation Law. Prior to the provisional liquidator’s appointment, an appeal by the Company against the Luxembourg regulator’s refusal to grant a licence required for the Company to carry on a business raising funds through the issue of bonds and investing those funds in US life insurance policies has been refused.
Faced with the prospect of such proceedings in Luxembourg, the Company’s English provisional liquidators made an application to the English Court for an order that, by virtue of their appointment, a stay on any action or proceeding against the Company or its property was imposed by Section 130(2) of the English Insolvency Act 1986 and that the stay extended to the public prosecutor’s application in Luxembourg, which was therefore in breach of the stay as the permission of the English Court to commence that application had not been obtained.
The provisional liquidators also indicated that, if permission to commence the Luxembourg proceedings was sought from the English Court, they would oppose permission being given on the grounds that the Luxembourg proceedings would be unnecessarily duplicative, waste time and resources and lead to unnecessary complications.
For the reasons discussed below, Mr Justice Nugee made an order to the effect that the Luxembourg proceedings were caught by the stay imposed by Section 130(2) of the Insolvency Act 1986. The judgment thus provides a useful reminder of the scope of the EC Insolvency Regulation and the potential reach of certain provisions of the English Insolvency Act 1986 as a consequence of the EC Insolvency Regulation’s broad scope in some cases.

Scope and effect of the EC Insolvency Regulation generally
As noted above, the appointment of the provisional liquidators in England in relation to the Company constituted the opening of main proceedings within the meaning of Article 3(1) of the EC Insolvency Regulation. It would not be open to the Luxembourg Court to go behind that decision. Article 16(1) of the EC Insolvency Regulation provides that 'Any judgment opening insolvency proceedings handed down by a court of a Member State which has jurisdiction pursuant to Article 3 shall be recognised in all the other Member States from the time that it becomes effective in the State of the opening of proceedings' and, as such, the provisional liquidators’ appointment must be recognised by all Member States, including Luxembourg.
As to what exactly this amounts to, Article 17(1) of the EC Insolvency Regulation provides that a judgment opening main proceedings in a Member State shall, with no further formalities being required, produce the same effects in any other Member State as under the law of the Member State where the proceedings were opened, provided no secondary proceedings within the meaning of Article 3(2) and there is no provision to the contrary in the EC Insolvency Regulation.