Re 19 Entertainment Ltd  EWHC 1545 (Ch)
Wednesday, 27th July 2016
The English Court granted recognition of Chapter 11 proceedings in relation to a company that was incorporated in the UK but had its centre of main interests ("COMI") in the United States, confirming that the Directors were foreign representatives for the purpose of the Cross Border Insolvency Regulations 2006 ("the Regulations").
The Directors of 19 Entertainment Limited ("the Company") applied to the English Courts to seek recognition of Chapter 11 Bankruptcy proceedings under the Regulations. The Directors also sought relief under the Regulations in the form of a moratorium on creditor action.
The Chapter 11 proceedings had been commenced by the Company, and other entities in the same group, in the Southern District of New York. The court noted that the purpose of such proceedings in the US was to implement a reorganisation of a company in financial distress, in an attempt to allow it to continue as a going concern. The court drew parallels between this concept and the English administration scheme.
Despite the Company being registered in London and having its registered office in the same location, the court concluded that its COMI was in the US as the Company's business, direction and operation was conducted entirely in this jurisdiction. In making this decision, the court noted in particular that the Company's Directors were all American citizens and that all board meetings were held in the US.
Considering the UNCITRAL Model Law, the court went on to state that "the effect of the Model Law is to give the English court the possibility of enabling the position of a company which is in Chapter 11 Bankruptcy in the United States, to be put on a similar footing in England with regard to any action against it by creditors, such as it would be if proceedings were being conducted in the United States".
The court then went on to consider whether the US proceedings should be recognised under the Regulations. Firstly, the court analysed and quickly concluded that the US proceedings were 'foreign proceedings' in a foreign state. Secondly, the requirement as to whether the applicants were 'foreign representatives' was considered. The court noted that this requirement surrounded the fact that the Directors were authorised to administer the reorganisation of the debtor's assets or affairs in the Chapter 11 process. The court went on to approve this requirement, stating that the Directors were debtors in possession of the Company and possessed broad powers and rights in relation to it under s1107 of the US Bankruptcy Code, which were equivalent to those of a trustee under the other chapters of the US Bankruptcy Code.
Granting the recognition of the Chapter 11 Bankruptcy proceedings, the court then went on to consider the application for discretionary relief. On reviewing evidence that a Statutory Demand had been served on the Company two weeks previously, the court allowed the moratorium period in light of the policy behind the adoption of the Model Law and the Regulations.