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Cross Border Restructuring and Insolvency Update - May 2014

The winding up of an "unregistered" company will survive notwithstanding the company's dissolution in its country of incorporation.

In the recent case of Re Agrenco Madeira Comercio Internacional Lda [2014], the Court granted the Joint Liquidators' request for a declaration that they could continue the winding up despite the Company being dissolved in Portugal.

In March 2004, Agrenco Madeira Commercio Internacional Lda was incorporated in Portugal and imported, exported and distributed agricultural products internationally.

Due to increasing financial difficulties the Company ceased trading in 2008 and, following a resolution of its shareholders in August 2009, presented a Winding Up Petition in England.

In October 2009, the Court ordered that the Company be wound up in England as an unregistered company. Following the order, the Joint Liquidators received proofs of debt totalling to $446 million, with $223 million having been agreed in principle by April 2014.

The Joint Liquidators brought the present application in response to the Madeiran Offshore Registry's decision of 19 February 2014 to commence Portuguese proceedings for the involuntary dissolution and liquidation of the Company. While $2.6 million had already been realised, the winding up was not complete as there were still ongoing claims under Forward Freight Agreements.

The Court departed from the general principle that a company's status is regulated by the law of the state of incorporation. It did so relying on the statutory exception offered by section 225(1) of the Insolvency Act 1986, which allows for the post-dissolution winding up of foreign-incorporated companies that carried on business in Great Britain. After reflecting on the implications of section 225, Chief Registrar Baister was satisfied that allowing a winding up to survive dissolution was, in practice, no different from granting a fresh winding up order where a dissolution had already taken place.

In the Matter of ARM Asset Backed Securities S.A. [2014] EWHC 1097

A stay granted under the Insolvency Act 1986 may have extra-territorial effect.

ARM Asset Backed Securities, a company incorporated in Luxembourg, was placed into Provisional Liquidation on 9 October 2013 by the English High Court. ARM's centre of main interest was in England and Wales, meaning that English insolvency law applied and ARM therefore had the benefit of an automatic stay on any action or proceedings being brought against it.

Prior to the order of 9 October 2013, the Commission de Surveillance du Secteur Financier had requested that the Public Prosecutor in Luxembourg place ARM into a liquidation process in Luxembourg. The Provisional Liquidators wrote to CSSF stating that they believed the Luxembourg Proceedings were subject to the automatic stay and that no further action could be taken without the permission of the English court. CSSF disagreed on the basis the Luxembourg insolvency proceedings, under their Securitisation Law, were not a proceeding identified within Annex B of the Insolvency Regulation.

The Provisional Liquidators applied to the English High Court for a declaration that the automatic stay applied to the Luxembourg Proceedings, that the English Proceedings constituted Main Proceedings for the purposes of the Insolvency Regulation and that, pursuant to Article 17 of the Insolvency Regulation, no further formalities were required to achieve recognition of the English Proceedings in other EU Member States.

Mr Justice Nugee considered the application and found the appointment of the Provisional Liquidators constituted Main Proceedings and was regulated by English law. Consequently Article 17 of the Insolvency Regulation applied, meaning the stay granted under s130(2) IA 1986 should apply to proceedings in any other EU Member State, including the Luxembourg Proceedings. 

This case serves as a useful reminder of the effect of the Insolvency Regulation in extending the reach of the Insolvency Act 1986 when the Main Proceedings are in England.

Around the World

Japan
No hope to rehabilitate giant bitcoin exchange as the Tokyo District Court orders its liquidation.
Despite Sunlot's attempts to save Mt.Gox from liquidation, on 28 February the giant bitcoin company filed for bankruptcy protection after registering a total of $27 million missing from its accounts and following the removal from the exchange of 750,000 of its customers' bitcoins. The loss of its customers' bitcoins was caused by a security flaw in the company's codes. The bankruptcy administrator, Attorney Nabuaki Kobayashi, confirmed that a thorough investigation will be carried out to establish what role, if any, was played by the representative director of the Company, Mark Karpeless, in the disappearance of the assets.

Mexico
Mexican Homebuilder Files for Bankruptcy
At the beginning of May, Homex, the largest homebuilder in Mexico, filed for Bankruptcy Protection with the Mexican courts. It is hoped that this will afford Homex some breathing space from creditors and allow it the opportunity to restructure. The agreement that Homex proposes with its creditors includes the opportunity for unsecured creditors and bond-holders to convert their debts to equity. Bank creditors, including Santander and Citigroup, will reopen construction loans to allow Homex to continue the 61 building projects it is currently involved in. Homex also announced it was in negotiations with Chicago-based billionaire Sam Zell for a loan of up to $137.6 million to allow it to continue the building projects it is currently involved in.

Germany
German Court commences insolvency proceedings for renewable energy company.
The German District Court has commenced insolvency proceedings for the renewable energy division of Prokon, which specialises in wind farms. Other sections of the company remain unaffected. Prokon faced claims from creditors totalling €391 million, compared to just €19 million of available liquid funds to meet these claims. Many of the creditors are as a result of an aggressive advertising campaign run by Prokon to attract investors who were told government support for renewable energy would make it a profitable business. The appointed Administrator, Dietmar Penzlin, has indicated it is possible a return will be made to creditors, although the amount of any such return has not yet been quantified.

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