Search

The High Court considers questions relating to the location of three companies' COMIs and an alleged "improper motive" regarding the appointment of administrators

(1) SIMON ROBERT THOMAS (2) ARRON KENDALL v (1) FROGMORE REAL ESTATE PARTNERS GP1 LTD (2) LINDA NICHOL (3) CHARLES SPARY (4) STUART JENKIN (5) NATIONWIDE BUILDING SOCIETY : (1) FROGMORE REAL ESTATE PARTNERS GP1 LTD (2) LINDA NICOL (3) CHARLES SPARY (4) STUART JENKIN v (1) SIMON ROBERT THOMAS (2) ARRON KENDALL (3) NATIONWIDE BUILDING SOCIETY sub noms (1) IN THE MATTER OF FREP (KNOWLE) LTD (IN ADMINISTRATION) (2) IN THE MATTER OF FREP (ELLESMERE PORT) LTD (IN ADMINISTRATION) (3) IN THE MATTER OF FREP (BELLE VALE) LTD (IN ADMINISTRATION) [2017] EWHC 25 (Ch)

Background

This case concerned the Administration of three companies: FREP (Knowle) Limited, FREP (Ellesmere Port) Limited and FREP (Belle Vale) Limited (the "Companies"). The Companies were all incorporated in Jersey and have the same registered office, also in Jersey. However, each of the Companies also owns a shopping centre, located in Cheshire, Liverpool and Bristol respectively, which are managed by Frogmore Real Estate Investment Managers Limited (the "Management Company"). The Management Company was incorporated in England and Wales and its registered address is in London.

Nationwide Building Society ("Nationwide") loaned substantial sums to the Companies by way of a facility agreement. The Companies granted Nationwide a number of debentures. The debentures amounted to "qualifying" floating charges within the meaning of paragraph 14 of Schedule B1 of the Insolvency Act 1986.

In 2014 Nationwide disposed of the facility agreement to Promontoria (Carlisle) Limited ("Promontoria"), but entered into an agreement whereby it would act promptly in accordance with any instructions given by Promontoria in relation to the facility agreement. The disposal of the facility agreement in this way resulted in litigation, commenced towards the end of 2014, as the Companies claimed that they had a right of pre-emption in respect of the loans advanced under the facility agreement by virtue of a side letter dated 5 April 2012. This litigation is currently on-going.

Repayment of the loans under the facility agreement was due on 1 October 2016 but no payment was made. On 7 November 2016 Nationwide appointed Administrators to the Companies by virtue of their qualifying floating charge on the basis that each of the Companies' Centre Of Main Interests ("COMI") is located in England. The Administrators, directors and sole shareholder of the Companies all then applied to Court to obtain a declaration confirming the location of the Companies' COMIs and thus the validity of the Administrators' appointments.

The sole shareholder also made an additional application claiming that the Administrators has been appointed on the basis of an "improper motive" under paragraph 81 of Schedule B1 of the Insolvency Act 1986.

Decision - location of COMIs

The Judge was clear in his decision that the COMIs of the Companies were in England and Wales, not in Jersey. In doing so he made reference to the leading judgments of Re Eurofood and Interedil Srl and the fact that a company's COMI should be determined by reference to "criteria that are both objective and ascertainable by third parties".

Applying this to the facts, the Judge pointed out that the day-to-day activities of the Companies, including dealing with the financing, accounting, marketing and business strategies of the three shopping centres, was carried out by the Managing Agent, situated in England. All of the Companies' dealings with third parties were also carried out by the Managing Agent from London. The facility agreement and debentures were governed by English law and have an English jurisdiction clause, and the facility agreement contained an express provision for the appointment of Administrators under the Insolvency Act 1986.

Following the judgment in Re Northsea Base Investments Ltd, the Judge found the shareholder and director's argument, that the board meetings of the Companies took place in Jersey, to be of little significance in determining the Companies' COMIs as third parties would not have been aware of the location of these board meetings.

Decision - Improper motive

The Court held that for the purposes of paragraph 81 of Schedule B1 of the Insolvency Act 1986, it was sufficient for jurisdiction to be engaged if there was a motive that was not in harmony with the statutory purpose. In this case there was no improper motive because the Court held that the timing of the appointment was not suspicious given that the date for repayment of the loans had been set at 1 October 2016 for some time. Furthermore, it was perfectly reasonable that Nationwide would want to appoint Administrators once the payment date had passed to ensure a greater level of protection for the sums owed.

Related Services