Despite refusing to recognise proceedings as foreign main proceedings under Article 17 of UNCITRAL Model Law as incorporated into the CBIR, the Court was prepared to grant an extended moratorium against creditors pursuant to Article 21(1) of the Model Law.
The case principally concerns Videology Limited (the "Company"), one of a large number of companies to form the Videology group, of which Videology Inc. ("Inc."), incorporated in the US, is the parent company (the "Group"). Although a wholly-owned subsidiary of Inc., the Company was incorporated and registered in England and Wales and operated from a leased premises in London with the objective of expanding the Group's business into the UK, Europe, the Middle East and Africa.
In 2015 the Group updated its business strategy following increasing competition in the market but found that the transition drained its capital resources despite revenue growths. The Group subsequently tried to secure funding, which eventually fell through in late-2017.
The Company was later subject to several court proceedings as well as a number of threatened proceedings in the UK. On 10 May 2018 the Company, along with Inc. and a number of its subsidiaries, filed a petition under Chapter 11 of the US Bankruptcy Code ("Chapter 11") to obtain protection from creditors in order to organise a sale of the Group's business and assets. The filing gave the Company and Inc. automatic protection under US law but protection also needed to be sought under UK law against the Company's UK creditors. As such, On 11 May 2018 Snowden J received urgent applications under the CBIR for:
- recognition of the proceedings commenced under Chapter 11 as a foreign main proceeding under Article 17 of UNCITRAL Model Law as incorporated into the CBIR (the "Model Law"); and
- a discretionary moratorium pursuant to Article 20(6) and an extended moratorium pursuant to Article 21(1) of the Model Law, together preventing individual and collective actions by creditors in the UK.
Centre of Main Interest ("COMI")
In respect of Inc., Snowden J was satisfied that its COMI was in the US and that the Chapter 11 proceedings were foreign main proceedings. Discretionary relief under Article 20(6) and Article 21(1) therefore followed on a final basis.
With regard to the Company, the picture was more complex. The more extensive Article 21(1) moratorium would likely be secured if the Company could establish that it's COMI was in the US. The Company therefore put forward various arguments to rebut the presumption that its COMI was in the UK. The Company asserted that:
- Its senior management was based in the US;
- Third parties dealing with the Company knew that strategic decisions were made in the US;
- The Company did not have a brand distinct from its US parent company, Inc; and
- Recent creditor meetings regarding the Company's financial situation took place in the US.
Snowden J disagreed that the above factors would result in displacing the presumption. He cited tests from Re Eurofood IFSC Ltd and Interdil Srl v Fallimento Interdil Srl, in reaching his decision that, in addition to being the place of the Company's registered office, "the UK was where the Company's staff and trading premises are located, where its customer and creditor relationships are established, where it administers relations… on a day-to-day basis using those premises and local staff and where its main assets are located". As such, Snowden J recognised the Chapter 11 proceedings as foreign non-main proceedings.
As the Company's Chapter 11 proceedings were recognised as foreign non-main proceedings, there was no automatic stay under Article 20, nor was it necessarily appropriate for Snowden J to provide the Company with the requested extended relief under Article 21(1), given that its COMI was in the UK and was subject only to foreign non-main proceedings.
Snowden J noted that, whilst not automatic, it was typical for extended relief under Article 21(1) to be given to foreign main proceedings which, by their nature, were debtor-in-possession proceedings. In a situation where the proceedings were recognised as foreign non-main proceedings, the starting point would be to recognised the proceedings in the UK as the main insolvency proceedings, which is where the Company's COMI is.
In order for such relief to be granted, Snowden J noted there must be evidence of obvious benefits to the creditors as a whole but also there should be good reasons for preventing UK creditors from commencing an insolvency process in the country where the Company had its COMI. As such, Snowden J considered the possibility of appointing an administrator or liquidator.
The evidence provided by the Company to this end strongly supported the conclusion that 1) the sale of the Group's business was financially desirable, more so than a stand-alone administration or liquidation and, 2) the Chapter 11 proceedings would protect the creditors' interests. Snowden J was further reassured by the evidence put forward to illustrate the effective voice of the unsecured creditors in the sale negotiations and by the receipt of communication from various unsecured creditors that they were in support of the Chapter 11 proceedings.
Taken together, these factors negated the need for an administrator or liquidator in the UK and convinced Snowden J that it was appropriate to grant the extended discretionary relief sought without leave from the Court.
The case is unusual and illustrates that it is possible for a company to be granted discretionary relief pursuant to Articles 20(6) and 21(1) of the Model Law where it is the subject of foreign non-main proceedings.