Winding up proceedings on just and equitable grounds of an indisputably solvent company, incorporated in Bermuda, were recognised in Great Britain as a “foreign main proceeding” under the Cross Border Insolvency Regulations 2006 (CBIR).
Sturgeon Central Asia Balanced Fund Ltd (the Company) was incorporated in Bermuda to act as a close-ended investment company aimed at Japanese investors wishing to invest in Central Asia. The majority of its shares were held by Capital Partners Securities Co. Ltd (CPS), a licensed Japanese securities company.
At the annual general meeting in 2014, the Company adopted amended bye-laws which had the effect that the participating shareholders lost their power to wind up the Company, without notice or the opportunity to vote. CPS subsequently petitioned for the Company to be wound up on just and equitable grounds, which was ordered by the Court of Appeal in Bermuda under section 161 of the Bermuda Companies Act 1981, reversing the decision at first instance by the Chief Justice.
The provisional liquidators (the Liquidators) of the Company were appointed in January 2019, with an application being made by the Liquidators in March 2019 seeking recognition of the Company’s liquidation in Great Britain as a “foreign main proceeding” under the CBIR.
Recognition was sought because the majority of its assets were managed by a London-based investment manager.
The CBIR gives effect in Great Britain to the Model Law on Cross-Border Insolvency adopted by the United Nations Commission on International Trade Law (the Model Law). Article 2 of the Model Law defines “foreign proceeding” as:
“a collective judicial or administrative proceeding in a foreign State, including an interim proceeding, pursuant to a law relating to insolvency in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganisation or liquidation.”
The Company was indisputably solvent and was being wound up on just and equitable grounds. Some of the passages to the guide to enactment of the Model Law suggested it only applied to companies that are “insolvent or in severe financial distress”.
The Liquidators’ application was subsequently considered by Mrs Justice Falk, who commented that, within the Model Law, there “was a deliberate choice to focus on the question of whether the relevant proceeding was commenced pursuant to a law relating to insolvency, rather than use the concept of insolvency proceeding or even defining insolvency.” Recognition was intended to be a quick process, without the need for detailed fact-finding enquiries to be undertaken by the court and to allow for the “efficient administration of cross-border insolvencies”.
It was held by the High Court that section 161 of the Bermuda Companies Act 1981 could be fairly described as a “law relating to insolvency” and that it was wrong to distinguish between the different grounds for winding up under this section. Confining recognition to companies that are insolvent or in severe financial distress “was not reflected in the text of the Model Law” (despite the reference above in the guide to enactment of the Model Law) and “would conflict with the plain meaning of the words used”.
The Court also noted decisions in other jurisdictions that supported recognition being granted where the entity was not insolvent, including reference to a US Bankruptcy Court’s recognition of an Australian Members Voluntary winding up and an Australian Court’s recognition of a Singaporean just and equitable winding up where there had been no finding of insolvency.
The High Court was satisfied that Bermuda was the Company’s Centre of Main Interests (a requirement for recognition) and therefore granted the Liquidator’s application to recognise the Company’s liquidation in Great Britain as a “foreign main proceeding” under the CBIR.
The decision of the High Court in Re Sturgeon Central Asia Balanced Fund Ltd (in Liquidation) has provided welcome clarification that insolvency is not a requirement for a Company seeking recognition as a “foreign main proceeding” under the CBIR.