Court rules it has no power to make administration order under s426 Insolvency Act 1986

CMS is advising HSBC on its expedited appeal of a recent controversial decision by the High Court refusing assistance under the cross-border assistance provisions of section 426 of the Insolvency Act 1986. The decision of the Court of Appeal will be of great interest to those involved in cross-border insolvency and restructuring as well as foreign courts.

On the application of HSBC, the Royal Court of Jersey had issued a letter of request asking the English court to make an administration order in respect of a Jersey-incorporated company, Tambrook Jersey Limited. Tambrook’s assets were development properties in England. It had defaulted on its loan with HSBC and its sole director agreed with the bank that the best solution was an English administration. However, in a surprising decision the Judge concluded that it was not possible to “assist” a foreign court in circumstances where no foreign insolvency proceedings either existed at the time or were on the horizon. The Judge could not accept the court had the power to grant assistance because he could not be sure the previous courts (which had granted such assistance) had known foreign proceedings had not been commenced nor were likely to be commenced and may therefore not have considered whether they had jurisdiction to make the orders. The judgment is subject to appeal.

Historically, the English courts have been willing to grant assistance under section 426 through the making of administration orders over off shore companies. The High Court’s ruling that it has no power to do so in cases where foreign proceedings are not anticipated is a worrying development. This is particularly so following the Supreme Court’s ruling in Rubin and New Cap in October 2012, which determined that the courts have no power under section 426, the Cross Border Insolvency Regulations 2006 or the common law to recognise third party judgments in foreign insolvency proceedings. If the decision in Tambrook is not reversed on appeal, creditors may well find their enforcement options are reduced – or perhaps disappear completely - where the debtor is a foreign entity within the jurisdiction of one of the ‘designated territories’ referred to in section 426 and where foreign proceedings are not in place.

Further Reading: HSBC Bank Plc v Tambrook Jersey Limited [2013] EWHC 866 (Ch) (12/04/2013); Section 426 Insolvency Act 1986