Welcome clarification on the extraterritorial effect of s. 236
Wolloff & Short (Liquidators of Akkurate Limited v Calzaturificio Rodolfo Zengarini SRL & Anor [2020] EWHC 1433 (Ch)
“These applications raise the question of whether the court has the power under section 236(3) of the Insolvency Act 1986…to require persons resident in the EU to produce books and papers and an account of their dealings with a company being compulsorily wound up in England and Wales. There is divergent authority at first instance. In Re MF Global UK Ltd [2015] EWHC 2319 (Ch)…David Richards J decided that section 236 did not have extraterritorial effect, whilst in Re Omni Trustees (No 2) [2015] EWHC 2697 (Ch)…and in Re Carna Meats (UK) Ltd; Wallace v Wallace [2019] EWHC 2503 (Ch)…HHJ Hodge QC (in Omni) and Adam Johnson QC, sitting as a deputy judge of the High Court, (in Wallace) decided that it did”.
This is the conundrum at the root of the judgment of the Chancellor in Re Akkurate Ltd [2020] EWHC 1433 (Ch). It was “complicated by the fact that, in this case, Council Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings…applies to the winding-up, whereas in MF Global and Omni, it did not.” (The 2000 Regulation still applied to this winding up.)
Akkurate was wound up in 2015 on a petition presented by HMRC for tax due amounting to some £1.6 million. It owned a number of trademarks which it had licensed to clothing and fashion manufacturers. The liquidators sought information about the use of the trademarks in 2015 and 2016 by the respondents, apparently without their making any payment. Both respondents were Italian corporations.
The Chancellor identified two issues he had to decide: (i) Do section 236(3) and/or the 2000 Regulation give the court jurisdiction to make the orders sought? (ii) If so, how should the court exercise its discretion?
In addition to reviewing what he described as the “trilogy of inconsistent cases” mentioned above, the Chancellor examined a number of other authorities, including Re Tucker (a bankrupt) [1990] Ch 148, Masri v Consolidated Contractors International (UK) Ltd (No 4) [2010] 1 AC 90, Bilta (UK) Ltd v Nazir (No 2) [2016] AC 1, Schmid v Hertel (Case C-328/12) [2014] 1 WLR 633, and Willmont & Sayers v AS Citadele Banka [2018] EWHC 603 (Ch).
In relation to the first issue, which involved consideration of “the precedential effect of Tucker,” the Chancellor said, “I have formed the clear view that it is, and was, not open to this court to decline to follow Tucker. I have formed this view irrespective of my views as to whether it was correctly decided. Various reasons for that are discussed in the judgment, including that Tucker had been considered in both the Court of Appeal and the House of Lords without disapproval. He agreed with the view of David Richards J, as he then was, in MF Global that: “[i]n the absence of authority and in the absence of what is now section 237(3), , there would in my view be a good deal to be said for concluding that section 236 was intended to have extraterritorial effect, leaving it to the discretion of the court to keep its use within reasonable bounds.” He disagreed with the judges in Omni and Wallace “who suggested that the different statutory structure of section 236, as compared to section 25 [Bankruptcy Act 1914], can make all the difference,” going on to say that both legislative provisions allowed the court to summon specified persons and to require them to produce documents: “The modernisation of the language and the division between sub-sections cannot be seen as a substantive change”.
The Chancellor next considered the effect of the 2000 Regulation. In his view, the aim of the Regulation had been to give the courts of the member state of the COMI of the insolvent entity jurisdiction over the insolvency and to apply its domestic law to that insolvency. There was no meaningful distinction of the kind drawn in some of the authorities between an application to set aside an antecedent transaction and an application for the production of documents. “The jurisprudence of the CJEU has made clear…that the 2000 Regulation can and does extend the territoriality of purely domestic insolvency provisions.” He said: “I, therefore, hold, in agreement with Mr Freedman in Willmont and Mr Johnson in Wallace, that the 2000 Regulation confers extra-territorial jurisdiction on the English court to make orders against EU resident parties under section 236. I reach this conclusion, notwithstanding that I have held that I should follow Tucker and MF Global. In MF Global, of course, as I have said, the 2000 Regulation was inapplicable”.
On discretion, following Re British and Commonwealth Holdings plc (Nos 1 and 2) [1993] AC 426 in which the House of Lords upheld the making of an order under section 236(3), he again found for the liquidators.
He summarised his main findings in para 70 as follows:
- Tucker is binding authority on this court for the proposition that section 236(3) does not have extraterritorial effect.
- On the current law, the decision in MF Global is, in my judgment, to be preferred to the decisions as to the extra-territorial effect of section 236 in Omni and Wallace (leaving issues arising from the 2000 Regulation on one side).
- The jurisprudence of the CJEU has made clear that the 2000 Regulation, where it applies, can and does extend the territoriality of purely domestic insolvency provisions (see Bilta at [109], Seagon at [21], and Schmid at [30]). I agree with the parts of the decisions in Willmont and Wallace, which held that the 2000 Regulation confers extra-territorial jurisdiction on the English court to make orders against EU resident parties under section 236.
- As a matter of discretion, I should make an order against each of the respondents for an account of their dealings and the documents listed in the draft order at [68] above.
The clarification this judgment provides will be widely welcomed. It remains to be seen whether there will be an appeal. The liquidators, of course, now face the practical task of enforcing extraterritorially the order they have obtained.
By way of comment it should be noted that in general, section 236 has been held not have extra territorial effect. Here it was merely the application of the 2000 Regulation which assisted the Liquidators, and which, in the EU context, meant it could apply outside of this jurisdiction but only within the EU itself. This is something practitioners will need to keep under review depending on the ultimate outcome of the withdrawal from the EU.