Scottish courts do not have jurisdiction to wind up or make an administration order in respect of an English company

Out-Law Legal Update | 21 Nov 2017 | 12:54 pm | 1 min. read

LEGAL UPDATE: An opinion of Lord Doherty in the Outer House of the Court of Session in Scotland affirms academic consensus and provides judicial authority that, under a strict reading of s120(6) Insolvency Act 1986 (IA86), the Court of Session has no jurisdiction to issue an administration order over a company registered in England and Wales, even if its central business and operations are based in Scotland. The case is a reminder to creditors that a petition seeking an administration order must be filed with the correct court.

Screw Conveyor Limited is a company incorporated in England and Wales, with its registered office in Birmingham. On 25 September 2017, a secured creditor lodged a petition with the Court of Session seeking an administration order against the company. Lord Doherty granted an order for intimation and certain interim orders, but following a re-examination of the court's jurisdictional powers, recalled the interim orders and dismissed the petition.

The creditor argued that the company's centre of main interests (COMI) was in Scotland, and, by virtue of Article 3 of Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (EU Regulation), the court does have jurisdiction.

Article 3 of the EU Regulation states that "the courts of the member state within the territory of which the centre of the debtor's main interests is situated shall have jurisdiction to open insolvency proceedings. The centre of main interests shall be the place where the debtor conducts the administration of its interests on a regular basis and which is ascertainable by third parties." The petitioner submitted that s120(6) IA86, and the English equivalent s177(7) IA86, incorporate Article 3 of the EU Regulation into domestic law and can be relied on to determine jurisdiction between the constituent parts of the UK.

Lord Doherty rejected this argument, stating that "it would have been extraordinary if such a major change in domestic law had been introduced, unheralded and undiscussed." He stressed that the EU Regulation only determines the applicable jurisdiction between member states and that the component parts of the UK are treated as one jurisdiction for the purposes of the EU Regulation. Territorial jurisdiction within the UK must be established in accordance with national law. In insolvency proceedings, jurisdiction is determined by reference to the registered office of the company at hand. Therefore, a Scottish court has no jurisdiction to wind up a company registered in England and Wales, even if its COMI is in Scotland, and vice versa.

Judicial authority in this area has been much welcomed by the industry. Clarification as to the right interpretation of Article 3 of the EU Regulation and its interplay with s120(6) IA86 and s177(7) IA86 offers much-needed certainty, which can only be reassuring to companies and creditors alike. In the future creditors should ensure they lodge petitions for administration orders with the courts that actually have jurisdiction to grant them, or expect to see their petitions dismissed.

Natalie Colaluca is a restructuring expert at Pinsent Masons, the law firm behind Out-Law.com