In the Matter of v TELEVISION TRADE RENTALS LIMITED [2002] EWHC 211 (Ch)

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
[2002] EWHC 211 (Ch)Case No Case No: 0636 of 2002, 0635 of 2002Venue Royal Courts of Justice, Strand,, London, WC2A 2LL
Between
In the Matter ofTELEVISION TRADE RENTALS LIMITEDand in the Matter ofTTR LIMITEDand in the Matter ofTHE INSOLVENCY ACT 1986and in the Matter of a request by theHIGH COURT OF JUSTICE OF THE ISLE OF MAN, CHANCERY DIVISION
Before
Mr Justice Lawrence CollinsMr David Marks (instructed by Eversheds) for the provisional liquidatorsHearing: February 7, 2002
[1]Mr Justice Lawrence Collins: I Background These are applications by the joint provisional liquidators of two Isle of Man companies, Television Trade Rentals Ltd (“TTR1”) and TTR Ltd (“TTR2”) for orders that the English court provide assistance to the High Court of Justice, Isle of Man, Chancery Division pursuant to a letter of request made by the Isle of Man court on January 24, 2002. The Isle of Man court has asked the English court to direct and declare that the provisions of Part I of the Insolvency Act 1986 (“the 1986 Act”) relating to company voluntary arrangements should apply to the companies pursuant to the provisions of section 426 of the 1986 Act. This appears to be the first case in which a request has been made to extend Part I of the 1986 Act to oversea companies.[2]Each of the companies carried on business in England, but neither was registered as an oversea company. TTR1 was incorporated on December 6, 1994 in the Isle of Man and TTR2 was incorporated there on December 14, 2000. Each was associated with a company called Coin TV Ltd. (“Coin TV”), an English company, which hired equipment such as refrigerators, televisions, and video recorders to customers, who entered into term agreements for their hire and sometimes for their purchase. The hire was paid by putting money into a meter attached to the back of the equipment. TTR1, and subsequently TTR2, purchased equipment and rented it to Coin TV. The majority of equipment hired to customers was financed by ING Lease (UK) Ltd (“ING”) and Hitachi Credit (UK) plc (“Hitachi”). The affairs of the three companies were heavily, and perhaps inextricably, intertwined.[3]Winding up petitions were presented against TTR1 and TTR2 by ING and Hitachi on June 7, 2001, and joint provisional liquidators (partners in the firm of Messrs Baker Tilly (Birmingham)) were appointed on June 13 and July 24, 2001 respectively. The Companies Court in England requested the Isle of Man court to recognise and give effect to the appointments of the joint provisional liquidators, and the Isle of Man did so by orders of June 14 and August 22, 2001 respectively. On July 24 this court authorised the provisional liquidators to enter into a transfer agreement by which the companies transferred to Coin TV the whole of their businesses and assets. A winding up petition against Coin TV is also pending, and there is no prospect of there being any viable return should the companies be put into compulsory liquidation.[4]The purpose of the transfer was to allow for the business to be carried on without the provisional liquidators having to be concerned as to which company’s assets were being used in the trading and as to which company was entitled to the income stream. The provisional liquidators believe that it is not possible to differentiate the ownership of the assets as between the three companies. The vast majority of the hire contracts entered into with the ultimate customers were charged and/or assigned to either ING or Hitachi who hold security over both the income stream and over the equipment. The realisable value of the equipment is not significant, and the true value of the underlying assets lies in their ability to generate an income stream as long as the income is collected and the customers are provided with an adequate level of service.[5]In December 2001 the provisional liquidators requested the directors of the companies to propose CVAs. The proposals for CVAs were made on December 21, 2001. The proposals were that ING and Peoples Choice Rentals Ltd. would acquire the businesses and assets of all three companies in consideration of their making a payment of £50,000 to the supervisors of a voluntary arrangement. The creditors would accept the payments in full settlement of their claims, which would provide a dividend to preferential creditors of 100p in the pound and a dividend of to unsecured creditors of 22p in the pound depending upon the ultimate level of claims from creditors.[6]At the meetings of members and creditors on January 18, 2002 the proposal was unanimously accepted by all members of the companies and was unanimously accepted by all creditors present in person or by proxy and voting at the meetings.[7]The trade creditors were about £200,000. All of the creditors of TTR1 and TTR2 (apart from four) are based in England. Of the four creditors not based in England two are directors of one or other of the companies who proposed the CVAs for all three companies. The joint provisional liquidators were proposed as joint supervisors of the arrangements. Mr Rendle, one of the provisional joint liquidators and proposed supervisors, has reported that the approval of the proposal would benefit creditors of the companies because preferential creditors would be paid in full and a dividend of approximately 0.22p in the pound paid to unsecured creditors, and it was fair and not unreasonable for the members because there was no reasonable prospect of a return to the existing members. II Letter of request and application under section 426 of the Insolvency Act 1986[8]Company voluntary arrangements are not known under the law of the Isle of Man. The Isle of Man court issued the following letter of request on January 24, 2002:
“THIS COURT HEREBY REQUESTS THE HIGH COURT OF JUSTICE IN ENGLAND PURSUANT TO THE PROVISIONS OF SECTION 426 OF THE INSOLVENCY ACT OF PARLIAMENT TO ASSIST THIS COURT BY DIRECTING AND/OR DECLARING THAT:- 1. The provisions of Part I of the Insolvency Act 1986 of Parliament and the relevant rules under the Insolvency Rules of Parliament be extended and applied to Television Trade Rentals Limited and T.T.R. Limited, both being companies incorporated and formed under the laws of the Isle of Man, with effect from the 18 th day of January 2002; 2. The said Court give such further assistance or other relief which to it may seem just and convenient.”
[9]The application is made under section 426 because it is uncertain whether, without an order under section 426, Part I of the 1986 Act is capable of being applied to oversea companies: see 1986 Act, s. 251 in conjunction with Companies Act 1985, s. 735(1) and (4) and contrast Re International Bulk Commodities Ltd [1993] Ch 77 (a decision on administrative receivers) with Re Dallhold Estates (UK) Pty Ltd [1992] BCLC 621, 623 and Hughes v. Hannover Ruckversicherungs-AG [1997] 1 BCLC 497, 511 (C.A.) (obiter remarks on administration orders).[10]Part I of the 1986 Act provides that the directors may make a proposal to the company and to its creditors for a composition in satisfaction of its debts, which is called “a voluntary arrangement”. The nominee proposed as supervisor must submit, within 28 days of his being given written notice of the proposal (or such longer period as the court may allow), a report to the court. The report must state whether in his opinion meetings of the company and creditors should be summoned to consider the proposal, and if so, the time and place of the meetings. The report is accompanied by the proposal, a statement of affairs and the nominee’s comments on the proposal. If the proposal is approved at meetings of the members and creditors, the voluntary arrangements bind every person who in accordance with the rules had notice of, and was entitled to vote at, the meeting. Section 6 of the 1986 Act permits any person entitled to vote at the meetings to apply to the court for revocation or suspension of the approvals on the ground that the voluntary arrangement unfairly prejudices the interest of a creditor, member or contributor. By section 7 the supervisor is subject to the control of the court: if any creditor is dissatisfied by any decision of the supervisor, on the application of the creditor the court may confirm, reverse or modify any decision, or give directions; and the supervisor may also apply to the court for directions. The detailed procedure is set out in Part I of the Insolvency Rules 1986.[11]Under section 426:
“(4) The courts having jurisdiction in relation to insolvency law in any part of the United Kingdom shall assist the courts having the corresponding jurisdiction in any other part of the United Kingdom or any relevant country or territory. (5) For the purposes of subsection (4), a request made to a court in any part of the United Kingdom by a court in any other part of the United Kingdom or in a relevant country or territory is authority for the court to which the request is made to apply, in relation to any matters specified in the request, the insolvency law which is applicable by either court in relation to any matters specified in the request, the insolvency law which is applicable by either court in relation to comparable matters falling within its jurisdiction. In exercising its discretion under this subsection, a court shall have regard in particular to the rules of private international law.”
[12]So far as section 426(4) is concerned, there is no doubt that this court is a court which has jurisdiction in relation to insolvency law, since by section 426(10) “insolvency law” means, in relation to England, provision made by or under the 1986 Act (and certain parts of the Company Directors Disqualification Act 1986). The Isle of Man is a relevant country or territory (section 426(11)). It is a court “having the corresponding jurisdiction” notwithstanding that, since there is no provision for CVAs under Isle of Man law, there is no equivalent of Part I of the 1986 Act. What the expression means is that the foreign court must be the court with jurisdiction in insolvency matters, and not the court which would have jurisdiction in the foreign country to do what is asked in England. If it were otherwise the English court would not be able to make an order under this section unless the foreign court were able to do so in comparable circumstances. Thus in Re Dallhold Estates (UK) Pty Ltd. [1992] BCLC 621 it is apparent from the judgment in the Australian Federal Court of Gummow J (now of the High Court of Australia) deciding to make the request ([1992] BCLC at p. 627) that the adoption of administration orders was under consideration by the Australian Law Reform Commission but that as yet there were no provisions analogous to administration orders in Australia. In Re Bank of Credit and Commerce International SA (No. 9) [1994] 3 All ER 764 (revd. in part on other grounds [1994] 1 W.L.R. 708) the evidence was that the Cayman Islands court did not have power to make orders comparable to those under sections 212 to 214 and 238 (misfeasance; fraudulent and wrongful trading; transactions at an undervalue) of the 1986 Act.[13]Section 426(4) provides that the United Kingdom courts “shall assist” the foreign court. Although the terms of the provision appear to be mandatory, like section 122 of the Bankruptcy Act 1914 from which it is derived, it is well established the exercise of the jurisdiction involves a discretion as to what assistance the court ought to give, but the court ought to render all assistance it could ( Re Dallhold Estates (UK) Pty Ltd. at 628, applying Re Osborn [1931-32] B & CR 189 and Re Jackson [1973] NI 67) or unless there is some good reason for not doing so ( Re Bank of Credit and Commerce International SA (No. 9) [1994] 3 All ER at 785). In Hughes v. Hannover Ruckversicherungs-AG [1997] 1 BCLC 497 the Court of Appeal reviewed the authorities on discretion: the courts had recognised that the requesting court was not entitled to assistance as of right, but there was some discretion in the requested court to determine whether and if so in what terms the assistance should be given. If under English insolvency law the exercise of a power was discretionary, the request of the foreign court would not be conclusive as to the manner in which the discretion should be exercised: the fact of the request would be nothing more than a factor however weighty. The court should endeavour as a matter of comity to give effect to a request: Re Southern Equities Corp., England v. Smith [2000] 2 BCLC 21, 67 (C.A.).[14]By section 426(5) the request by the foreign court is authority for the English court “to apply, in relation to any matters specified in the request, the insolvency law which is applicable by either court in relation to comparable matters falling within its jurisdiction.” In relation to the foreign company, “insolvency law” means so much of the law of the foreign country or territory as corresponds to (inter alia) provisions made by or under the 1986 Act: section 426(10).[15]If the English court is asked to apply English insolvency law, it does not matter that, in the absence of a request, the provisions of the 1986 Act would not have applied. Thus in Re Dallhold Estates (UK) Pty Ltd [1992] BCLC at 623 and in Hughes v. Hannover Ruckversicherungs-AG [1997] 1 BCLC at 511 it was assumed that, in the absence of a request under section 426, the English court was not authorised by the 1986 Act to make an administration order in relation to an oversea company. Re Bank of Credit and Commerce International SA (No. 9) [1994] 3 All ER 764 (revd. in part on other grounds [1994] 1 W.L.R. 708) proceeded on the basis that the remedies under sections 212 to 214 and 238 of the 1986 Act did not apply to Cayman Islands companies being wound up abroad.[16]The Isle of Man court is a court with the corresponding jurisdiction under section 426(4), and if the request is to be given effect, then the only law which can be applied under section 426(5) is English law, since there are no corresponding powers under the law of the Isle of Man.[17]“In exercising its discretion under this subsection [section 426(5)], a court shall have regard in particular to the rules of private international law”. This obscure and ill-thought out provision has given rise to differences of opinion, although it has never been decisive in any case. It has been suggested that the discretion being referred to is that of the requesting court ( Re Dallhold Estates (UK) Pty Ltd [1992] BCLC at 626) but that suggestion has been rejected, and instead it has been suggested that it means the discretion of the requested court to refuse assistance on the ground, for example, that the request infringes the rule that foreign tax claims will not be enforced: Re Bank of Credit and Commerce International SA (No. 9) [1994] 3 All ER at 785. The structure of section 426(5) suggests that this provision is meant to operate when the court is considering whether to apply its insolvency law or that of the requesting court. To the extent that there are rules of private international law in the area of, e.g. administration orders, they would tend to point to the law of incorporation, but I doubt if section 426(5) is intended to create a presumption in favour of the application of the insolvency law of the place of incorporation. I consider that what is meant is that the court should take into account the foreign elements in deciding what law to apply, such as the connections of the parties with England and with the foreign country. In the present case this issue does not arise because there is no case for the application of Isle of Man law since it does not have the CVA institution. But in any event the English connections of the case are very strong: the great majority of the creditors are English, the companies carried on business in England, and their affairs are inextricably intertwined with Coin TV, an English company, and there is therefore a very strong case for the application of Part I of the 1986 Act.[18]Nor do I consider that the special features of CVAs preclude orders applying them to Isle of Man companies. Section 426 has been used to apply to foreign companies the provisions of the 1986 Act relating to administration orders, to transactions at an undervalue, to fraudulent and wrongful trading, and to the examination of officers. It is true that court involvement in CVAs is minimal but reports and accounts are filed with the court, and the court has an important supervisory role. The form of orders sought is general in terms, but that is inherent in the nature of the case. In principle, therefore, I am prepared to make the orders requested by the Isle of Man court. The request is that Part I should be applied with effect from January 18, 2002. The proposals have already been made and the meetings have already been held. I do not consider that this court has the power to apply Part I of the 1986 Act retrospectively. If it did have that power, it would have the result that creditors who were not bound at the time by the results of the meetings would retrospectively become bound under section 5, and that seems to me to be contrary to principle. I will therefore make the orders with effect from today on the basis that a revised report will be filed with details of the proposed reconvened meetings.

Cited in 3 later judgments