Outer House declares Scottish administration for insolvent Luxembourg company ancillary to native bankruptcy procedure

About this case:

• Citation:
  [2024] CSOH 91
• Judgment:
  External link
• Court:
  Court of Session Outer House
• Judge:
  Lord Sandison

Stuart Preston and Julie Tait, the joint administrators of Signal Real Estate Opportunities Investco IX SARL, applied to the Outer House for directions under Schedule B1 of the Insolvency Act 1986. While it was noted that concurrent insolvency proceedings in two jurisdictions were not uncommon, confusion arose as to the effect of the Luxembourg procedure in light of a potential co-operation agreement drafted by the noters and the receiver in bankruptcy.

The note was considered by Lord Sandison, with DM Thomson KC and Boffey, advocate, appearing for the noters.

Not regarded as clear

Signal Real Estate Opportunities was a private limited liability company incorporated under the laws of the Grand Duchy of Luxembourg, registered as an overseas entity with the UK Registrar of Companies. In February 2024 the noters were appointed as joint interim managers of the company by the judge (and later joint administrators) on the petition of the only secured creditor of the company, Amber Green Spruce 2 LLP.

The principal, and effectively sole, asset of the company was its interest as tenant in a 125-year commercial lease of office premises in Douglas Street, Glasgow. The company had one sub-tenant at the property using around 15 per cent of the available floor space with the remainder unlet and empty.

On 12 March 2024 the directors of the company submitted an application to the Tribunal d’arrondissement de Luxembourg seeking its admission to bankruptcy. The noters became aware of the Luxembourg application a week later. Neither court procedure had been declared ancillary to the other, and in order to avoid conflict between the procedures the joint administrators and the bankruptcy receiver negotiated a draft co-operation protocol designed to enable them to work together for the benefit of the creditors.

Under the terms of the draft agreement, the noters would market and sell the Glasgow property and transfer the net sale proceeds to an escrow account in Luxembourg to be distributed by the receiver. However, parts of the arrangement would deviate from Scottish insolvency law, notably by allowing a payment of around 100,000 Euros to the Luxembourg tax authorities, which would receive priority over Amber Green in the law of the Grand Duchy.

In these circumstances, the noters applied for directions as to whether it would be appropriate for them to enter into the protocol. On their behalf it was submitted that it could not be regarded as clear whether the subsequent Luxembourg winding-up proceedings had implicitly rendered the Scottish administration ancillary to them or, if they had, what the nature of the ancillary office-holder’s rights and duties might be in such a situation.

More appropriate forum

In his decision, Lord Sandison began: “The present application undoubtedly raises a suitable issue for the direction of the court. Indeed, it would have been preferable had directions been sought under paragraph 63 of Schedule B1 to the Insolvency Act 1986 as soon as reasonably practicable after the administrators became aware of the competing insolvency proceedings in Luxembourg.”

He continued: “A primary question which arises is whether it is competent, and if so appropriate, for the Scottish administration to be recognised as ancillary only to the Luxembourg winding- up. If so, that might well serve to redefine the way in which the object of the administration can be achieved and render lawful what would otherwise represent departures from mandatory provisions of the insolvency legislation.”

Considering this question, Lord Sandison said: “Whether the Scottish process can and should be recognised as ancillary would require to be a matter of express determination by this court. If the court were so to decide, that would accord with the universalist principle that the primary insolvency process relating to the Company should be in its place of incorporation, Luxembourg.”

He added: “I can see no reason why the court should not formally recognise that Luxembourg is a more appropriate forum than Scotland for the purpose of dealing with the overall insolvency of the Company by directing that the administration should henceforth be regarded as ancillary to the insolvency proceedings there. The implication of that is that the powers and duties of the administrators fall to be regarded as limited to the realisation of the Company’s property in Scotland without causing unnecessary harm to the interests of the creditors of the Company as a whole, and the determination of claims against the Company recognised as secured or preferential according to Scots law.”

Lord Sandison concluded: “Once the Scottish property has been realised and the claims of secured or preferential creditors according to Scots law have been determined, it will be for the administrators to seek further directions from the court. It seems to me to be premature to seek such directions until the amount realised from the Scottish property is known. Only then will it be apparent whether there are sufficient funds to meet costs, secured and any preferential claims and, if so, what might remain for unsecured creditors.”

The court therefore directed that the administration process should be regarded as ancillary to the Luxembourg bankruptcy procedure and made no further order meantime.