Factual and Procedural Background
On 7 January 2009, an administration order was made in respect of Company A, appointing the Respondents as Joint Administrators. Subsequently, on 15 May 2009, a deputy judge granted a mandatory injunction requiring the Appellants to use their best endeavours to procure the release of two ex parte orders of maritime attachment and garnishment issued by a United States District Court against the tangible and intangible assets of Company A, and to release attachments effected pursuant to those orders. The injunction also restrained the Appellants from pursuing substantive proceedings in the foreign court seeking judgment for sums due from Company A. Permission to appeal the injunction was granted but the order was not stayed.
On 20 May 2009, the Appellants urgently applied for a stay of the injunction and appealed the order. The appeal was dismissed, with a brief oral summary of reasons provided, and the stay application became moot. This judgment sets out the detailed reasons for dismissing the appeal.
Company A, incorporated in England, operated in offshore oil and gas exploration but encountered financial difficulties leading to administration. The Administrators were authorised to continue trading and seek a sale of the company or its assets. The Appellants, incorporated in Germany, were pre-administration creditors under time charterparties governed by English law and subject to arbitration agreements in London. Despite knowledge of the administration, the Appellants commenced proceedings in the United States District Court without notice to the Administrators, seeking judgment and attachment of Company A's assets within the US jurisdiction. They obtained ex parte attachment orders and enforced them, resulting in the attachment of approximately $2.2 million from funds intended for post-administration payments. The Administrators only became aware of these proceedings after the attachments were effected.
The Administrators sought relief both in the Companies Court and the US Bankruptcy Court, requesting recognition of the administration under US insolvency law principles and the vacating of the attachments. The sale of Company A was contingent on the end of administration, which required resolution of creditor liabilities.
Legal Issues Presented
- Whether the statutory prohibition on legal proceedings against a company in administration extends extra-territorially to proceedings commenced in foreign courts.
- Whether the English court has jurisdiction and should exercise its discretion to grant injunctive relief restraining enforcement of foreign attachment orders against the assets of a company in administration.
- The extent to which principles of comity and non-intervention apply in cases involving cross-border insolvency and foreign court proceedings.
- Whether the conduct of the Appellants in obtaining and enforcing foreign attachment orders without informing the Administrators justifies interference by the English court despite the presumption against such intervention.
Arguments of the Parties
Appellants' Arguments
- The statutory restriction on commencing legal proceedings against a company in administration under paragraph 43(6) of Schedule B1 to the Insolvency Act 1986 does not have extra-territorial effect.
- The assets of a company in administration are not subject to a trust as those of a company in compulsory liquidation are, thus limiting the scope of injunctions.
- The United States District Court was properly seized of the attachment proceedings within its jurisdiction.
- Comity requires the English courts to abstain from interfering with proceedings before the US court, especially where the foreign jurisdiction has statutory provisions like Chapter 15 of the US Bankruptcy Code facilitating cross-border insolvency cooperation.
Administrators' Arguments
- The deputy judge was entitled to grant the injunction because the Appellants’ actions interfered with the Administrators’ statutory functions under English court orders.
- The foreign proceedings had no genuine connection with the foreign jurisdiction, justifying English court intervention.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Re Oriental Inland Steam Company ex parte Scinde Railway Company (1874) LR 9 Ch App 557 |
Established that statutory prohibitions on proceedings against companies in winding up do not have extra-territorial effect but that assets are held on trust for equitable distribution, allowing jurisdiction to protect assets from foreign attachments. |
Used to support that English courts have jurisdiction to protect assets of companies in winding up or administration from foreign attachments despite lack of extra-territorial statutory effect. |
| Mitchell v Carter [1997] 1 BCLC 673 |
Confirmed no extra-territorial effect of statutory provisions prohibiting execution or attachment post winding up commencement; clarified trust nature of assets and jurisdictional limits. |
Supported the interpretation that English courts’ jurisdiction to protect company assets extends to companies in administration as well as winding up. |
| Re Polly Peck International plc (in administration) No. 4 [1998] 2 BCLC 185 |
Demonstrated lack of material distinction between compulsory winding up and administration regarding protection of company assets. |
Reinforced the court’s view that similar jurisdiction to protect assets applies in administration cases. |
| Re Vocalion (Foreign) Ltd [1932] 2 Ch 196 |
Outlined limits on court’s equitable jurisdiction to restrain foreign proceedings; emphasized restraint where respondent is domiciled abroad. |
Informed the court’s cautious approach to granting anti-suit injunctions affecting foreign courts. |
| Société Nationale Industrielle Aérospatiale v Lee Kui Jak [1987] 1 AC 871 |
Set out principles of forum non conveniens and the strong presumption against injunctive relief interfering with foreign proceedings. |
Guided the court in balancing comity with the need to protect English court jurisdiction and administration functions. |
| Barclays Bank plc v Homan [1993] BCLC 680 |
Clarified that foreign proceedings should not be stopped without good reason, emphasizing comity and the foreign court’s competence. |
Supported the court’s view that intervention is exceptional and justified only by improper conduct or unfairness. |
Court's Reasoning and Analysis
The court analysed the statutory framework governing companies in administration and winding up, noting that while statutory prohibitions on legal proceedings do not have extra-territorial effect, the equitable trust over company assets enables the English court to protect those assets from foreign attachments. The court rejected the Appellants’ distinction between administration and winding up, holding that the statutory scheme and relevant case law show no material difference in the protection afforded to company assets.
The court acknowledged the strong presumption against interfering with foreign court proceedings, grounded in principles of comity and respect for the competence of foreign courts, particularly where the foreign jurisdiction has insolvency procedures akin to Chapter 15 of the US Bankruptcy Code. However, it held that such comity is not absolute and may be overridden by exceptional circumstances.
In this case, the court found that the Appellants acted improperly by failing to disclose the administration and arbitration agreements to the US District Court, thereby misleading it and obtaining ex parte attachment orders without notice to the Administrators. The Appellants’ conduct was described as unconscionable and oppressive, effectively setting a trap that obstructed the Administrators in performing their statutory functions under English court orders.
The attachments interfered with payments made under court-authorised loan agreements for post-administration liabilities, further justifying intervention. The court concluded that despite the presumption against interference, the exceptional conduct of the Appellants and the circumstances of the attachments warranted the grant of injunctive relief to protect the administration process and the interests of all creditors.
Holding and Implications
The court DISMISSED the appeal against the injunction requiring the release of the foreign attachment orders and restraining enforcement of those attachments.
The decision directly prevents the Appellants from enforcing their US attachment orders against Company A’s assets, thereby protecting the Administrators’ ability to manage the company’s affairs and complete the sale process for the benefit of creditors. No new legal precedent was established beyond confirming the court’s jurisdiction to grant such relief in cases of improper conduct and interference with administration functions, and the importance of comity tempered by fairness and statutory duties.