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Note by Stuart Preston and Julie Tait as joint administrators of Signal Real Estate Opportunities (Court of Session)
Factual and Procedural Background
The joint administrators of Company A, a Luxembourg-registered company with its principal asset located in Scotland, sought directions from the court regarding the appropriateness of entering into a co-operation protocol with a receiver appointed by the Luxembourg insolvency tribunal. The receiver and the company's principal secured creditor did not object to this course of action. The company was placed into administration in Scotland on 13 March 2024, following the appointment of joint interim managers on 15 February 2024. Concurrently, on 15 March 2024, the Luxembourg court admitted the company to bankruptcy and appointed a receiver. The administrators became aware of the Luxembourg proceedings on 19 March 2024, resulting in two simultaneous insolvency processes in different jurisdictions, neither declared ancillary to the other. The co-operation protocol proposed would enable joint management of the company’s Scottish property sale, with proceeds to be distributed according to Luxembourg law, potentially prioritising Luxembourg tax claims over the secured creditor’s claim. The administrators applied for directions under paragraph 63 of Schedule B1 of the Insolvency Act 1986 as to whether entering into the protocol was appropriate or if other directions should be given in the best interests of the company’s creditors and administration purposes.
Legal Issues Presented
- Whether it is competent and appropriate for the Scottish administration to be recognised as ancillary to the Luxembourg winding-up proceedings.
- Whether the administrators may lawfully enter into the proposed co-operation protocol that deviates from statutory provisions under the Insolvency Act 1986 and Scottish insolvency rules.
- The nature and extent of the powers and duties of administrators in an ancillary administration, if such a status is recognised.
- The scope of the court’s power to give directions under paragraph 63 of Schedule B1 in the context of concurrent insolvency proceedings in different jurisdictions.
Arguments of the Parties
Appellants' Arguments
- Concurrent insolvency proceedings in different jurisdictions are common, sometimes with one ancillary to another, but no judicial recognition exists for administration proceedings being ancillary to winding-up in another jurisdiction.
- Reference to established case law indicates that ancillary winding-ups limit local liquidators to realising local assets and submitting claims lists, with the principal liquidation governing overall distribution.
- Protocols between insolvency office-holders in different jurisdictions can be approved by supervising courts to enable cooperation while preserving court sovereignty and office-holders’ jurisdictional boundaries.
- The proposed protocol reflects a negotiated compromise aimed at avoiding conflict between concurrent insolvency processes and managing the company’s assets efficiently.
- Courts may, in rare circumstances, direct administrators to disregard mandatory statutory requirements to facilitate sensible management of the company’s affairs.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Re Bank of Credit and Commerce International SA (In Liquidation) (No. 10) [1997] Ch 213 | Principles of ancillary winding-up; limits of English liquidators’ powers; application of English insolvency law in ancillary proceedings. | Used to illustrate the nature of ancillary winding-up and the obligation of courts to apply domestic insolvency law despite ancillary status. |
| Morris, Noter [2007] CSOH 165 | Recognition of ancillary winding-up in Scots law; practical arrangements for realising local assets and adjudicating local claims; flexibility in judicial co-operation. | Confirmed the concept of ancillary winding-up in Scots law and the practical features necessary to protect creditors’ rights. |
| Re HIH Casualty and General Insurance Ltd [2008] UKHL 21 | Universalism in insolvency; statutory basis for international co-operation under section 426; power of courts to remit assets for distribution under foreign law. | Adopted as representing Scots law on ancillary insolvency proceedings; supported the principle that domestic insolvency should be universal and unitary. |
| Re Dallhold Estates (UK) Pty Ltd [1992] BCC 394 | Possibility of ancillary administration under section 426; cooperation between courts in different jurisdictions. | Supported the theoretical possibility of ancillary administration, although such cases are rare and fact-specific. |
| Re Commercial Bank of South Australia (1886) 33 ChD 174 | Goals of ancillary liquidation; avoiding conflict between courts; limiting liquidator’s role to local assets and creditors. | Referenced as an early authority on the principles guiding ancillary liquidation. |
| English, Scottish, and Australian Chartered Bank [1893] 3 Ch 385 | Principal court’s jurisdiction in liquidation; preservation of local procedural rules in ancillary proceedings. | Discussed the balance between substantive and procedural law in ancillary liquidation contexts. |
| Felixstowe Dock & Railway Co v United States Lines Inc [1989] QB 360 | Recognition of principal jurisdiction and ancillary liquidation; courts’ reluctance to lose control over local assets. | Supported the principle that local courts maintain control over assets within their jurisdiction in ancillary proceedings. |
| Re Federal Bank of Australia Ltd (1893) 62 LJ Ch 561 | Appointment of ancillary liquidators as assistants to principal liquidators with limited authority. | Illustrated judicial limits on ancillary liquidators’ powers to avoid conflict with principal liquidation. |
| Re Suidair International Airways Ltd [1951] Ch 165 | Application of forensic rules and substantive law in ancillary liquidation. | Rejected a narrow procedural-substantive distinction, emphasizing the importance of administering local law consistently. |
| Re Consumer & Industrial Press Ltd (No. 2) (1988) 4 BCC 72 | Consequences of unreasonable delay in seeking directions in insolvency proceedings. | Referenced regarding the court’s discretion to refuse facilitative directions due to delay. |
| Münchener Hypothekenbank eG, Noters, Re Seventeen Yellow Crowns SÀRL [2023] CSOH 36 | Judicial approach to concurrent insolvency proceedings; importance of early court directions. | Guided the court’s view that directions should have been sought promptly to regulate concurrent proceedings. |
Court's Reasoning and Analysis
The court began by acknowledging the existence of concurrent insolvency proceedings in Scotland and Luxembourg involving Company A, noting that neither had been declared ancillary to the other. The court emphasized the importance of early application for directions to manage such situations effectively, referencing prior cases where delay had complicated proceedings.
The court examined the established concept of ancillary winding-up in Scots law, drawing extensively on precedent to define its nature: the ancillary process is primarily concerned with realising local assets and adjudicating local claims, while the principal jurisdiction governs overall distribution. The court highlighted that ancillary liquidators’ powers are limited and that the court retains supervisory authority, including approval of remuneration and ensuring creditors’ rights are protected.
The court considered the possibility of an ancillary administration, noting the absence of judicial recognition but acknowledging the theoretical basis and a rare precedent supporting it. The court concluded that an administration can, in principle, be ancillary, but its objectives under the Insolvency Act 1986 must still be met, which may limit the practical utility of ancillary administrations.
Applying these principles to the present case, the court found that the Luxembourg insolvency process had no implicit effect on the Scottish administration’s nature at inception, but the court could now direct that the Scottish administration be regarded as ancillary to the Luxembourg insolvency. This would confine the administrators’ role to realising Scottish assets and adjudicating secured and preferential claims under Scots law without unnecessarily harming creditors’ interests.
The court noted that the proposed co-operation protocol raised significant concerns, including the removal of Scottish court oversight, application of Luxembourg law to local assets, and exclusive jurisdiction of Luxembourg courts over disputes. The court indicated that such provisions would likely be unacceptable without modification and that any protocol should respect the ancillary status and the supervisory role of the Scottish court.
Finally, the court deferred further directions until the extent of realisations from the Scottish property was known, as this would inform decisions about distributions and the need for further court involvement.
Holding and Implications
The court’s final decision was to direct that the administration shall henceforth be regarded as ancillary to the primary insolvency process underway in Luxembourg. This recognition limits the administrators’ powers to the realisation of Scottish assets and determination of claims under Scots law, with the administration subject to the supervisory jurisdiction of the Scottish court.
The immediate implication is that the administrators may not proceed with arrangements that effectively cede control or oversight to the Luxembourg process without further court directions. The court did not approve the existing co-operation protocol as proposed and indicated that any future protocol must respect the ancillary status and the supervisory role of the Scottish court. No broader precedent was established beyond the facts of this case, and further directions will be considered once asset realisations are clearer.
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