High Court of Ireland Decisions

You are here: BAILII >> Databases >> High Court of Ireland Decisions >> Danske Bank & Anor -v- McFadden [2011] IEHC 551 (21 September 2011)
URL: http://www.bailii.org/ie/cases/IEHC/2011/H551.html
Cite as: [2011] IEHC 551

[New search] [Help]

Judgment Title: Danske Bank & Anor -v- McFadden

Neutral Citation: [2011] IEHC 551

High Court Record Number: 2011 655 P

Date of Delivery: 21/09/2011

Court: High Court

Composition of Court:

Judgment by: Dunne J.

Status of Judgment: Approved

Neutral Citation [2011] IEHC 551

THE HIGH COURT

BANKRUPTCY

[2011 No. 655 P]

IN THE MATTER OF A PETITION OF BANKRUPTCY AGAINST NIALL McFADDEN BY DANSKE BANK A/S TRADING AS NATIONAL IRISH BANK

BETWEEN

DANSKE BANK A/S TRADING AS NATIONAL IRISH BANK

APPLICANT

AND

NIALL McFADDEN

RESPONDENT

JUDGMENT of Ms. Justice Dunne delivered the 21st day of September 2011

This is an application by Danske Bank trading as National Irish Bank ("the Bank") to have Niall McFadden adjudicated bankrupt in respect of a debt of €8,901,657.31 together with interest thereon. The Bank holds security in the sum of €750,000 in respect of the indebtedness of the debtor. The Act of Bankruptcy relied on is a return of no goods by the Sheriff of the 141h March, 2011 and the petition for bankruptcy was presented on the 1st June, 2011.

An affidavit verifying the matters set out in the petition herein was sworn by Michael Leonard on the 31st May, 2011. In that affidavit Mr. Leonard set out details of the judgment obtained by the Bank against the respondent on the 291h July, 2010. There was a stay on the judgment which has since expired.

Mr. Leonard describes himself in the verifying affidavit as "joint Attorney and senior Credit Manager" of the Bank. He stated that he was duly authorised to make the affidavit on behalf of the Bank.

When this matter first came before the court on the 2ih June, 2011, a number of issues were raised on behalf of the respondent. The first of the issues related to the petition itself. It was contended that there were a number of irregularities in respect of the petition and that it did not comply with the Rules of the Superior Courts ("RSC"). An issue was also raised in respect of the respondent's centre of main interest but that issue was not necessary to deal with in the course of the hearing before me. It is an issue that may have to be dealt with at a later stage.

The other significant issue raised related to the jurisdiction of this Court to deal with the matter by reason of the adoption into Irish law of EC No. 1346/2000 ("The Insolvency Regulation"). The question that arises relates to the fact that at the time of presentation of the petition, it appears that the respondent had obtained an interim order of protection in the United Kingdom pursuant to s. 252 of the Insolvency Act 1986, which provides, inter alia, that "no bankruptcy petition relating to the respondent may be presented or proceeded with". Accordingly, the second issue that arises is whether this Court can deal with the petition for adjudication of the respondent as a bankrupt when the petition was presented during the currency of the order of the High Court of Justice in the United Kingdom. It is relevant to note that at the time of the hearing before me on the 21st July, 2011, the interim order of protection had come to an end, but it was in force at the date of presentation of the petition, the interim order having been made on the 18th May, 2011 and thereafter continued on the 1st June 2011.

Irregularity
Order 76, r. 20 of the Rules of the Superior Courts provides as follows:-

"(1) A creditors petition shall be signed by the creditor or, if more than one, by all the petitioners, unless the petitioners are partners, in which case one partner may sign on behalf of himself and the other partners. Any petitioner may sign the petition by his attorney duly authorised by power of attorney in that behalf.

(2) A creditor's petition by a limited company or body corporate shall be sealed with the seal of the company or body corporate and signed by two directors or by one director and secretary. Such seal and signature shall in all cases be attested."

In order to consider the question of irregularity, it is necessary to consider some of the affidavits sworn herein. Mr. Leonard in his second affidavit sworn herein on the 4th July, 2011, noted that the Bank is a Company organised and existing under the laws of Denmark. It has a Board of Directors and an Executive Board all of whom are based outside Ireland. It does not have a company secretary. He explained that the Bank operates through an Irish branch in this jurisdiction. For that purpose, the Danish Board of Directors delegated power to Andrew Healy and Kevin Gallen by a Power of Attorney dated the 21st March, 2007, including, inter alia, the power to appoint additional authorised attorneys. The power to grant Powers of Attorney in this manner is provided for at Article 20.2 of the Articles of Association of the Bank. On the 30th May, 2011, Messrs Healy and Gallen appointed Michael Leonard and any branch solicitor as lawful Attorneys of the Bank for the sole purpose of executing the bankruptcy petition and all ancillary documentation, by Power of Attorney dated the 30th May, 2011. Mr. Lavelle is a branch solicitor. It is not necessary to set out the precise terms of Article 20 of the Articles of Association of the Bank. Suffice to say that it provides for the grant of powers of attorney to any employee of the Bank as deposed to by Mr. Leonard.

Mr. Leonard explained in a previous affidavit sworn herein on the 1st June, 2011, that he and Mr. Lavelle executed the petition and that under Danish law, companies do not have a seal and that the concept of a company executing a document under seal does not exist.

Mr. Leonard then explained some of the background to this matter. A bankruptcy petition was issued by Anglo Irish Bank plc before the High Court in England and Wales seeking to have the respondent declared bankrupt in that jurisdiction. That appears to have led to the respondent's application to the High Court in that jurisdiction for an interim protection order, to which reference will be made later. The interim protection order obtained by the respondent in the United Kingdom was discharged by order made on the 19th July, 2011, as mentioned previously.

I now want to turn to the submissions in regard to the irregularity issue. Mr. Sanfey S.C. on behalf of the respondent focused on the provisions of O. 76, r. 20(2) of the Rules of the Superior Courts. He complained that there was nothing in the petition save for the signature clause to explain the capacity in which Mr. Leonard and Mr. Lavelle executed the petition. Likewise, there was little information in his first affidavit to explain the basis on which he was "duly authorised" by the Bank to swear the affidavit. He then referred to para. 2 of the second affidavit sworn herein on the 1st June, 2011, in which Mr. Leonard explained that the Bank, being a Danish Company, does not have a Company Seal. Mr Sanfey pointed out that this demonstrates that the Bank was aware of the provisions of O. 76, r. 20(2) of the Rules of the Superior Courts. Therefore, the Bank was clearly aware as of the 1st June, 2011, of the necessity for two directors or a director and company secretary to sign the petition and there is no basis or explanation given anywhere as to why the absence of a seal justified a departure from the requirements of O. 76, r. 20(2).

As a result of correspondence in which the issue of non compliance was raised by the respondent's solicitors, Messrs Arthur Cox, a further affidavit was sworn by Mr. Leonard on the 4th July, 2011. In that affidavit a number of points were made, namely:

1. The petitioner has a Board of Directors and an Executive Board.

2. The petitioner does not have a company secretary.

3. The petitioner does not have a separate Board of Directors in this jurisdiction.

4. The Danish Board of Directors delegated power to Mr. Healy and Mr. Gallen to act on behalf of the Irish branch of the petitioner by Power Of Attorney executed on the 21st March, 2007.

5. This Power of Attorney authorised Messrs Healy and Gallen to "appoint an authorised additional attorneys" to act on behalf of the petitioner.

6. Messrs Healy and Gallen appointed Messrs Leonard and Lavelle by a Power to Attorney executed on the 30th May, 2011, to act as attorneys for the petitioner for the sole purpose of these proceedings.

Mr. Sanfey having referred to these matters went on to say that although it was clear that Mr. Leonard and Mr. Lavelle were authorised by the Bank to execute the petition and ancillary document documentation, there was nothing to explain why, despite the fact that the Bank must have been aware of the requirement for the signature of two directors at the time of execution of the petition, the requirements of the RSC were ignored. Certainly there was nothing to indicate that the rules could not have been complied with.

The fundamental submission made by Mr. Sanfey on behalf of the respondent is that the terms of O. 76, r. 20(2) are mandatory. He contended that it is not for a petitioner to ignore the Rules of the Superior Courts. He referred to a number of authorities which refer to the penal nature of bankruptcy proceedings and the requirement flowing from that, that the procedures required to be complied with must be adhered to strictly.

Mr. Hennessey in his response contended in the first instance that O. 76, r. 20(2) did not apply to the Bank, but if he was wrong in that submission he added that the irregularity was de minimis in nature and not such as to preclude the Bank from seeking to have the respondent declared bankrupt. He pointed out that 0. 124 of the Rules of the Superior Courts provides that "non compliance with these rules shall not render any proceedings void unless the court shall so direct ..."

He went on to argue that O. 76, r. 20(2) was not applicable in that the general rule applicable with that contained in O. 76, r. 20(21) and that O. 76, r. 20(2) was subsidiary to the general rule. He contended therefore that O. 76, r. 20(1) applied to all petitioners, be they individuals, partnerships or companies and that O. 76, r. 20(2) simply describes the manner in which an Irish company can under Irish Company Law execute documents. In support of this argument he referred to the manner in which Seal has to be used an Irish company. He referred to the provisions of Model Regulation 115 in the Articles of Association for Companies incorporated under the Companies Act, 1963 and to Model Regulation 76 in the Articles of Association for Companies formed under the Companies (Consolidation) Act 1908. Having referred to those provisions, he submitted that there was a direct correlation between the provisions contained in the Model Articles of Association for Companies incorporated in this jurisdiction and the provisions of O. 76, r. 20(2). In other words that rule simply reflected a requirement of an Irish company in respect of the use of a seal in the execution of documents. Mr. Hennessey pointed out that the Bank in this case is not an Irish Bank incorporated in accordance with either the 1908 Act or the 1963 Act and therefore he submitted that the provisions of O. 76, r. 20(2) had no application at all to the Bank.

He went on to argue that the Bank had complied with its own rules and he referred to the signing rules contained in the Bank's Articles of Association to which reference has already been made. The Bank having complied with its own rules has thereby satisfied the RSC.

Mr. Sanfey accepted that the Bank had complied with its own rules but nonetheless maintained his position that the Bank had not complied with O. 76, r. 20(2) of the Rules of the Superior Courts.

I now want to consider some the authorities opened by counsel in the course of their submissions. The first of the authorities to which I is wish to refer is the decision in the case of O'Maoileoin v. Official Assignee was dealing with an argument that a debtor's summons was defective in that the amount claimed did not take into account that the petitioning creditor was not entitled to receive the entire amount of the judgment nor to execute for the same in view of the appointment of a receiver by way of equitable execution over a portion of the amount set out in the summons even though no part of the sum due had been recovered by the receiver. Nonetheless, he maintained that the failure to respond to the debtor's summons could not amount to an act of bankruptcy having regard to what he described as a defect in the debtor's summons. In those circumstances he sought to have an order adjudicating him bankrupt annulled. In the course of his judgment in that case, Hamilton P. having cited a number of decisions stated as follows at p. 654:-

"These cases clearly establish that the bankruptcy code, having regard to the consequences which flow from an adjudication of bankruptcy, is penal in nature and that the requirements of the statutes must be complied with strictly; that the debtor's summons to be served within the provisions of s. 21 of the Bankruptcy Ireland (Amendment) Act, 1872, must be served in the prescribed manner and the amount due in accordance with a judgment, when a judgment is relied upon, must be accurate and that a claim for an amount in excess of the amount due in accordance with such judgment would render the notice defective and a subsequent adjudication void."

The authorities referred to by Hamilton P. included the cases of Re O.C.S. [1904] 2 KB 161, Re a Debtor, [1908] 2 KB 684 and Re Collier, [1891] 64 L.T. 742. Those cases emphasise that a bankruptcy summons is not lightly to be amended to correct an error in the sum claimed to be due on a final judgment. For example in Re. O.C.S., referred to above, Vaughan Williams L.J. stated at p. 163 in a passage cited by Hamilton P. as follows:-

"Speaking from my own experience as the bankruptcy judge, I know that the rule laid down in

In re Collier

has been constantly acted upon for many years, and I think we ought not now to depart from it. It is said that no injustice will be done by allowing an amendment. I do not feel sure of that. But, whether that be so or not, I think we ought to be very careful about allowing an amendment of a bankruptcy notice, which is to some extent a penal proceeding."

Hamilton P. also cited an extensive passage from the decision in Re a Debtor in which Cozens-Hardy M.R. stated at p. 686 to 689:-

"I cannot regard it as a mere formal defect that you claim payment from a man of that which never was due from him. It is not necessary to say that there was any attempt on the part of the petitioning creditors wilfully to exact payment of that which they knew was not due. My judgment does not depend upon that. It seems to me that a defect of this kind is substantial, that it is not formal, and does not fall within the language of section 143."

That was a case in which there was a mistake in the calculation of the amount due. The mistake related to interest and was between £1 and £2. Although the amount was small, the defect was such that to include in the bankruptcy summons a claim for payment of a sum which was not due was found not to be a mere formal defect. It is in that context that Hamilton P. made the comments which I have already referred to above.

The approach taken in that case has been followed by McGovern J. in the case of Minister for Communication v. M.W. [2010] 3 IR 1 in which he, having quoted the passage referred to from the judgment of Hamilton P. in the case of 0'Maoileoin, continued at p. 5 of the judgment as follows:-

"It seems to me that both before the Act of 1988 and since then, the courts have regarded it as necessary to strictly comply with the provisions of the Rules of the Superior Courts 1986 and statutory provisions in order to trigger the bankruptcy process because it has such serious consequences for a debtor. That case contained an error as to the amount in the bankruptcy notice and it was held that the same was a substantial defect. It was further held that failure to pay an inaccurate sum could not and did not amount to an act of bankruptcy. It was reiterated that the amount due must be accurate in the bankruptcy summons and a claim for an inaccurate amount or an amount in excess of the amount due would render the notice defective and a subsequent adjudication of bankruptcy void."

There is no doubt that the authorities clearly demonstrate that given the penal nature of the bankruptcy code, there is an obligation to comply with the requirements of that code strictly. The decided cases clearly establish that an error on a bankruptcy summons as to the precise amount claimed to be due will result in the bankruptcy summons being set aside or an adjudication of bankruptcy being declared void. I should add that in the cases to which I have referred, the defect was due to a greater sum being claimed than that which was in fact due.

The requirement of precision was referred to also in the case of in Re. Sherlock [1995] 2 I.L.R.M. 493. In that case the applicant had argued that the sums claimed in the notice requiring payment and the bankruptcy summons were inaccurate as they did not take into account an interest payment that should have been credited against the principal sum. In granting the relief sought it was held that:-

1. A certain degree of precision is required in the documentation grounding an application for bankruptcy as the bankruptcy code is penal in nature and the requirements of the statutes must be complied with strictly.

2. Where the amount said to be due on foot of the notice requiring payment and on the bankruptcy summons is in excess of the amount actually owed, this constitutes a substantial defect rendering the notice and the summons defective. Therefore failure to respond to the summons could not constitute an act of bankruptcy with the result that the subsequent adjudication was void.

Murphy J. in that case referred to and followed the decisions in the cases of In Re Collier, In Re a Debtor and O'Maoileaoin v. Official Assignee referred to above.

The final decision to which I wish to refer in relation to this issue is the decision in the case of In the Matter of an Applicant, Patrick Murphy v. Bank of Ireland (Unreported, High Court, 12th April, 2011). In that case a bankrupt sought to show cause under s. 16 of the Bankruptcy Act 1988, on the basis that the sum claimed in the bankruptcy summons and notice of demand issued by the Bank were overstated because of certain payments made. The Bank responded by arguing that the sums claimed were in fact under statements of the debt because they did not take account of significant interest that had accrued on the debt since judgment. It was argued nonetheless, by the bankrupt that the petition was bad in the light of the strict level of compliance insisted upon by the courts in relation to bankruptcy matters. In the course of the judgment in that case, reference was made to the decisions in the case of In Re. Sherlock, a bankrupt, In Re. a Debtor [1908] 2 KB 684 and to the passage referred to previously from the judgment of Cozens-Hardy M.R. and from the conclusions of Hamilton P. in O'Maoileoin v. Official Assignee. Having referred to those judgments and to passages from those judgments cited in this judgment, McGovern J. stated as follows:

"The Bank argues that the reasoning behind the strict view taken by the court in

In Re. Sherlock

and the other cases referred to therein is that because of the severity of the bankruptcy regime and the consequences for a debtor, the law insists that he must actually owe the sum claimed of him and that if the sum sought is in excess of the sum owed (however marginal), the demand must be bad because the debtor cannot be expected or compelled to pay a sum which is more than he owes.

I accept the submission of the Bank on this point."

McGovern J. further went on to say at para. 27 to 28 of the judgment:-

"I am satisfied that the jurisprudence established by In

Re Sherlock

developed in order to protect debtors from the rigours of Bankruptcy following a demand for payment which was excessive, even if the excess was minimal, and arose due to an oversight or innocent mistake.

That judgment is not authority for the proposition that a claim for a liquidated sum, which is less than the sum actually due, gives rise to a "cause shown" against the validity of an adjudication of Bankruptcy under s. 16 of the Act, and where no mistake or carelessness has been shown in the computation of the figures set out in the Notice of Demand or the Bankruptcy Summons."

McGovern J. went on to note that there was no suggestion in that case that the figures calculated by the Bank were inaccurate. He also noted that the debt of the bankrupt considerably exceeded the sum demanded of him, both at the date of demand and date of the bankruptcy summons and in those circumstances he held that the bankrupt had failed to show cause.

I was also referred to a decision in the case of In re Sean Hussey, 1987 [IEHC] 26 but that case does not offer much assistance to me on this issue. It is concerned more with the timing of an objection to bankruptcy proceedings by reason of non compliance than with the issue of non-compliance per se.

Decision on the first issue
The cases cited above are clear authorities for the proposition that as the bankruptcy code is penal in nature, the amount claimed must be accurate and that even a minor discrepancy in the amount claimed so that the sum claimed is greater than that actually due is a defect such that failure to comply with the bankruptcy summons will not constitute an act of bankruptcy and if the debtor has been adjudicated bankrupt will result in the adjudication being set aside. That is the way in which the authorities demonstrate the need for strict compliance with the statutory regime.

It is clear from the judgment in the case of In the Matter of an Applicant Patrick Murphy v. Bank of Ireland that an understatement of the amount due is not a defect which will give rise to the setting aside of an adjudication of bankruptcy. In other words, it seems to me that a defect in relation to the sum claimed to be due which is not prejudicial to the debtor will not amount to a failure to comply with the requirements of the statutory provisions strictly. It is in that context that one then has to consider the issue in relation to compliance with O. 76, r. 20(2) always assuming that the rule is applicable in the present case. During the course of argument in this case, it was accepted that companies incorporated outside the jurisdiction may not be required to have a company seal and that the manner of execution of documents by such companies may not be in accordance with the requirements of Irish law in respect of companies incorporated in this jurisdiction. Clearly, it could not be the case that a company incorporated outside Ireland in circumstances where no company seal is required could not be precluded from seeking to have a debtor in this jurisdiction adjudicated bankrupt simply by reason of the fact that it could not comply with O. 76, r. 20(2) in the absence of having a company seal for the purpose of executing documents. No authority was cited in the course of argument to support the contention that the irregularity complained of herein is one that has led to a bankruptcy summons being set aside or an adjudication being declared void. Of particular relevance in this context is the decision in the case of the Society of Lloyds v. Loughran (Unreported, High Court, 2nd February, 2004). That was a case in which the Society of Lloyds sought an adjudication of the debtor as a bankrupt. Lloyds is a body corporate. The petition was sealed with the seal of Lloyds but the petition was signed by one person, described as an "authorised signatory". Objection was made that the petition ought to have been signed by two directors or a director and secretary. It was contended that the failure to comply strictly with 0. 76, r. 20(2) was fatal to the application for the adjudication of the debtor. In that case one of the features noted was that the provisions of UK law providing for the sealing and signing of documents by a body corporate such as Lloyds had been complied with. In the course ofher judgment in that case, Finlay Geoghegan J. stated:-

"I have concluded that the principles set out in the judgment of Hamilton P. in

O'Maoileoin v The Official Assignee

do not preclude me from exercising the discretion which it is accepted the Court otherwise has under 0. 124 of the Superior Court Rules in relation to the consequences of non-compliance with O. 76, r. 20 of a petition. Whilst, I note the distinction between the approach to a bankruptcy summons and petition made by Cave J. above, in general I accept that there ought to be compliance with the Rules of Court even on a petition but conclude that there is nothing on the authorities which appears to absolutely preclude the Court from exercising its discretion in a proper case under O. 124 of the Superior Court Rules where there is a failure to comply with the Rules on a petition.

For the purpose of exercising my discretion under O. 124 it is relevant that there is no prejudice asserted on behalf of the debtor by reason of the failure of Lloyds to seal and sign the petition in compliance with O. 76, r. 20. Further, I am satisfied on the affidavit that the petition has been sealed and signed in accordance with the United Kingdom statutes and bye laws relating to Lloyds. Also there has been no denial of the debt by the debtor."

In the present case, there has been a failure to comply with the provisions of O. 76, r. 20(2), always assuming that those provisions are applicable to the Bank. I have to say that I cannot accept the arguments on behalf of the Bank to the effect that O. 76, r. 20(2)is subsidiary to O. 76, r. 20(1) and that O. 76, r. 20(2) has no application to the Bank. I am satisfied that O. 76, r. 20(2) does apply to the Bank. Reference was made to the 1908 and 1963 Companies legislation but whilst I accept that the legislation undoubtedly has a bearing on the form of the relevant provisions of the RSC and reflect the requirements of Irish law in respect of the execution of documents by companies, the provisions of O. 76, r. 20(2) are quite clear. The petition in this case has not been sealed with the seal of the Company and signed by two directors or by one director and the secretary. I accept that in a case involving a company incorporated in Denmark, there is no requirement for a seal and in such circumstances the failure to seal the document could not be a bar to the Bank pursuing a debtor in this jurisdiction. Nonetheless, no explanation has been give for the fact that the petition in this case has not been signed in the manner specified in the RSC. There is no evidence before the court to indicate that two directors of the Bank could not have signed the petition. To that extent therefore, I am satisfied that the Bank has not complied with the Rules of the Superior Courts. Nevertheless, it does seem to me that this is an appropriate case in which to have regard to the provisions of O. 124 of the Rules of the Superior Courts. As in the case of the decision in Lloyds v. Loughran to which reference has been made I accept that as a general proposition there ought to be compliance with the Rules of the Superior Courts. Having said that, O. 124 confers upon the court a discretion. In this case, as in the decision in the case of Lloyds v. Loughran, there is no prejudice asserted on behalf of the debtor by reason of the irregularity complained of. It is also accepted that the petition has been signed in accordance with Danish law and the Articles of Association of the Bank. Further there is no dispute as to the fact that the debt is owed by the debtor. In those circumstances, it seems to me that I should exercise my discretion under 0. 124 to allow the Bank to proceed with its petition to have the debtor adjudicated notwithstanding the irregularity.

The Second Issue - The Court's Jurisdiction
The second issue relates to the jurisdiction of this Court to deal with the petition to have the respondent adjudicated bankrupt. It is necessary to look in some more detail at the background giving rise to this issue. Anglo Irish Bank Corporation Limited ("Anglo") presented a petition to the High Court in England and Wales on the 17th February, 2011, seeking to have the respondent adjudicated bankrupt in respect of a debt due to Anglo in the amount of £12,852,006.90. That petition remains before the High Court and the application to have the respondent adjudicated bankrupt in that jurisdiction is back before the High Court in October. The respondent herein made an application in the High Court in England and Wales for an interim protection order pursuant to s. 252 of the Insolvency Act 1986. An order was made on the 18th May, 2011 in which, as previously noted it was provided that "no other proceedings, and no execution or other legal process, may be commenced or continued and no distress may be levied against the respondent or his property except with the permission of the court". As mentioned previously, that order was discharged by the High Court on the 19th July, 2011.

The main point made on behalf of the respondent herein in relation to the issue of jurisdiction is that the petition herein was presented on the 1st June, 2011, during the currency of the interim protection order.

Reference was made to Article 25.1 of Council Regulation (EC) 1346/2000. That Regulation has been given effect to by S.I. No. 334/2002 by the European Communities (Personal Insolvency) Regulations 2002. Article 25.1 of the Insolvency Regulation is as follows:-

"1. Judgments handed down by a court whose judgment concerning the opening of proceedings is recognised in accordance with Article 16 and which concern the course and closure of insolvency proceedings, and compositions approved by that court shall also be recognised with no further formalities. Such judgments shall be enforced in accordance with Articles 31 to 51, with the exception of Article 34(2), of the Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, as amended by the Conventions of Accession to this Convention.

The first paragraph shall also apply to judgments deriving directly from the insolvency proceedings and which are closely linked with them, even if they were handed down by another court.

The first paragraph shall also apply to judgments relating to preservation measures taken after the request for the opening of insolvency proceedings."

Particular reliance was placed on the last subparagraph of Article 25.1 by the respondent herein. Article 25.1 has been amended so that such judgments are now to be enforced in accordance with Articles 38 to 58 of the Brussels Convention, but nothing turns on this amendment. Mr. Sanfey on behalf of the respondent also placed reliance on Recital 16 to the Insolvency Regulation which is as follows:-

"The court having jurisdiction to open the main insolvency proceedings should be enabled to order provisional and protective measures from the time of the request to open proceedings. Preservation measures both prior to and after the commencement of the insolvency proceedings are very important to guarantee the effectiveness of the insolvency proceedings. In that connection this Regulation should afford different possibilities. On the one hand, the court competent for the main insolvency proceedings should be able also to order provisional protective measures covering assets situated in the territory of other Member States. On the other hand, a liquidator temporarily appointed prior to the opening of the main insolvency proceedings should be able, in the Member States in which an establishment belonging to the debtor is to be found, to apply for the preservation measures which are possible under the law of those States."

Mr. Sanfey then referred to Council Regulation (EC) No. 44/2001 (Brussels 1) and in particular Article 32 thereof which provides as follows:-

"For the purposes of this Regulation, 'judgment' means any judgment given by a court or tribunal of a Member State, whatever the judgment may be called, including a decree, order, decision or writ of execution, as well as the determination of costs or expenses by an officer of the court."

Mr. Sanfey pointed out that the subparagraph to Article 25 of the Insolvency Regulation relates to judgments "taken after the request for the opening of insolvency proceedings". He referred to the definition of insolvency proceedings in Article 2(a) of the Insolvency Regulation which in turn refers to Annex A of the Regulation. That sets out a list for each country of what is capable of constituting "insolvency proceedings". So far as the United Kingdom is concerned it includes ''voluntary arrangements under insolvency legislation" and "bankruptcy or sequestration". On that basis he submitted that the interim order made in the United Kingdom is a ''judgment relating to preservation measures taken after the request for the opening of insolvency proceedings." It was submitted that the interim order was the first step taken by the respondent under an individual voluntary arrangement procedure and was to the same effect and intent as a protection order under s. 87 of the Bankruptcy Act 1988. In those circumstances it was submitted that the application for the interim order was a request for the opening of insolvency proceedings within the meaning of Article 25.1. Even if that were not so, it was submitted that the Anglo petition was a request for the opening of insolvency proceedings and that consequently the interim order was a ''judgment" relating to preservation measures taken after the request for the opening of insolvency proceedings. On that basis it was submitted that Article 25.1 applied to the interim order and that the interim order requires to be recognised ''with no further formalities". That being so, it was submitted that the presentation of a petition in this jurisdiction subsequent to the making of the interim order by the courts in England and Wales on the 18th May, 2011, was in direct contravention of the interim order. On that basis it was submitted that the petition was fatally flawed and should be struck out.

Mr. Hennessey on behalf of the Bank conceded that it was probably correct to say that the presentation of a petition is a request to open insolvency proceedings. Consequently, the application by Anglo in the United Kingdom could be construed as a request to open insolvency proceedings. As pointed out, the interim order was made after that. Having accepted that point, Mr. Hennessey disagreed fundamentally that the interim order could be regarded as a preservation measure within the meaning of the Insolvency Regulation. He referred to the Regulation in detail and in particular to Article 38 of the Insolvency Regulation. It provides as follows:-

"Where the court of a Member State which has jurisdiction pursuant to Article 3(1) appoints a temporary administrator in order to ensure the preservation of the debtor's assets, that temporary administrator shall be empowered to request any measures to secure and preserve any of the debtor's assets situated in another Member State, provided for under the law of that State, for the period between the request for the opening of insolvency proceedings and the judgment opening the proceedings."

In other words, preservation measures are simply that - they are measures designed to preserve the debtor's assets. Thus, a temporary administrator is empowered to request measures to secure and preserve the debtor's assets in another Member State. It was submitted that an interim order such as the one made herein is not at all a preservation measure. I was referred in the course of the submissions on this point to the Virgos Schmit Report which considered in detail the terms of the Insolvency Regulation. At p. 55 of the Report, it describes the provisions in relation to preservation measures. It states at p. 55 as follows:-

"Preservation measures both prior to and after the commencement of the insolvency proceedings are very important to guarantee the effectiveness of the insolvency proceedings. They may be ordered by the court having jurisdiction according to Article 3(1) irrespective of the Contracting State where the assets or persons concerned (either debtor or a creditor) are located. Such measures may adopt a wide-range of forms, according to the national law of the court ordering them (e.g. interlocutory orders to do or not to do, appointment of a temporary administrator, attachment of assets). The possibility of going to the court of the place where the measures are to take effect is referred to again in Article 38, although with a different purpose. Article 38 empowers the temporary administrator appointed after the request for the opening of main insolvency proceedings, but before such opening, to call directly on the authorities of any other Contracting State to adopt preservation measures provided under the insolvency law of this State for winding-up proceedings on the debtor's assets situated in its territory, as a pre-opening stage of secondary proceedings ...."

The Virgos Schmit Report is regarded as being a form of "explanatory memorandum" in relation to the Insolvency Regulation. It is not legally binding but is of assistance in the interpretation of the Insolvency Report.

At p. 158 of the Report, the terms of Article 38 are considered in more detail. It is stated at p. 158 as follows:-

"In order to avoid any change in the debtor's estate to the detriment of creditors from the date on which the opening of insolvency proceedings is requested to the date on which the judgment opening them is handed down, certain laws provide for the appointment of a temporary administrator.

…

However, as a pre-opening stage of secondary insolvency proceedings, Article 38 allows the temporary administrator designated by a court competent to open main proceedings to request measures to secure and preserve the debtor's assets situated in any other Contracting State, provided for under the law of this State for the period between the request for the opening of insolvency proceedings and the opening itself. As a pre-opening stage of secondary proceedings, Article 38 presupposes the existence of an establishment of the debtor in that Contracting State (see Article 3(2)). For the same reason, the preservation measures available will be those which, under the national insolvency law of that State, correspond to winding-up proceedings."

Decision
The question to be decided is whether or not an interim protection order comes within the meaning of a preservation measure as that term is used in the Insolvency Regulation. Section 252 of the United Kingdom Insolvency Act 1986 deals with interim orders of court in the following terms:-

"1. In the circumstances specified below, the court may in the case of a debtor (being an individual) make an interim order under this section.

2. An interim order has the effect that, during the period for which it is in force-

(a) no bankruptcy petition relating to the debtor may be presented or proceeded with,

(aa) no landlord or other person to whom rent is payable may exercise any right of forfeiture by peaceable re-entry in relation to premises let to the debtor in respect of a failure by the debtor to comply with any term or condition of his tenancy of such premises, except with the leave of the court and

(b) no other proceedings, and no execution or other legal process, may be commenced or continued [and no distress may be levied] against the debtor or his property except with the leave of the court."

It would be useful at this stage to set out the provisions of s. 87 of the Bankruptcy Act 1988 which is to the following effect:-

"87(1) Any debtor unable to meet his engagements with his creditors and wishing to place the state of his affairs before them with a view to making a proposal for the composition of his debts, under the control of the Court, and to subject himself to the jurisdiction of the Court as provided by this part may present a petition to the Court setting out the reason for his inability to pay his debts and requesting that his person and property may be protected until further order from any action or other process.

(2) The Court, on such petition, may by order grant such protection and renew the same from time to time as it thinks fit.

(3) The Court may refuse to grant protection to any debtor who is a member of a partnership, unless all the partners join in the petition.

(4) In this section 'process' includes a bankruptcy summons and the registration of an affidavit of a judgment under the Judgment Mortgage (Ireland) Act, 1850.

(5) While an order for protection is in force a creditor shall not be entitled to register any affidavit referred to in subs. (4) and any purported registration shall be of no effect. ..."

Section 88 of the 1988 Act provides as follows:-

"After an order for protection has been granted and so long as it is in force the arranging debtor shall not, without the prior sanction of the Court, pledge, part with or dispose of his property or any part thereof, save in the ordinary course of trade or business."

It is not necessary to set out the terms of s. 89 which deals with the effect of an order for protection in respect of execution orders nor is it necessary to set out the procedure in relation to what occurs after the making of an order for protection. Suffice to say that it is clear that following the granting of an order for protection, the debtor's person and property are protected from any action or other process. During the course of the submissions herein it was emphasised by Mr. Hennessey on behalf of the Bank that the purpose of the protection was to afford the debtor time to put together a proposal for the payment or compromise of the debts with a view to reaching agreement with his creditors.

Sanfey and Holohan in Bankruptcy Law and Practice, 7th Ed. described the effect of an order under s. 87 as follows at p. 488:-

"When the order for protection has been granted, the arranging debtor must not, without the prior sanction of the court pledge, depart with or dispose of his property or any party thereof, save in the ordinary course of trade or business and this applies so long as the order is in force. The purpose of this is to ensure the safeguarding of the debtor's assets, and to ensure their safe transfer to the Official Assignee in the case of a vesting arrangement. The order protects the debtor from execution against his assets, even where there is an execution order in the hands of the Sheriff or the County Registrar that the order does not affect an execution order on foot of which the Sheriff or County Registrar has made a seizure or gone into possession, in which event the execution creditor may recover such amount of his debt as may be realised by the execution."

Thus, it can be seen that one of the effects of an order pursuant to s. 87 is the safeguarding of the debtor's assets, which ultimately, must be for the benefit of the debtor's creditors.

I have already referred to the terms of the interim order which provided, inter alia that "no bankruptcy petition relating to the above named Niall McFadden (the debtor) may be presented or proceeded with ... and no other proceedings and no execution or other legal process may be commenced or continued and no distress may be levied against the debtor or his property except with the leave of the court."

It is now necessary to consider the meaning of preservation measures as that term is used within the Insolvency Regulation. First of all I propose to refer to Recital 16. It provides as follows:-

I have already set out the terms of Article 38 which expressly deals with preservation measures. It is also necessary to bear in mind the terms of Article 25(1) which I have set out above. The parties herein have both referred to the Virgos Schmit Report. I think it is useful to refer to that Report again and in particular to para. 200 and 2001 which are in the following terms:-

"200. The resulting system for preservation measures is similar to the one laid down by the 1968 Brussels Convention for preservation measures in civil and commercial matters (see, however, point 207). This solution is of immediate practical importance. There are many examples of preservation measures that should have extraterritorial scope and cover the whole Community (e.g. after the request for the opening of proceedings and with sufficient grounds, attempted fraudulent concealment of assets, the judge who has jurisdiction under Article 3(1) issues a provisional injunction prohibiting the disposal of assets by the debtor).

201. To understand the recognition and enforcement system for preservation measures, it must be taken into account that this Convention (as well as the 1968 Brussels Convention) governs both jurisdiction for adopting binding judgments (which is attributed to the courts of the State where the centre of the debtor's main interests is situated (Fl)) and the recognition and enforcement of such judgments in other Contracting States.

The court having jurisdiction under Article 3(1) also has jurisdiction to decide, for example, the seizure of the debtor's assets, even though they are situated abroad, or any other preservation measure. This decision shall be entitled, according to Article 25, to its recognition and enforcement in the Contracting State where the assets concerned are situated (F2)."

The Virgos Schmit Report goes on to say at para. 262 as follows:-

. . . as a pre-opening stage of secondary insolvency proceedings, Article 38 allows the temporary administrator designated by a court competent to open main proceedings to request measures to secure and preserve the debtor's assets situated in any other Contracting State, provided for under the law of this State for the period between the request for the opening of insolvency proceedings and the opening itself...."

Unfortunately, there are no decided cases dealing with the interpretation of the term "preservation measures". It can be seen that the Insolvency Regulation in dealing with preservation measures has, in its contemplation, the preservation of the debtor's estate for the benefit of creditors. The purpose of a protection order is also the safeguarding of the debtor's estate for the benefit of creditors. Although there may appear to be similarities between protection orders and preservation measures given that the overall purpose of both is the preservation of the debtor's assets, there are fundamental differences in the operation of the respective measures. One is designed to protect a debtor from creditors and to preserve assets to enable a debtor to make a composite arrangement with all creditors and the other is designed to protect creditors from a debtor who is trying to deprive his creditors of assets which should be available for the benefit of all creditors. The use of preservation measures is somewhat limited in operation. In order to seek preservation measures in another Member State, the court which has jurisdiction under Article 3(1) must appoint a temporary administrator. That temporary administrator is then empowered to bring proceedings in another Member State to preserve and secure any of the debtor's assets in that Member State.

I do not see how an application brought by a debtor for an interim protection order can be equated with the position of a temporary administrator appointed by a court which has jurisdiction under Article 3(1) for the purpose of enabling that temporary administrator to bring proceedings as described. The fact that a debtor seeking the protection of the court obtained inter alia relief which preserves their assets from the process of execution does not equate with the situation where a temporary administrator seeks to protect, preserve and secure assets for the benefit of all creditors. The two situations seem to me to be quite different. There is simply no correlation between the position of a debtor seeking protection and the position of a temporary administrator appointed by a court of the country which has jurisdiction to deal with the matter pursuant to Article 3(1) who is seeking to preserve the assets from a debtor who may attempt to dispose of them, or conceal them or deal with them in some way which is not for the benefit of the creditors. Accordingly, I have come to the conclusion that the interim protection order is not a preservation measure within the meaning of Article 25(1) of the Insolvency Regulation. Quite simply, an application by a debtor for protection is not the same as an application made by a court appointed administrator for the preservation of assets in another member state. That being so, the Bank was not precluded from issuing the petition in this jurisdiction as a result of the making of an interim protection order by the High Court in England and Wales as such order does not come within the definition of preservation measures as provided for in the Insolvency Regulation. Accordingly, there is no basis on which the petition herein should be struck out.

In reaching that conclusion, I am not making any decision on whether or not the courts of England and Wales have jurisdiction pursuant to Article 3(1). The issue of COMI remains to be considered.

About BAILII - FAQ - Copyright Policy - Disclaimers - Privacy Policy amended on 25/11/2010