Jersey Unreported Judgments

Letter of Request - reasons

[2020]JRC186

Royal Court

(Samedi)

16 September 2020

IN THE MATTER OF THE REPRESENTATION OF WELLS FARGO BANK, NATIONAL ASSOCIATION, LONDON BRANCH

AND IN THE MATTER OF AN APPLICATION UNDER THE COURT'S INHERENT JURISDICTION TO ISSUE A LETTER OF REQUEST TO THE HIGH COURT IN ENGLAND AND WALES THAT IT MAKE AN ADMINISTRATION ORDER IN RESPECT OF INTU MERRY HILL LIMITED

Advocate M. L. A. Pallot for the Representor.

judgment

the deputy bailiff:

1.        On 3^rd September, 2020, the Royal Court issued a Letter of Request to the High Court of England and Wales so as to enable it to place Intu Merry Hill Limited ("the Company"), a Jersey registered company, into administration pursuant to the provisions of the Insolvency Act 1986. 

2.        We now give the Court's reasons for issuing the Letter of Request. 

3.        The Letter of Request was issued at the request to the Court made by Wells Fargo Bank, National Association, London Branch ("the Bank"). 

4.        The Bank is a branch of Wells Fargo Bank.

5.        The Company's sole business is in the indirect ownership of property constituting plots of land which collectively form a shopping centre known as the Merry Hill Shopping Centre, which is near Birmingham. 

6.        The Bank brought the application as agent on behalf of a syndicate of lenders.  The lenders advanced the sum of £487,822,500 into Intu Finance MH Limited.  Intu Finance MH Limited ("the Borrower") is a sister company of the Company.  Both are subsidiaries of companies in the Intu Group of companies, companies incorporated in England.  Intu Properties Plc is a real estate investment company specialising in shopping centre management and development, owning interest in shopping centres across the United Kingdom.  It is currently in administration in the United Kingdom.

7.        The syndicate of lenders lent the said sum of £487,822,500 under a Facility Agreement governed by English law and subject to the exclusive jurisdiction of the English court.  The sum loaned was originally advanced to the borrower in 2017 in order to re-finance liabilities under a previous Facility Agreement which was agreed in order to finance the acquisition by Intu Plc, through its subsidiaries, of various properties, namely the Merry Hill Shopping Centre, Brierley Hill, England and certain associated properties.  These include a shopping centre, retail park, cinema, food halls and parking facilities. 

8.        The Company does not directly hold the properties, but it is the indirect owner of the properties through its subsidiaries.  Significantly, pursuant to the terms of the Facility Agreement, the Company granted a fixed and floating charge security over its assets governed by English law and security over its intangible movable property located in Jersey, pursuant to a security agreement governed by Jersey law, made between the Company and the Bank acting as security agent and trustee on behalf of itself and the other lenders.  Prior to the recent public health crisis, the Intu Group had been subject to significant financial difficulties as a result of deterioration in the performance of the UK retail sector.  These difficulties were exacerbated by the recent and ongoing public health crisis which included a period of enforced closure of all shopping centres, including the Merry Hill Shopping Centre.  Attempts to restructure the indebtedness of the Intu Group were unsuccessful. 

9.        On 26^th June 2020 various professionals connected to KPMG were appointed administrators to manage the business property and affairs of Intu Plc and certain of its subsidiaries in England. 

10.      Various events of default have occurred under the Facility Agreement including breach of the loan to value ratio condition, which has arisen by virtue of the fact that the value of the properties is now significantly lower than the outstanding principal of the loan.  The Company is jointly and severally liable for any failure by the Borrower to perform its obligations under the Facility Agreement.  Various breaches of the terms of the Facility Agreement constituting events of default have resulted in the Bank accelerating payment of a portion of the loan and demanding immediate repayment of the same by the Borrower and, following non-payment, repayment by the Company as guarantor. 

11.      Accordingly, £438,520,196 of principal indebtedness remains outstanding plus interest, fees and costs as against the current valuation of £370,000,000.  The Company is insolvent in that it cannot pay its debts as they fall due and also on a balance sheet basis. 

12.      It is recognised that the Court has an inherent jurisdiction to issue a Letter of Request, asking that an overseas court appoint an administrator of a Jersey company.  The purpose of the draft Letter of Request placed before the Court was to lay the foundation for an application to the English High Court for an order under Section 426 of the Insolvency Act 1986. 

13.      The Court was assisted by an opinion provided by Leading Counsel Felicity Toube QC.  Counsel advises that the lenders whom the Bank represents are creditors of the Company, pursuant to the guarantee granted by the Company under the Facility Agreement.  She advises that pursuant to Section 426 of the Insolvency Act the High Court has the power to grant the Letter of Request sought in this case. 

14.      The relevant part of Section 426 reads:

"(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 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."  

15.      Jersey is a "relevant country or territory" as it is a country or territory outside the United Kingdom, and this Court has insolvency jurisdiction in respect of insolvency matters in Jersey.  The English Court is not obliged to provide assistance in response to a request and has a discretion, as would the Jersey Court in response to an incoming request made in respect of a company registered in another jurisdiction.  The English Court should, nonetheless, provide assistance where it properly can.  The word "shall" in Section 426(4) is evidence of this approach.  Counsel also observes that this is "also consistent with the general principle of comity".  This principle has been recognised in various Jersey authorities.

16.      As is clear from Section 426(5), the type of assistance that can be provided involves the application by the English Court of the Insolvency Law applicable either to the English Court or to the requesting court in relation to comparable matters falling within its jurisdiction. 

17.      Counsel indicates that the powers of the English Court under Section 426(4) and (5) have been given a broad interpretation.  The English Court may, where it considers appropriate to do so, grant assistance which it could not have provided in a domestic case where there is no Letter of Request.  The Royal Court has adopted a similar approach in the exercise of its own jurisdiction - see Lydian International Limited [2020] JRC 049. 

18.      Counsel advises that it is possible but unlikely that the English Court would make an administration order in the absence of a Letter of Request.  However, the English Court will have jurisdiction to make an administration order where a requesting court requests the English Court to make such an appointment. 

19.      The Court understands that in determining whether to grant an administration order in respect of the Company, the English Court will consider firstly whether the Letter of Request issued is one to which Section 426 of the 1986 Act applies (it is) and whether it is appropriate in all the circumstances to appoint an administrator. 

20.      Such an order is likely to be made in circumstances where the company is or is likely to become unable to pay its debts and an administration order is reasonably likely to achieve the purpose of administration. 

21.      It is clear that the Company is unable to pay its debts as they fall due.  Whether or not the purpose of administration would be reasonably likely to be achieved by an administration order is a matter for the English Court but, on the basis of the evidence presented to this Court, there are good prospects that the English Court will be satisfied that at least one of the statutory objectives contained in paragraph 3(i) of Schedule B1 to the Insolvency Act would be reasonably likely to be achieved.  It may also, in this Court's view, be convenient for the English Court to deal with the administration of the Intu Group Companies collectively.  The alternative for the syndicate of lenders is to enforce a security interest over the assets owned by the Company which would involve separate enforcement procedures in respect of multiple assets situated in Jersey and England, or an application for a désastre in Jersey which would possibly result in additional time and costs being expanded and would make it difficult, if not impossible, to rescue the Company as a going concern. 

22.      Importantly, a désastre, on the facts of this case would possibly be less beneficial for the creditors of the Company than an administration order - as it is said that any cessation or disruption of the underlying business may adversely affect the value of the assets of the Company.   

23.      Pursuant to the order made by the Court at the convening hearing dated 21^st August 2020, a notice was placed in the Jersey Gazette stating that this application was made and including an express notification to creditors.  No response was received to that notice.  Accordingly, it is unlikely that there are any other creditors in Jersey who would be prejudiced by the making of an administration order in England and Wales. 

24.      Accordingly, the Court granted the Letter of Request, as amended by the Court at the hearing. 

Authorities

Insolvency Act 1986. 

Lydian International Limited [2020] JRC 049