Jurisdiction under Article 6(1) of the Recast Insolvency Regulation

What are the practical implications of this case?

This case demonstrates the practical and flexible approach of the English courts when it comes to dealing with arguments which are "artificial" in nature.

In the present case, the Judge dismissed the proposition that there could be a distinction between a case where the issue of the effect of French insolvency law on the obligations under the agreement is determined before an order for specific performance is sought and, a case where that issue is raised after the order has been sought. The Court held that such distinction would be artificial and could be easily overcome using procedural tools.

This decision highlights the matters the court will take into account when determining jurisdiction under Article 6(1) of the Recast Insolvency Regulation and underscores the commercially sensible approach to the interpretation of rules which is taken by the English courts.

What was the background?

The claimants (the

The Borrower entered into insolvency proceedings in France, which are main proceedings within the meaning of the Recast European Insolvency Regulation (EU 2015/848) (Recast Regulation). As the proceedings were opened prior to 31 December 2020, the Recast Regulation continues to apply.

The dispute arose as the Borrower refused to comply with the Lenders' request for financial information made under the SFA, asserting that as a result of French insolvency proceedings, its obligations under the SFA were unenforceable. The Lenders sought the information because it feared the Borrower would propose a restructuring plan which would favour shareholders over the creditors and without the information they would not be able to put forward meaningful resistance to the proposal.

The Lenders brought Part 8 proceedings seeking a declaration that, broadly, obligations under the SFA were valid and enforceable (the

Consequently, the Borrower made an application for a declaration that the English court had no jurisdiction to hear the Claim because it derived from and was closely linked to the French insolvency proceedings. The Borrower argued that pursuant to Article 6(1) of the Recast Regulation jurisdiction lay with the courts of the Member State where the proceedings were opened (in this case France).

The Court had to determine whether the requirements of Article 6(1) were satisfied. The decisive factor was whether the Claim was based on the common rules of civil and commercial law or the rules specific to insolvency proceedings (Re MF Global [2015] EWHC 2319 (Ch)).

The Lenders' position was that this meant that that the question was whether the Claim itself derived from the insolvency proceedings. They argued that given the Claim was in respect of a contract its source is the common rules of civil and commercial law. The Borrower’s position was that the only issue was whether the right to information was overridden by the French insolvency proceedings and that the action fell within Article 6(1).

What did the court decide?

The matter came before Mr Justice Zacroli who held that the Claim does not derive directly from the French insolvency proceedings and as such is outside the scope of Article 6(1) of the Recast Insolvency Regulation. As such the English Court had exclusive jurisdiction to determine the Claim. The Judge considered numerous authorities and –

dismissed the Borrower's proposition that the question whether an action derived from the insolvency proceedings was to be determined by reference to whether an issue concerned the insolvency law of the foreign member state;
rejected an argument that the Court should consider whether “in view of the specific characteristics of the action” it had a direct link with the insolvency of the debtor and closely connected with the insolvency proceedings;
observed that it was clear that the action must derive from the insolvency proceedings.
the court considered the decision in ING Bank NV v Banco Santander SA [2020] EWHC 3561 (Comm) but concluded that there was nothing in that case that detracts from the essential question, posed by Article 6(1), namely whether the basis of the action finds its source in common rules of civil and commercial law or in the rules specific to insolvency proceedings.
dismissed the Borrower's proposition that there was a distinction between a claim for specific performance to provide information and the Claim for declarations in terms of the Borrower's obligations to provide information. The judge was satisfied that, in both instances, the legal basis of the Claim was the Borrower's obligation in the SFA, which had its source in the general civil law rather than rules specific to insolvency.