In 2008, following a "without notice" application, an English court had granted Mr. Schmitt recognition under English common law and authority to exercise the powers afforded to licensed insolvency practitioners under the Act. In 2010, the administrator issued an application against the Appellants for relief under s. 423 of the Act, claiming back the investment and alleged profits. Section 423 contains a statutory power to set aside transactions entered into at an undervalue for the purpose of defrauding creditors. Section 426 contains provisions for cooperation under which UK courts shall assist courts in "any relevant country or territory." Germany has not been designated a "relevant country" under the Act.
The Appellants appealed the 2008 recognition order. The High Court had to determine whether the Court had an inherent common law jurisdiction to permit the statutory powers under s. 423 to be applied to a foreign administrator not falling within the express scope of the Act. In this case, the only recourse was to common law principles. The Council Regulation (EC) No 1346/2000 on insolvency proceedings did not apply to cases involving investment undertakings. The UNICTRAL Model Law Legislative Guide on Insolvency Law 2005 could not be invoked because of the date when it was incorporated into English law.
Mrs. Justice Proudman concluded that in a case of conflict between "the application of black letter law and a broad commercial support of international comity there can be only one answer." Her Ladyship held that the Court had jurisdiction to grant recognition and assistance, and she dismissed the appeal. English courts should cooperate with the country of the principal liquidation "to ensure that all of the company's assets are distributed under a single system of distribution." Quoting Lord Hoffmann in, Mrs. Justice Proudman confirmed that there should be an "underlying principle of universality" in the English common law, whereby an English court would recognize and assist foreign insolvency representatives.
The purpose of recognition under s. 426, as Lord Hoffmann put it in, was "to enable a foreign office holder to avoid having to start parallel proceedings and to give them the remedies to which they would have been entitled if the equivalent proceedings had taken place in the domestic forum." Mrs. Justice Proudman said it would "be perverse to refuse relief on discretionary grounds in circumstances where recoveries had been made in more than 20 other major jurisdictions of proceeds of an alleged fraud in the context of a formal insolvency." There was no prejudice to creditors resident in England because the purpose of the proceedings was "to restore the estate and allow Mr. Schmitt to enforce his rights for the collective benefit of all creditors."
This decision shows the increasing willingness of the English courts to assist foreign insolvency proceedings. Two similar cases are due to be heard by the UK Supreme Court later this year , so this will remain an interesting area to watch – for debtors and creditors alike.
, Solicitor (England & Wales)