Bloom v Harms Offshore GmbH & Co KG

INSOLVENCY GROUP

Bloom v Harms Offshore GmbH & Co KG [2010] 2 WLR 349

It might be thought that the statutory prohibition against litigating against a company in liquidation or administration (without the leave of the Court) has worldwide effect; but does it?

The Court of Appeal recently considered this question in Bloom v Harms Offshore and held that the prohibition does not have worldwide effect, but that the court had jurisdiction in an appropriate case to grant an anti-suit injunction to restrain foreign proceedings so as to enable the administrators to exercise their statutory functions and to fulfil their statutory duties where a creditor’s conduct in pursuing such proceedings could be castigated as oppressive, vexatious or otherwise unfair or improper.

Very shortly after Oilexco North Sea Limited went into administration in England, two German creditors of Oilexco (Harms Offshore Magnus and Taurus) commenced a maritime claim in New York in respect of Oilexco’s pre-administration indebtedness to them and obtained, ex parte, Rule B attachment orders, the effect of which was to attach in their favour any sum which passed to or from Oilexco through New York (including through the main clearing banks, on whom the orders were served). In ignorance of these orders (which were not served on them), the administrators made a substantial payment of a post-administration debt in US dollars. Being a US dollar payment, it had to, and did, go through one of the New York clearing banks, whereupon it was caught by the attachment orders which Harms Offshore had obtained.

Upon learning of the attachment of their US dollar payment in New York, the administrators made applications both in New York and in England. The application in England was for an injunction restraining Harms Offshore from proceeding with the New York proceedings and positively requiring them to procure the release of the attachment orders they had obtained. Robert Engelhart QC, sitting as a Deputy Judge of the Chancery Division, granted the administrators this relief on Friday 15th May 2009. Harms Offshore appealed on Monday 18th May 2009 and the appeal was heard and determined on an expedited basis that Wednesday, 20th May 2009, minutes before a further hearing in New York was due to start at 10.30am New York time that very day.

Harms Offshore challenged the injunction on the basis that Paragraph 43(6) of Schedule B1 to the Insolvency Act 1986 (which prohibits the commencement or continuation of legal proceedings against a company in administration) did not have extra-territorial effect and the justification for the granting of anti-suit injunctions restraining foreign proceedings against companies in liquidation was the fact that such a company’s assets were subject to a statutory trust in favour of its creditors (Re Oriental Inland Steam Company (1874) LR 9 Ch App 557 and Re Vocalion (Foreign) Ltd [1932] 2 Ch 196), which did not exist in the case of companies in an administration.

The Court of Appeal held that it was difficult to interpret the statutory prohibition on bringing proceedings against a company in administration (Paragraph 43(6) of Schedule B1 to the Insolvency Act 1986) as applying to proceedings brought outside the jurisdiction but that it was unnecessary to arrive at a final conclusion on this issue because the Court’s jurisdiction was not restricted by the territoriality of the statutory prohibition. Stanley Burton LJ, with whom Ward LJ and Sir John Chadwick agreed, held that if the Court had a jurisdiction to protect the assets of a company being wound up by the Court from foreign attachments and executions (Re Oriental Inland Steam Company and Re Vocalion), it had a similar jurisdiction in the case of a company in administration. He found that the statutory trust justification which formed a central part of the court’s reasoning in those cases was only a “legal construct created to achieve the equitable distribution of the proceeds of the realisation of the assets of the company wherever situated”.

The Court of Appeal noted that whether it is appropriate to grant an injunction will depend upon the facts of the particular case and must be tempered by considerations of comity, which normally make it inappropriate for the Court to grant injunctive relief affecting procedures in a court of foreign jurisdiction, but said that the conduct of the creditor and the circumstances can justify a departure from that presumption. In particular, where the conduct of a creditor could be “castigated as oppressive or vexatious … or otherwise unfair or improper, this Court can and should grant relief in order to protect the performance by administrators of their functions and duties, and thus the creditors of the company, pursuant to orders of the Court.”

In the Oilexco case Sir John Chadwick described the Appellants’ conduct as having been to “set a trap for the administrators which, when sprung, obstructed the proper discharge of the functions for which the High Court had appointed them.” On this basis the injunction was held to be justified and the appeal was dismissed.

Comment

Given that a company’s worldwide assets (not just its territorial assets) are required to be collected in by a liquidator and brought under an administrator’s control, it is slightly surprising to find that the statutory prohibition against bringing proceedings against a company’s assets does not also extend to its worldwide assets.

It does not do so because the arm of UK legislation, is not long enough (without more) to reach across the waters and have extra-territorial effect.
However, the English Court can be quick lend a helping hand by using, in appropriate cases, its jurisdiction to grant anti-suit injunctions to protect against an obstruction of the proper discharge of the functions of an officer of the Court.

Legal case round up by Elspeth Talbot Rice QC and Edward Cumming, Barristers at XXIV Old Buildings, Lincoln’s Inn.