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Case: Hooley Ltd V Titaghur Plc, the Samnugger Jute Factory and the Victoria Jute Co Ltd [2016] CSOH 141, Lord Tyre, 11 October 2016

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Case: Hooley Ltd V Titaghur Plc, the Samnugger Jute Factory and the Victoria Jute Co Ltd [2016] CSOH 141, Lord Tyre, 11 October 2016 Hooley v Titaghur – a narrow view of common law powers and the principle of modified universalism Technical Bulletin No: 766 Case: Hooley Ltd v Titaghur plc, The Samnugger Jute Factory and The Victoria Jute Co Ltd [2016] CSOH 141, Lord Tyre, 11 October 2016 Synopsis: In a case involving parallel insolvency proceedings in Scotland (the place of incorporation) and India (the place where the companies' businesses and assets were located), the Scottish Court of Session (Outer House) held that paras 14 and 16 Sched B1 IA 1986 did not require the relevant floating charges to be enforceable under the laws of India where the relevant charged assets were located. The court, through a restrictive interpretation of the principle of modified universalism, also refused to give primacy to the Indian proceedings (commenced prior to the Scottish proceedings) or limit the Scottish administrators’ powers in line with constraints imposed by orders granted in India. Topics covered: administration; appointment of administrators; validity and enforceability of a qualifying floating charge; cross-border insolvency; modified universalism. The Facts All three companies (Titaghur plc (Titaghur), The Victoria Jute Co Ltd (Victoria) and The Samnugger Jute Factory Ltd (Samnugger)) were incorporated in Scotland but conducted business solely in India. The companies (and their assets) were subject to various orders of the Indian courts/authorities, including the following: (i) in 1990, Victoria and Samnugger were prohibited from charging or otherwise disposing of their assets; (ii) from 1998, the businesses of Victoria and Samnugger were being carried on by special managers appointed by the Employees’ Provident Fund of India (all three companies had previously had their assets seized by this government entity as a result of an alleged failure to meet certain pension fund contribution obligations); (iii) in 2005, a winding-up order was granted in respect of Titaghur; and (iv) an Indian winding-up was also pending with respect to Samnugger. In 2001, Victoria and Samnugger granted floating charges purporting to charge all of their assets, and these charges were assigned to the petitioner in 2005. As the holder of a qualifying floating charge in relation to the assets of Victoria and Samnugger, in 2011 the petitioner appointed administrators to both companies using the out-of-court route in Sched B1 IA 1986. In 2012, the petitioner also sought, and obtained, an administration order of the Scottish court in relation to Titaghur. The same administrators were appointed to each of the companies and the assets of each company were sold by the administrators to the petitioner. The companies’ assets were all located in India. The petitioner sought a declarator from the Scottish court that the administrators were entitled to transfer the companies’ businesses and assets to the petitioner and, as such, as a matter of Scots law, the sale agreements were effective to pass title to the petitioner. The petitioner intended to present this order as evidence in on-going proceedings in India. 1 The application was challenged by an Indian creditor on various grounds, principally arguing that the effect of the Indian proceedings (which the Scottish court should assist) rendered the appointment of the administrators invalid, and the administrators’ actions should be restricted so as not to hinder the Indian proceedings. The issues for consideration varied between the three companies but, in general terms, the key questions considered by the court can be described as follows: ( a) In order for a qualifying chargeholder to make a valid appointment under paras 14 and 16 Schedule B1 IA 1986, does the charge need to be valid and enforceable in the foreign jurisdiction where the secured assets are located (in this case, India)? (b) Were the powers of the administrators (including in effecting the sales to the petitioner) limited in any way by the on-going Indian proceedings (i.e. should the court, pursuant to the principle of modified universalism, give primacy to the Indian proceedings and restrict the administrators’ powers to the extent their exercise is considered valid as a matter of Indian law)? Decision On the first issue, the court held that paras 14 and 16 Sched B1 IA did not require any further inquiry (by the appointer or the court) beyond the terms of the relevant charging instrument(s). Para 14 required an assessment of whether the terms of the instrument(s) charged the whole or substantially the whole of the chargor’s property. Para 16 required an assessment of whether the charge was enforceable in accordance with its terms, i.e. had the requisite event (e.g. a default) occurred that, under the terms of the charging instrument, rendered the charge enforceable. No further investigation as to the practical enforceability of the floating charges under Indian law (being the jurisdiction where the secured assets were located) was required by the IA 1986. The court found that the petitioner had complied with the formal requirements set out in the legislation concerning the terms of the instrument creating the charge and the extent of property covered by the charge. The court’s assessment of para 16 Sched B1 IA referred to, and took support from, Lewison J’s comments in BCPMS (Europe) Ltd v GMAC Commercial Finance Plc [2006] EWHC 3744 (Ch). On the second issue, Lord Tyre, relying on the comments of Lord Sumption in Singularis Holdings Ltd v PricewaterhouseCoopers [2015] B.C.C. 66 (technical bulletin 585), held that the principle of modified universalism was restricted to the situation where the court was being asked to assist with winding-up proceedings that were taking place in the jurisdiction in which the company had been incorporated. In this case, where the companies were incorporated in Scotland and not India, the principle (if it applied at all) would have applied in the reverse such that any proceedings commenced in India should be treated as ancillary to the administration proceedings in Scotland. Therefore, the Scottish administrators’ powers were not, as a matter of Scots law, constrained by Indian law. In so finding, Lord Tyre rejected Lord Hoffman's suggestion in HIH Casualty and General Insurance Ltd [2008] 1 WLR 852 (technical bulletin 145) that the principal liquidation could be located somewhere other than the place of incorporation on appropriate facts. In Lord Tyre's view, such comments were unsupported in the later cases of Rubin v Eurofinance [2013] 1AC 236 (technical bulletin 443), and Singularis. 2 Comment As a Scottish decision, Hooley v Titaghur is not binding on the English courts. However, the conclusions reached on the interpretation of paras 14 and 16 Sched B1 IA will be useful for English practitioners and are welcomed. Requiring a substantive investigation of practical enforceability (potentially, in multiple jurisdictions), beyond the formal terms of the charging instrument, might have significantly affected the speed with which appointments could be made (and the associated costs), particularly in cross-border transactions. It would also have surprised many practitioners who, to date, will have been following the documentary interpretation approach now confirmed by the Scottish court in this decision. In Hooley, Lord Tyre adheres to a narrow version of assistance available under the principle of modified universalism, namely that assistance is only available to insolvency proceedings based in the place of the debtor's incorporation. Notwithstanding that this may be the correct result based upon the recent Supreme Court and Privy Council authorities, it produces the anomalous result that the validly appointed Scottish administrators (with unfettered IA 1986 powers) have potentially little control over the assets of the companies, whose businesses and affairs are all in India. Lord Tyre acknowledged that, whatever he may order regarding the validity of appointment as a matter of Scots law, the real hurdle for the petitioner (and the administrators) was the recognition of such order/appointment and its effects in India. Meanwhile, the courts of other common law jurisdictions have also been considering the scope of assistance available under common law powers and modified universalism, with some mixed results. In direct contrast to the Scottish court's decision in Hooley, the High Court in Singapore in Opti-Medix Ltd (in liquidation) [2016] SGHC 108 (technical bulletin 725) recognised, pursuant to the common law, liquidation proceedings commenced in the jurisdiction of a company's CoMI. At the time, Singapore had not adopted the UNCITRAL Model Law on Insolvency. It now has, and had the Model Law been available at the time, the Singapore court may not have needed recourse to common law powers at all. But as it was, the court boldly rejected Lord Collin's comments in Rubin, preferring instead those of Lord Hoffman in HIH. In the view of the Singapore judge, a CoMI basis for the principle of common law assistance reflected commercial reality. Less controversially, but no less helpfully, the Hong Kong High Court in BJB Career Education Company Ltd (in provisional liquidation ) v Xu Zhendong HCMP 1139/2016, granted assistance using common law powers, using them for the first time in Hong Kong to order the oral examination of an officer of a foreign company and the production of documents. Common law powers permitted the Hong Kong court to make an order enabling the foreign liquidator to do something in Hong Kong that he had power to do under the foreign law by which he was appointed, provided it was consistent with the substantive law and policy of the Hong Kong court (which it was in this instance). This decision is entirely in line with the Privy Council's decision in Singularis. Also following Singularis, but producing the opposite result, the Bahamian Supreme Court found itself unable to provide the assistance sought in Caledonian Bank Ltd 2015/COM/com/0034 (technical bulletin 727) because its powers to assist were restricted 3 to cases that fell within the scope of its new statutory cross-border provisions (i.e.
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