In a judgment handed down on 28 October 2022, the Court of Appeal (Lewison LJ, Snowden LJ, Sir Launcelot Henderson) has dismissed a second appeal by which the petitioner, East-West Logistics LLP (“EWL”) sought an order winding up the respondent company, Melars Group Ltd (“Melars”). A copy of the judgment is available here.
In doing so, the Court provided important guidance as to the test for a company’s Centre of Main Interests (“COMI”).
EWL is an English LLP. Melars is a Maltese company, which until 2015 was registered in the BVI. The origin of the proceedings was a charterparty entered into between EWL and Melars in 2011, governed by English law and subject to arbitration in London. The performance of the charterparty gave rise to a number of disputes between the parties and others. Proceedings were commenced by Melars in Switzerland, and by EWL and others in various other jurisdictions around the world, including arbitral and court proceedings in England.
In 2016, EWL obtained a judgment in default against Melars in the BVI. It proceeded later in 2016 to present a petition in the English court to wind up Melars, on the primary basis that its COMI was in England and Wales and accordingly the English court had jurisdiction to open “main proceedings” under the Recast EU Regulation on Insolvency Proceedings 2015/848 (the “EU Regulation”).
Under Article 3(1) of the EU Regulation provides that a debtor’s COMI shall be the place where it conducts the administration of its interests on a regular basis and which is ascertainable by third parties. The registered office of a company is presumed to be the COMI absent proof to the contrary.
In July 2020, Deputy ICC Judge Baister accepted EWL’s argument and made a winding-up order. He held that Melars’ COMI was not in Malta because that was simply a “letterbox” and it had no real operations there. Having moved on to weigh rival factors in favour of Switzerland and England and Wales, he ultimately concluded in favour of the latter. This was on the basis of the charterparty’s connections to England, other contracts governed by English law and with English dispute resolution clauses, use of an online payment service in England and Melars’ involvement in defending legal proceedings in England.
In May 2021, Miles J allowed Melars’ appeal. He held that the Deputy Judge had erred in his approach to the COMI test in various respects, including that he had failed to examine the question of whether the connecting factors on which he had relied were “ascertainable by third parties” in the relevant sense. Miles J held that this test denoted matters already in the public domain and which a typical third party would learn as a result of dealing with the company without enquiry, applying the decision of the Court of Appeal in Re Stanford International Bank [2011] Ch 33. In Miles J’s view, a number of the connecting factors relied on by EWL were inadmissible because there was no evidence that they would have been ascertainable by a typical third party creditor.
Snowden LJ gave the lead judgment on the second appeal. First, he agreed at [46] with Miles J that the Deputy Judge had erred in his view that a lack of evidence that the debtor actually carries out any activities at the place of its registered office allows the court to ignore or disregard the legal presumption under Article 3(1). It may make the presumption easier to rebut on a given set of facts, but it remains an operative presumption absent proof to the contrary.
Secondly, Snowden LJ held at [63] to [74] that Miles J had adopted too narrow an approach to the question of ascertainability and the concept of a typical third party. The use of the word “typical” was a feature of the facts and argument in Stanford and did not denote some hypothetical or average creditor to the exclusion of what had been learnt by actual creditors who had dealt with the company.
This point was illustrated at [65] by an example of a debtor company which entered into ten separate and bespoke commercial contracts with ten separate counterparties, with each contract being negotiated and signed by the same representative of the company in the same office, and each contract identifying the same representative of the debtor company in the same office as being responsible for dealing with the counterparty in respect of all matters arising out of the contract. In such a case, these matters would satisfy the test of ascertainability even though each counterparty may be unaware of the other counterparties and contracts.
Thirdly, however, Snowden LJ went on to hold that Miles J’s approach to this issue was not central to his overall decision that the factors relied on by EWL did not displace the presumption that Melars’ COMI was in Malta. In particular, the existence of contracts governed by English law and providing for dispute resolution in London had no bearing on its COMI, and nor did the other matters relied on.
Accordingly the Court dismissed the appeal.
The decision provides useful clarification of the COMI test, in particular as it applies in the case of a so-called “letterbox” company or a company with little or no physical presence and limited dealings with creditors and other counter parties. The EU Regulation no longer applies in English law (save in transitional cases), but the test of COMI is reproduced in the ‘Retained Insolvency Regulation’ to which the Insolvency (Amendment) (EU Exit) Regulations 2019 give effect, and is also applied in applications for the recognition of foreign insolvencies.
James Sheehan acted for the respondent, Melars Group Limited, instructed by Oliver Humphrey, Hogan Lovells International LLP. Stephen Donnelly acted with James on the first appeal and at the written stage in the Court of Appeal.
