The High Court was asked whether entities other than companies and associations could be considered ‘unregistered companies’ under Section 220(1) of the Insolvency Act (IA) 1986 and thereby wound up by English courts.
Background:
This appeal arose from an order dated the 10th of May 2024 by ICC Judge Kyriakides who dismissed the appellant’s petition for the compulsory winding-up of KMG SICAV-GB Strategic Land Fund, a sub-fund. The sub-fund in question is a dedicated fund for investing in the UK property market on behalf of an investment company known as KMG SICAVSIF-SA (‘the Fund’) which has been incorporated under the laws of Luxembourg since June 2008.
The appellant invested £20 million into the sub-fund, receiving 17,110,835 shares in the fund in return. In June 2016, the board of the Fund sent a notice to the sub-fund investors declaring its intention to suspend the calculation of the net asset value of the sub-fund shares. In February 2019, further notice was sent to the sub-fund investors that, due to continued economic and political uncertainty since the Brexit referendum, the board had decided to liquidate all of the sub-fund shares.
Since it is not possible, under Luxembourg bankruptcy laws, to obtain a winding-up order against the sub-fund, the appellant presented the petition in the UK on the 13 of May 2021 for the sub-fund to be wound up as an unregistered company under Sections 220-221 of the IA 1986. This application was dismissed in May of 2024 and the appellant appealed.
Decision:
The High Court agreed with the ICC Judge and dismissed the application. In dismissing the appeal, Mr. Justice Richard Smith found that “the authorities do not suggest a more open-textured approach, with the potential to encompass an even wider category of 'entities' than indicated by the express words of the section.” He rejected the appellant’s argument that the casting of the Risk Transformation Regulations 2017 supported the view that Parliament’s intention was to apply a more open-textured approach. Instead, the Risk Transformation Regulations 2017 clearly demonstrates that Parliament did not consider sub-funds (or similar entities) to be viewed as unregistered companies.
The Court also rejected the argument that “it would be anomalous if no effective remedy were available in England against foreign cellular structures offering investments in UK assets to UK investors.” Instead, the intention of Parliament was clear and sub-funds were not entities Parliament reasonably intended to be wound up as unregistered companies.
The Judge was not convinced by the argument that English courts should make a winding-up order, even if the investors would not be able to establish their contingent creditor status under Luxembourg law. Justice Richard Smith was persuaded by the evidence that there were other remedies available to the appellant.
Implications:
This decision is one of the rare instances in which the definition and scope of sections 220 and 221 – and more precisely of an ‘unregistered company’ – are considered. This judgement clarifies that sub-funds are not unregistered companies for the purpose of the Insolvency Act 1986, even where the entity shares some characteristics with a company.
In broader terms, this case is a good reminder that English courts will only be convinced that they should assume jurisdiction if there is good evidence that there will be no other remedies available. It is also important to understand the potential implications of investing in companies operating under the laws of foreign jurisdictions.