The Court of Appeal has dismissed a second appeal, in which the petitioner requested a winding up order against the respondent company. The Court offered crucial guidance about the Centre of Main Interests (“COMI“) test for a company.
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Background: Melars Group v East–West Logistics
EWL is a limited liability partnership (LLP) in the UK. Melars is a Maltese business that was registered in British Virgin Islands (BVI) up until 2015. The charter party agreement, which was signed by EWL and Melars in 2011 and was subject to arbitration in London, was what started the legal action. Thre were numerous disagreements between the parties and third parties. Melars started actions in Switzerland, and EWL started them in other countries across the world, including court and arbitral processes in England.
In the BVI, EWL was awarded a default judgment against Melars in 2016. Later in 2016, it went ahead and filed a petition in the English court to wind up Melars, primarily on the grounds that the its COMI was England and Wales, as a result, the English court had jurisdiction to initiate “main proceedings” under the Recast EU Regulation on Insolvency Proceedings 2015/848 (the “EU Regulation”).
According to Article 3(1) of the EU Regulation, a debtor’s COMI is the location where it regularly administers its interests and where it may be found by outside parties. Absent evidence to the contrary, a company’s registered office is assumed to be its COMI.
EWL’s case was approved, and Deputy ICC Judge Baister issued a winding-up order in July 2020. Because Malta was just a “letterbox” and it had no actual business there, he determined that Melars’ COMI was not located there. He considered competing arguments in favour of Switzerland and England and Wales, arriving at a decision in favour of the latter. This was based on the fact that the charter party had ties to England, that previous contracts were controlled by English law and had English dispute resolution clauses, that Melars used an online payment provider in England, and that Melars had participated in legal defence work there.
Miles J allowed Melars’ appeal in May 2021. He concluded that the Deputy Judge’s application of the COMI test had been flawed in a number of ways, including the fact that he had neglected to consider whether the linking factors on which he had relied were “ascertainable by third parties”.
Applying the decision of the Court of Appeal in Re Stanford International Bank  Ch 33, Miles J ruled that this criteria required information already in the public domain and which a typical third party would understand as a result of business with the corporation without enquiry. Many of the connecting elements used by EWL, in Miles J’s opinion, were inadmissible since there was no proof that they would be ascertainable by a typical third party creditor.
Discussion on COMI by Court of Appeal
The second appeal’s lead judgment was written by Snowden LJ.
First, he concurred at paragraph 46 with Miles J that the Deputy Judge had erred in believing that the legal presumption under Article 3(1) may be disregarded by the court because there is no proof that the debtor actually engages in any activities at the location of its registered office. It may make the presumption simpler to refute given a particular set of facts, but lacking evidence to the contrary, it still holds true.
Second, Snowden LJ believed that Miles J had taken a too limited stance on the issue of ascertainability and the idea of a typical third party at paragraphs 63 to 74. The phrase “typical” was a part of the facts and the argument in Stanford, and it didn’t refer to a hypothetical or typical creditor to the exclusion of the lessons that actual creditors who had dealt with the corporation had learned.
This point was demonstrated at paragraph 65 by the example of a debtor company that entered into ten separate and customized business contracts with ten different counterparties. Each contract was negotiated and signed by the same company representative in the same office, and each contract specified that the same representative of the debtor company in the same office would be responsible for handling the counterparty in respect to all matters arising out of the contract. In this scenario, even if each counterparty might be unaware of the other counterparties and contracts, these items would pass the ascertainability requirement.
Thirdly, Snowden LJ continued to hold that Miles J’s perspective on this matter was not relevant to his conclusion that the evidence cited by EWL did not change the presumption that Melars’ COMI was in Malta. In particular, the existence of contracts regulated by English law and requiring that disputes be resolved in London, as well as the other matters relied upon, had no bearing on its COMI. The Court dismissed the appeal.
Download the Judgement
COMI Test and “Letterbox” Companies
The ruling offers helpful clarity of the COMI test, especially as it relates to “letterbox” companies, or businesses with little to no physical presence and few interactions with creditors and other counterparties.
The EU Regulation is no longer applicable under English law (aside from in transitional situations), but the COMI test is still present in the “Retained Insolvency Regulation” that is made effective by the Insolvency (Amendment) (EU Exit) Regulations of 2019 and is also used when requests are made to recognize foreign insolvencies.
How Can We Help you Oppose a Winding Up Petition?
Our specialist winding-up petition lawyers are experts in defending winding-up petitions. We can advise you as to the specific merits and demerits of your case and can assist you in opposing winding up petitions and negotiating with creditors. If your company has been issued a winding-up petition or statutory demand, you may be able to challenge that petition on the following grounds:
That the debt alleged in the statutory demand or petition to be owing is genuinely disputed on substantial grounds by your company; Your company has a genuine right of set-off against the creditor that exceeds the amount claimed in the statutory demand; or In certain other limited circumstances (for example such as jurisdiction, technical or procedural error or delay).
To oppose a winding-up petition, you will initially need to file a witness statement in opposition with the Court within five business days before the date when the petition will be heard by the Court (rule 7.16 of the Insolvency (England and Wales) Rules 2016). A copy of that witness statement will need to be provided to the petitioning creditor at least five business days before the hearing.
Your company is entitled to appear at the petition hearing so as to oppose the making of a winding-up order. It is a routine matter for companies to instruct solicitors and/or barristers to appear on their behalf at the hearing.
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