Recognised but not Compromised; English Court recognises Brazilian insolvency over dissolved company
On 21 February 2020, the English High Court in Osana Medonça and KPMG Finance recognised insolvency proceedings in Brazil over a dissolved English company.
The Brazilian court had appointed KPMG as the trustee in bankruptcy over the companies in the Schahin Group. Deep Black Drilling LLP, member of the Schahin Group is registered in England and was implicated in the Brazilian insolvency proceedings. KPMG therefore applied to the English Court for an order recognising the Brazilian insolvency proceedings in order to continue its investigations. The application was brought pursuant to the Cross Border Insolvency Regulations 2006 which incorporates the UNCITRAL Model Law on Cross-Border Insolvency into English Law. The difficulty that the application presented was that the company was previously dissolved and its assets were bona vacantia.
The English Court considered whether a dissolved company could be considered a debtor since it lacked legal capacity and whether this operated to debar recognition of the Brazilian insolvency proceedings.
The English Court, upholding the aims and purposes of the cross border insolvency regime, held that:
- the Brazilian bankruptcy proceedings fell within the definition of foreign proceedings in the Model Law so as to make them enforceable in England;
- that once the conditions for recognition are met the applicant is entitled to have the proceedings recognised;
- that case law and legislation confirms that the court recognises that a company’s affairs can be wound up even after it has been dissolved in the jurisdiction of its registration;
- it would be perverse in the context to adopt the parochial interpretation of debtor and refuse to recognise the insolvency proceedings on the basis that the company had been dissolved in England; and
- it would uphold the purpose of the legislation and provide assistance to the bona fide insolvency proceedings in Brazil is respect of the company.
Due to the fact the company’s assets were bona vacantia the court refused to entrust the administration and realisation of the company’s assets in England to KPMG. The court instead gave KPMG permission to make an application to restore the company as an essential step before they could have any rights to deal with the company’s assets.
This decision confirms the commitment of the courts to exercise their discretion in a manner to uphold the framework of cooperation in cross border insolvency.