innteernwa tionsal b rief - stevens-bolton.com · innteernwa tionsal b rief Discoverwhat’snewintheworldofStevens&BoltonLLP Summer2014

internationalnewsbriefDiscover what’s new in the world of Stevens & Bolton LLP

www.stevens-bolton.com

Summer 2014

International Newsbrief contains reports and commentary on a selection of recent topical developments in England and Wales and isspecifically targeted at lawyers and other business professionals outside the jurisdiction. We also include some news of recentdevelopments at S&B.

If you or your clients would like any advice on the issues raised then please do not hesitate to contact the author of the relevant articleor your usual S&B contact.

1

The UK Independence Party obtained thehighest share of the vote in the recent EUelections. Led by charismatic beer-drinking, cigarette-smoking self-styled“ordinary bloke” Nigel Farage, UKIP’sshare of the vote rose from 16.5% in 2009to 27.5% this time. Meanwhile thestaunchly pro-European Liberal Democratslost 50% of their share of the vote from lasttime and lost all but one of their 12 MEPs.Their strongly pro-EU leader, Nick Clegg,who met his Spanish wife at the College ofEurope in Bruges, came under pressure toresign as a result.

UKIP is more of a pressure group than amainstream political party, with its primaryfocus being on an exit from the EU and

strict controls over immigration. MrFarage, though generally suave andcharming as an interviewee, has aparticular pre-occupation with Bulgarianand Romanian migrants, and facedaccusations of racism in the campaignafter he said that British people should bewary of Romanians moving into theirstreet. Following criticism he expanded:“any normal and fair-minded person wouldhave a perfect right to be concerned if agroup of Romanian people suddenlymoved in next door. So far as I can seemost of these media commentatorsobjecting to this statement are peopleliving in million pound houses for whomthe prospect of such a turn of events is nota real one”.

But he is at pains to disassociate UKIPfrom the more extreme right-wingers inother EU countries and has said that UKIPwill never sit with Marine Le Pen’s FrontNationale, who of course are themselvesnot the most extreme representatives inthe Parliament which now includesmembers of neo-nazi parties from Greeceand Hungary.

UKIP’s victory can be interpreted as anexpression of hostility and disillusionmentwith the EU project (a “peasant’s revolt” asLondon mayor Boris Johnson called it) butalso a reflection of the low esteem in whichthe British public hold all the main politicalparties in the UK. Turnout for the electionwas 33% against an average across theEU of 43% and compared to 65% in thelast general election. David Cameron, the

CONTENTSUKIPVICTORY 1-2

FRANCHISING - 2-3UKFRANCHISINGCONTINUESTO INSPIRE CONFIDENCE

JULES RIMET - OÙ ÊTES-VOUS? 3-4

GUEST ARTICLE - 4-5DISCOVERGLOBALGROWTHFROMAUKBASE

IMMIGRATION - 5-6FURTHER CHANGEAHEAD FORMIGRANTSTOTHEUKANDTHEIR EMPLOYERS

FROM LONDONTO LAND’S END 7

INSOLVENCY & RESTRUCTURING - 8FORUMSHOPPINGANDCOMI SHIFTING

SPOTLIGHT 10SCHEMESOF ARRANGEMENTS

TALKINGHEADS 11

UKIP VICTORY


2

Conservative prime minister and EdMiliband, the Labour party leader of theopposition, have struggled to fire theimagination of voters, accused of beingcareer politicians out of touch with ordinarypeople. They struggle to differentiatethemselves. Comedian Stewart Leedescribed Cameron and Miliband as beingas different as “two rats fighting over acourgette that has fallen down a urinal”.*

The big question is how UKIP’s victoryaffects the policies of the other parties andin particular the Conservative Party.Cameron is persisting with his strategy ofpledging an in out referendum on the EU if

the Conservatives are re-elected and totake place once Cameron has “re-negotiated the EU treaty”. With 28 memberstates needing to approve anyamendments, one worries about how easythis will be for him. He failed prettyspectacularly to prevent the appointmentof Jean-Claude Juncker as the nextPresident of the Commission, with onlyHungary supporting the UK and the other26 states opposing him. There may be atemptation for Cameron to steal UKIP’sclothes and pledge a referendum morequickly and possibly even without thecondition of obtaining vaguely-defined“concessions” from the EU.

Cameron certainly seems to be ruffled,taking a swipe at Farage on the day afterthe election and describing him as aconsummate politician “with his expensesand his wife on the payroll and everythingelse” and that he does not accept the“he’s a normal bloke down the pub” thing.Cameron described UKIP a few years agoas a bunch of “fruitcakes, loonies andcloset racists” and promptly saw UKIP’spopularity soar. Now those fruitcakes,loonies and closet racists have pushedhis party into third place in an election forthe first time in its history and just taken30% of the national vote. Interestingtimes lie ahead.

continued from page 1

The results ofthe latest annualNatWest /Br i t i shFranchise Associa-tion survey on theUK franchise indus-try are out andmake for goodreading. Not onlydoes it reinforce the

robustness of franchising as a method ofbusiness expansion in difficult economicconditions but as franchising crossesmany business sectors it also provides aclear indication of business trends.Franchise systems offering personalservices were the market leader for growthfollowed by hotel and catering franchisesystems. Pure retail systems and transportsystems fared less well.

Stevens & Bolton’s franchise practice isequally diverse with clients including acelebrity cage fighter with a mixed martialarts gym business and a pawn brokingbusiness specializing in high end luxurygoods, the success of which has spawneda mini TV documentary.

According to the survey, the UK franchiseindustry has grown by 11% since the startof the recession in 2008 where the rest ofthe economy has shrunk by approximately2.5% and it now provides an overallcontribution of £13.7 billion to the UKeconomy. This equates to just under 1%of GDP.

Interestingly, the vast majority (82% in total)of the franchise systems included in thesurvey are UK owned. This is very differentto the position 25 years ago, where most ofthe franchise systems were imports fromthe US. Approximately 9% of the current UKfranchise systems are owned by UKsubsidiaries and a further 9% are owned bymaster licensees. As the UK, unlike otherEuropean countries, does not have anyfranchise specific laws and pre-contractdisclosure is not compulsory (althoughrecommended by the British FranchiseAssociation) it is unlikely that regulation is adeterrent. Therefore perhaps the decline inthe number of foreign owned franchisesystems may simply be an indicator of thestrength of home grown systems which hasprovided a greater competitive barrier toforeign imports, or instead it may besymptomatic of the difficulty in fundingfaced by international franchisors looking toexpand beyond their domestic markets.

Expanding internationally can be a riskydecision but it remains the fact that the UKis one of the easier markets to franchise in,it has one of the lowest corporation taxes in

FRANCHISING

UK FRANCHISING CONTINUESTO INSPIRE CONFIDENCE

Give me a franchise

Nicola BroadhurstPartner,Franchising

* We in no way condone this gratuitously offensive imagery.

the G20 countries and a company can beestablished within 24 hours. In addition,there are a number of incentives on offer foroverseas investors willing to establish theirbusinesses in the UK. For example, UKTrade & Investment operates a GlobalEntrepeneur Program to assist overseasentrepreneurs and early stage technologybusinesses and start ups wishing torelocate to the UK. Free support is offeredon a number of aspects of businessestablishment including access toexperienced mentors and introductions toseed funds and investors. However, inorder to qualify the business must set up itsheadquarters in the UK. Entrepreneur

visas can be arranged with fundingavailable. Therefore, the UK should be anattractive destination and it is clear thatthere is still an appetite for overseasbrands, particularly those from the US. Itremains to be seen whether the new foundwariness of overseas franchisors continue.

Conversely it would appear that many moreUK franchise systems are seeking toexpand beyond the UK. The franchisepractice at Stevens & Bolton hasexperienced an increase in suchinstructions advising a premium cupcakebrand, a niche handbag restorationbusiness and a heritage menswear

business amongst others to expandinternationally. According to the survey,over 26% of UK franchisors are nowexporting internationally with over 14% ofthose not currently operatinginternationally considering doing so in thenear future. Europe remains the primedestination followed by the US andCanada. Over the last 12 months, however,it has been the Middle East, South Africaand Asia which has attracted the majorityof our franchise clients. It would appearthat the UK franchise industry is a force tobe reckoned with.


3


“It’s coming home,it’s coming home,it’s coming, football’scoming home!” Asa young lawyerworking in Londonin 1996 I sangthose words loudly,proudly and almostendlessly throughout

that year’s UEFA European FootballChampionship. But it didn’t come home,not then and not since then. Telephoningits friends has proved to be no help at all,as wherever football has gone it seemsto have taken with it rugby, cricket,tennis, almost all winter sports and mostsummer events not involving a bicycle ora boat. Since 1966 every English childhas been brought up to believe that theWorld Cup trophy is a loyal homingpigeon (probably called Jules), which hasspent some time visiting other nationsbut ultimately, guided by the laws ofnature, will return to its English birdhouse(probably Room A). Like otherfundamental laws, however, this oneseems not to apply when World Cup timecomes around.

Laws suspended during this World Cupinclude:

(a) The Equivalence Principle (a key part ofAlbert Einstein's general theory ofrelativity) - which states that anacceleration is fundamentallyindistinguishable from a gravitationalfield. This principle was disproved byLuis Suarez and his teeth acceleratingpast the English defence, which was

clearly trapped in a very distinguishablegravitational field;

(b) Isaac Newton's first law of motion – therule that a body will continue in its stateof constant velocity unless it is actedupon by an external force. ArjenRobben demonstrates that there is noneed for an external force to act upona moving footballer whenever heenters the penalty box;

JULES RIMET - OÙ ÊTES-VOUS?

Joe BedfordPartner,Corporate


4

(c) The Law of Averages – which dictates

that, as a minimum, England are

supposed to at least play averagely in

major tournaments;

(d) Mach's Principle (devised by Ronald

McDonald) – the principle that the

inertia of any particular particle or

particles of matter is attributable to the

interaction between that piece of

matter and the rest of the Universe.

Olivier Giroud is just really really slow;

and finally:

(e) The Dilbert Principle (a theory put

forward by Dilbert cartoonist Scott

Adams) - suggesting that companiestend to systematically promote theirleast competent employees tomanagement in order to limit theamount of damage they are capable ofdoing. Nice try English FA, but RoyHodgson still did plenty of damage.

So World Cup 2014 appears to be alawless place, at the same time blessedwith some great footballing moments andcursed by bouts of phantom injury andblatant acts of cannibalism. Furthermore(and depending upon which translationyou believe), Uruguayan president JoseMujica believes it is being run by either (a)

a collection of grey haired men born ofunmarried parents, or (b) a group of themale children of a number of female dogs.Much like the main strands of theCopernican Principle (which suggestedthat the Sun, not the Earth, was the centreof the Universe) it is probable that neitherof these is correct. It is statistically likely,however, that before the end of thetournament there will be more cosmosmocking twists of fate. Maybe England canstill win it after all?

I will leave some bird seed out for Jules,just in case…

The UK is one of the leading businesslocations in the world and the number onedestination for inward investment (ForeignDirect Investment) in Europe.

The UK has consistently attracted moreforeign investments with HQ operationsthan any other location in Europe; a clearendorsement of our business-friendlyregulations and thriving environment forinnovation and growth.

Unlike most of its competitors, the UK isn’tjust an investment destination: rather, it isan investment multiplier, a springboard tointernational growth that upgrades thevalue of a company’s investment. The UK,in itself, offers the best of internationalbusiness. Companies don’t do business inthe UK just because they’re interested inthe prosperous UK market. They alsocome here to become global.

Setting up a business in the UK takes anaverage of 13 days, and it takes as little as24 hours to register a company. The UK’s

internationally competitive corporate tax

system, which will include 20 percent

corporation tax in 2015 – the lowest in the

G7 and joint lowest in the G20 – has

always been and remains an increasingly

valuable asset in attracting overseas

European Headquarters (EHQ). Investors

in the UK will find a highly skilled labour

force, as well as an ever-increasing pool of

industry talent. Alongside an advanced

transport and technology infrastructure – a

critical factor for attracting EHQ investment

– and internationally recognised

capabilities in a wide range of sectors, the

UK undoubtedly offers a wealth of

advantages for investors.

The UK is a world leader in knowledge-

based, business and professional services.

In 2012, business services accounted for

8 per cent of UK output (Gross Domestic

Product). World-class firms specialise in

accountancy, audit, legal services,

information technology, property

management, architecture, advertising,

management consultancy and

engineering, to name but a few. UK

professional services firms are honing their

skills in increasingly competitive world

markets and can play a vital role

supporting new investors’ businesses.

Deciding where to locate your

international business is often a long and

involved process. It is UK Trade and

Investment’s (UKTI) job to know the UK’s

strengths and where investment

opportunities exist. UKTI works with a

range of professional advisors to support

their overseas clients who are expanding

to the UK, or that have already established

UK operations. Clients’ needs can be wide

ranging and technical. Because of this,

UKTI want to work together with companies

to support their investment journey.

UKTI offers an unrivalled service dedicated

to working with companies to bring their

operations to the UK and to support existing

investors in expanding their UK operations.

GUEST ARTICLE

DISCOVER GLOBAL GROWTHFROM A UK BASE

S&B works with UKTI to promote inwardinvestment into the UK and UK exporting activity.



5

To find out more about how UKTI canprovide the tools to map companies’business ambitions in the UK, contact theirexpert team.

The UK is the leading global financialservices centre and themost internationallyfocused marketplace in the world.

Financial services touch every aspect of oureveryday lives. The sector provides financeand services that keep businesses working,and supports jobs and growth across theUK.The sector employs over one million peoplein the UK, and another million in the relatedprofessional services.With an innovative andbusiness friendly environment, skilledworkforce, competitive tax regime,advantageous time-zone, diverse languagecapability, a strong legal and regulatoryenvironment, global links, excellent ICTinfrastructure, there are many compellingreasons for investors to choose the UK.

Foreign companies invested a cumulative£40 billion in the UK financial services

sector between 2008 and 2011 - close to athird of total foreign direct investment (FDI).The industry attracts more FDI into the UKthan any other sector. Financial andrelated professional services contributed£174 billion to the UK economy in 2012with around a third of this sum arising fromexports to overseas clients.

Earlier this year UK Trade and Investmentestablished the Financial ServicesOrganisation (FSO), to help support UKbusiness growth through high value FDIinto the UK and international trade.

Through its bank of knowledge, extensivenetworks and teams of specialists, the UKTIFSO will identify and leverage potentialopportunities for trade and investment.

The team is led by Sue Langley, ChiefExecutive who was previously Director ofMarket Development at Lloyd’s of London.The FSO is working closely with privatesector and academic experts, and withother government departments through

offices across the UK and through UKTI’sglobal network. The FSO will focus effortswhere they can have most impact and isdeveloping strategies for InvestmentManagement, Back and Middle Office(BMO), Insurance and FinancialTechnology (Fintech). It also supports anddelivers the work of the HM Treasury-ledFinancial Services Trade & InvestmentBoard (FSTIB), a major cross Governmentinitiative to champion the sector andensure the UK remains the leading globalhub for financial services.

Interested companies should contactthe FSO or their local UKTI InternationalTrade Advisor.

E: [email protected]: +44 (0)20 7333 5442www.ukti.gov.uk

Is Britain truly ‘openfor business’? Itmay not feel like it ifyou’re an employerwho sponsorsmigrants to workfor your business inthe UK or if youhave clients lookingto set up a

business in the UK. With immigration stillbeing such a hot political topic, thegovernment can’t leave this area alone.There are further changes ahead, which,while not on the face of it affectingemployers directly, could well have animpact on them and their businesses.

The Immigration Act 2014 received RoyalAssent, officially becoming law, on 14 May2014. This new Act will effect a number ofsignificant changes, in particular limitingthe appeal rights of migrants and theiraccess to services in the UK. This is in linewith the Home Office’s aim to reduce netmigration and prevent abuse of theimmigration system. Indeed, the HomeSecretary, Theresa May, has previouslydeclared the government’s intention toreduce net migration to the tens ofthousands though recently has concededthis is a long-term aim. In practice,however, it may well make life moredifficult for legitimate migrants and theiremployers.

Employers, or those with clients sponsoringskilled migrants under Tier 2 of the pointsbased system, are advised to be aware ofthese forthcoming changes and to take anyprecautionary action that may be relevant.

Appeal rightsThe number of immigration decisions thatcan be appealed has been reduced from 17to 4. Essentially only applications involvingasylum or human rights claims will stillretain a right of appeal.

For other refusal decisions, there will be theadministrative review process whereby anerroneous decision can be overturned bythe visa post. However, administrative

IMMIGRATION

FURTHER CHANGE AHEADFOR MIGRANTS TO THE UK

AND THEIR EMPLOYERS

Jackie PenlingtonAssociate,Immigration


review does not equate to a full appeal andthe chances of success are generally lower.

This change in appeal rights will mean a Tier2 migrant who is refused an extension ofleave or Indefinite Leave to Remain in theUK would not have a full right of appeal(unless their application involved any humanrights element). If the administrative reviewprocess is not successful, it could mean Tier2 employees having to return homepermanently or be out of the UK for a periodof time to rectify their immigration situation.

There has been no announcement of whenthese provisions will come into force.However, it may be advisable for employersto conduct a review of their employees’immigration status and, in conjunction withimmigration advice, see whether any leaveto remain or Indefinite Leave to Remainapplications should be made now beforethe changes come into effect.

Landlord checksAs they have already done with employers,the Home Office now plan to outsourceimmigration checks to private landlordswho will be required to make specifiedchecks on new tenants to ensure they havethe right to reside in the UK. This includeshouseholds taking in lodgers or sub-tenants. Landlords who fail to carry out therequisite checks will be subject to a civilpenalty regime and may face a fine of up to£3,000 per migrant.

It is easy to see how these provisions maymake it difficult for migrants to find rentedaccommodation in the UK, even though theHome Office assures us that anti-discrimination measures will be put in place.

Also, for employers offering accommodationto their staff in the UK, it is important thatthey ensure they are fully compliant with thechecks once the scheme is operational. Apilot is due tobe rolledout fromOctober 2014.

NHS surchargeIn order for migrants to contribute to thecosts of the NHS, a health surcharge willbe introduced. This will require thosemigrants applying for leave in the UK of 6months or more to pay a surcharge as partof the visa process in exchange for full

access to NHS care (subject to someexceptions). The figure is expected to beapproximately £200 (or £150 for students).

For employers who already bankroll theiremployee’s Tier 2 applications, this may bean additional cost to bear.

Other recent changesThere have been other important changesrecently, notably:

• the right to work checks that provideUK employers with a statutory defenceagainst a civil penalty for employing anillegal worker. These were updated on16 May 2014 and have increased thecivil penalty from £10,000 to £20,000per illegal worker. The initial right towork checks must still be made beforethe first day of work and subsequentchecks on expiry of the migrant’s leavein the UK. All UK employers are advised

to urgently review their policies toensure they are fully compliant;

• Tier 2 (General) and Tier 2 (IntraCompany Transfer: Long Term)migrantscan now choose to apply for a 5-yearvisa (rather than an initial 3 year visafollowed by a 2-year extension); and

• there have been slight increases in theTier 2 minimum salary thresholdsand changes to the appropriate salaryrates for the Standard OccupationalClassification (‘SOC’) codes.Employers should check they are usingthe appropriate SOC code beforeassigning a Certificate of Sponsorship.

It is likely that immigration will continue to bea pressing issue in the UK for the foreseeablefuture. As always, it is best to seek adviceearly if you or your clients will be affectedby any of the changes outlined above.


6


A migrant comes to the UKready for his landlord check

challenge wasmental, marrying the need to

focus on the road ahead (following the route

and avoiding cars, bikes and potholes in

both daylight and pitch dark) with

maintaining the mental resolve to carry on,

no matter how brutal things became.

The ability to concentrate for long periods in

granular detail is one that marks a strong

lawyer. Avoiding a sheep that is asleep on

the tarmac at 2am on Dartmoor similarly

marks the ability of the ultra-long distance

cyclist. Likewise, tenacity and resolve are

features required in gaining our clients a

competitive commercial advantage. I am

not a natural cyclist, nor do I bask in the

delights of the sort of equipment that might

grace the professional peleton. But what I

found out on those roads was the

unbending will to carry on, to prove that Icould do it. I set out the particulars of mycase to myself, and found inside the will topass a favourable judgment.

So, what did I discover inside?Belligerence, resolve and the unbendingdesire to prove ‘em all wrong. In otherwords, the answer to why I became alawyer, instead of pursuing my originalpassion for archaeology. Eureka!

I should add that I was riding to raise fundsfor Parkinson’s UK, and the support offriends, colleagues and clients has beenoverwhelming, providing an unlimitedsource of fuel to fire the challenge. If youfeel you wish to learn more, then follow thislink: https://www.justgiving.com/richard-neill-ride24/. See you out on the roads!

FROM LONDON TO LAND’S ENDThere are occasionsin life that providethe opportunity tolook deep into one’ssoul and to ask thequestion as to whatis in there. I haverecently beenprovided with just

such an opportunity while riding fromLondon (capital of the UK, at least until theoutcome of the Scottish Referendum) toLand’s End (which is at the very tip ofCornwall and the UK mainland’s mostwesterly point) in 24 hours.

Some statistics:

• 310 miles, or 500 kilometres.• 6,200 vertical metres of climbing.• 24 hour time limit, so covering the

distance in one go with short food/waterstops.

England may not boast the Passo delloStelvio, the Alpe d’Huez or the Alto del’Angliru, but neither does it possess thesweeping pan-flat roads of the Netherlands.It is a constant succession of hills, somelong and shallow, others long and verysteep, but rarely punctuated with periods ofstraight, flat pedal-friendly roads.

Riding a bike is a fusion of the physical andthe mental. On the physical side, it is theutilisation of muscle, ligament and thesupporting infrastructure to drive the bikeforwards. That is to some extent controlledby feeding, so worked out OK, though it wasincredibly painful for long periods. The real

The locals all cameout to watch Richard

Richard MumfordPartner, Aviation


7

in another jurisdiction, as well as creditorsseeking to challenge a debtor who hasdisingenuously sought to do so. In thisarticle we briefly summarise the relevantlaw, examine why the English insolvencyregime may be favourable to foreigncorporations and individuals alike andconsider what steps they should considertaking if they wish to take advantage ofEnglish insolvency procedures, togetherwith the factors the English courts look atwhen deciding whether there has been agenuine shift.

The LawCouncil Regulation (EC) No 1346/2000 onInsolvency Proceedings establishes whichcountry’s laws should govern insolvencyproceedings within the EU. The regulationis based on the premise that the “main”insolvency proceedings should becommenced in the country in which adebtor has its centre of main interests(COMI). It should be noted that“secondary” proceedings can also beopened (in addition to the “main”proceedings), although a full discussion onsuch proceedings is beyond the scope ofthis article.

The preamble to the Regulation statesthat COMI should correspond to the placewhere the debtor (including a corporationor individual) conducts the administrationof his interests on a regular basis and istherefore ascertainable by third parties.Article 3(1) provides that in the case of acompany, the place of its registered officeshall be presumed to be its COMI in theabsence of proof to the contrary.However, no comprehensive definition ofCOMI is provided and the concept hastherefore evolved through interpretationby the courts of the various memberstates and ultimately the European Courtof Justice.

The European Commission has proposedamendments to the Regulation to clarifythe concept of COMI (as well asamendments to the operation ofsecondary insolvency proceedings) in aneffort to reduce complexity and costs. Ina bid to eliminate forum shopping beingabused, it has been proposed that adebtor (corporation or individual) shouldregularly conduct the administration of itsinterests in a particular jurisdiction for atleast three months prior to thecommencement of any insolvencyproceedings in that jurisdiction.

Forum Shopping – Why?

Corporate InsolvencyThere are numerous reasons why theinsolvency regime of a particularjurisdiction may be attractive. In England,the reasons why corporate insolvencyprocedures are often attractive include:

• familiarity with and certainty ofthe process - many sophisticatedglobal creditors are becomingincreasingly familiar with the Englishadministration procedure andschemes of arrangement;

INSOLVENCY AND RESTRUCTURING

FORUM SHOPPING AND COMI SHIFTING

What is Forum Shopping?The term “forum shopping” broadly refers

to the ability of a debtor (or other

stakeholder) to take advantage of

insolvency procedures in the jurisdiction

which will best serve their interests. Debtor

corporations are increasingly seeking to

take advantage of the corporate insolvency

procedures available in England, in

particular administrations, as well as

schemes of arrangement (see box below).

In terms of personal insolvency, England

has a bankruptcy regime which is

considerably more debtor-friendly than

those of our European neighbours and thus

over recent years there has been an influx

of debtors seeking to become bankrupt in

England, a practice that has become

known as “bankruptcy tourism”.

Whilst forum shopping can be a positive

thing (in certain cases it may result in the

recovery of an insolvent entity or a better

result for creditors than would otherwise be

achieved) the English courts have been

quick to clamp down on cases where forum

shopping does not involve a genuine

transfer of interests and prejudices

creditors. The European Commission has

proposed a number of reforms which,

amongst other things, seeks to reduce

abuse in forum shopping.

An understanding of forum shopping can

assist debtors who may genuinely wish to

take advantage of insolvency proceedings

Tim CarterPartner,Insolvency

Dawn GrocockAssociate,Insolvency


8

George Best. Bankrupt in the UK.“I spent 90pc of my money onwomen, drink and fast cars.The rest I wasted.”

• availability of ‘out of court’ proceedings- English administration procedureallows an administrator to be appointedsimply by filing documents at court andwithout any judicial scrutiny;

• flexibility – in some jurisdictions thecommencement of local insolvencyproceedings may trigger events ofdefault under loan documentation;

• ability to choose the office holder –under the English administrationprocedure, certain secured creditorscan appoint an administrator of theirchoosing whereas in manyjurisdictions, the office holder isappointed by the court;

• availability of certain mechanismssuch as pre-pack sales - where a saleof the insolvent entity’s businessand/or assets is negotiated andagreed prior to the appointment of aninsolvency practitioner, and the saletakes place immediately following theappointment; and

• existence of a moratorium - a periodin which creditors are prevented fromtaking any action against the insolvententity when a corporation entersadministration in England or Wales.

Personal InsolvencyIn relation to personal insolvency, Englandand Wales has a bankruptcy regime whichis considerably more debtor-friendly thanthose of our European neighbours, with abankrupt automatically being dischargedafter a year compared to the until recentlytwelve year period under Irish law (whichhas now been reduced to three years) andat least six years under German law.

The scope of the discharge under Englishlaw also extends to the wiping of all debts(subject to a few exceptions), so thateffectively the discharged bankrupt canstart afresh, debt-free. Many otherEuropean jurisdictions are much lessfavourable. Therefore, it is not surprisingthat England has seen a steady stream ofdebtors from other European countries (in

particular Germany and Ireland) coming toEngland to petition for their ownbankruptcies.

It is noteworthy that the recommendationof the European Commission published inMarch 2014 suggests reverting to amaximum duration of three years in relationto the debts of “honest” bankrupts, in anattempt to harmonise laws across theEuropean Union; such a recommendationis not currently legally binding and the oneyear discharge applies.

COMI shiftingThe courts have recognised that a debtormay change its COMI to England, enablingit to take advantage of English insolvencyprocedures. However, the courts will nottolerate spurious attempts which areprejudicial to creditors.

CorporationsAn increasing number of foreigncorporations have shifted their COMI toEngland for the reasons outlined above.Shifting its COMI to take advantage of theinsolvency procedures or schemes ofarrangement available in England istherefore a realistic option potentiallyavailable to foreign corporations, providedthat the COMI shift is genuine andtherefore not an abuse of process.

The various steps which have beenconsidered as successfully achieving aCOMI migration to England have included:

• changing the registered office andregistering it with Companies House;

• transferring head office andmanagement functions;

• opening and using English bankaccounts;

• informing creditors and suppliers ofthe change of location;

• conducting negotiations with creditorsin England; and

• the transfer of the company’s businessand assets to England.

The challenge to any migration of acorporation’s COMI will depend ultimatelyon the facts of the individual case and theextent to which all or some of the abovehave been undertaken. Where the shift isgenuine, ascertainable by third parties andhas some element of permanence, thecourts have not looked to interfere. Factorswhich have been held to negate a COMIshift to England include: key functions notbeing carried out in England; location ofemployees and creditors outside ofEngland; and the company not havingtraded in England. In practice, sometimesa shift in the corporation’s COMI has beensuccessfully achieved in a relatively shorttime frame i.e. around three months (seefor example Re Magyar Telecom BV [2013]EWHC 3800 (ch)).

IndividualsIn relation to an individual, the factors thatthe courts may consider in determiningwhether their COMI has moved to Englandinclude the location of their bank accountsand assets. Individuals will be required toproduce evidence of that move, forexample by producing payslips, bankstatements, utility bills and tenancyagreements pertaining to England.

The courts will not, however, allow thesystem to be exploited and creditors to beunfairly prejudiced; evidence is rigorouslyexamined and where there has been nogenuine transfer of COMI, the case struckout. In Re Eichler (A Bankrupt) [2011] B.P.I.R1293 the court noted that, due to thepersistent abuse of its jurisdiction, a debtormay be required to file detailed evidence inorder to prove that his COMI genuinely wasin England and/or the court could adjournany bankruptcy hearing to allow notice tobe given to creditors so that they have theopportunity to oppose the making of anybankruptcy order in this jurisdiction. This isa clear warning shot to the “bankruptcytourist” without a genuine COMI claim thathe/she will also face resistance fromcreditors (and not just the court).


9


The recent case of Schrade v SparkasseLudencheid ([2014] EWHC 1049 (ch)) is anexample of the court’s robust approachwhere the High Court (on appeal) ruledthat the debtor’s COMI had nottransferred from Germany to England,even though the debtor had moved toEngland in May 2012 and petitioned forhis own bankruptcy in January 2013, incircumstances where he had previouslylived in Germany for his entire workinglife. The factors considered by the courtto be against the debtor in this caseincluded that: the debtor’s familyremained in Germany; his main bankaccount appeared to be based inGermany; he held stocks and shares inGermany; and he was involved in litigationin Germany. In addition, the debtor’screditors were almost entirely based inGermany. The court therefore was highlysuspicious that the debtor’s move toEngland was not in fact genuine and hadall the hallmarks of forum shopping. Inorder for an individual successfully to shifttheir COMI to England, he/she will needto convince the court that it is genuine, forexample, by:

• bringing their family to, and setting upa permanent home in, England;

• taking up employment in England;setting up an English bank account; and

• generally conducting their affairs inEngland.

In terms of timeframe, the court noted inOfficial Receiver v Eichler that althoughthere was no minimum period of timerequired for an individual to have movedtheir COMI before petitioning forbankruptcy, a few days or even a fewweeks would be unlikely to suffice. Such ashort period would be at odds withconducting the administration of one’sinterests in a place “on a regular basis”.As noted above, the proposed reform is tointroduce a minimum period of at leastthree months.

It is also worth noting that a bankruptcyorder can be challenged (on the groundsof the debtor’s COMI) by a trustee in

bankruptcy or his creditors after it is madein England pursuant to section 282 of theInsolvency Act 1986; a successfulchallenge would result in the annulment ofthe bankruptcy order on the basis that theEnglish court did not have the requisitejurisdiction to make it in the first place.

ConclusionForum shopping is consistent with theprinciple of free movement within the EUand increases economic welfare, whichmust be considered a good thing.

While forum shopping is clearly open toabuse, the net is closing in on those seekingto abuse the system, with recent case lawillustrating the robust approach of the Englishcourts to sham cases. This means thatgenuine relocations of COMI for corporationsor individuals alike will stand up to anychallenge, whilst creditors of disingenuousdebtors should be able successfully to relyon the courts to ensure that such debtorsdo not prejudice their interests.

Furthermore, the widespread promotion of“improper” forum shopping will not betolerated - in January 2014, an English legalfirm which had abused the system byoffering bankruptcy relocation services toGerman nationals seeking to takeadvantage of the more favorable Englishbankruptcy regime had been the subject of

COMI shifter? - likelyBankruptcy? - less likely

an investigation by the Insolvency Serviceand was wound up by the High Court.

As above, reform of this area of law isimminent and it will be interesting to seewhich of the European Commission’srecommendations are adopted; however, itis expected to be at least two years beforeany amendments to the Regulation comeinto force.

SPOTLIGHT:SCHEMES OFARRANGEMENTSOver recent years there has been a surgein foreign companies using Englishschemes of arrangement as arestructuring tool, for either solvent orinsolvent companies. A scheme ofarrangement is effectively a compromisebetween a company and its creditors ormembers (or any class of them) under Part26 of the Companies Act 2006 and isrequired to be sanctioned by the court. Ascheme of arrangement is potentiallyavailable to a company which is liable tobe wound up under the Insolvency Act1986, including foreign companies.

An English court will only sanction a schemeinvolving a foreign company if it is satisfiedthat there is a “sufficient connection” withEngland (which is a far less onerous testthan under the COMI rules) (Re DraxHoldings Ltd [2003] EWHC 2743 (ch)).Perhaps the most clear cut example of“sufficient connection” is the location ofassets within that jurisdiction, althoughother factors include the location of thecompany’s COMI.

In the recent case of Re Apcoa ParkingHoldings GmbH and others [2014] EWHC1867 (Ch) the High Court sanctioned ascheme of arrangement in respect of a groupof companieswhose parentwas incorporatedin Germany in circumstances where Englishlaw had been adopted pursuant to a changeof law clause in the relevant facilitiesagreement. The High Court found that therewas a sufficient connection to England.


10



11

TALKINGHEADSIn this edition of InternationalNewsbrief we interview Gustaf Duhs,Head of Competition & Regulatory

So if you have aclient engaging inanti-competitiveactivity how do youhelp them get awaywith it?Ha ha - that’s not aparticularly easyopening question.

Are you trying to get me into trouble? Ofcourse we have professional obligations,and I am also well aware that professionaladvisers have previously been fined byregulators for facilitating cartelarrangements. We are in the business ofpreventing and mitigating risk on behalf ofour clients but we certainly would not putourselves on the wrong side of the law!

But there are some features of competitionlaw that can assist with risk mitigation:

• In the UK there is now a defence to thecriminal cartel offence if advice on therelevant arrangements has been soughtfrom a lawyer. As yet there are no casesto explain if and how this new defencewill work in practice - but as lawyers wewould in any event encouragebusinesses to seek our advice!

• Readersmay already be familiar with theleniency programmes and this has in thepast been very effective in reducing riskswhere businesses find themselves onthe wrong side of the line.

• Abstinence is themost effective form ofcontraception and an important part ofour job is helping clients stay on theright side of the law.

So you’re head of competition andregulatory law - just what does thatmean in practice?In short, I manage the competition andregulatory work at S&B.

In terms of competition law, our team does

the full range, from core areas such asmerger control and competition authorityinvestigations to state aid, procurement lawand EU law such as free movement issues.

In terms of the ‘regulatory’ aspect thisbroadly involves advising on legalobligations that can give rise to regulatoryinvestigations - which is wide (and everwidening) in scope. Luckily we havetalented cross departmental team at thefirm that can assist. Areas covered includeanti-bribery law, consumer law, dataprotection, fraud, health and safety andpharmaceutical regulation. We are wellplaced to respond quickly through ourRegulatory Investigations Team.

In practice this means that I am busy with avery varied work load and with a lot of areasto stay on top of. “Variety's the very spice oflife, that gives it all its flavour” seemsapposite.

What proportion of your work isinternational?A very large proportion. Competition law isinherently international - involving as it doesthe concurrent enforcement of UK and EUlaw, and with certain obligations that flowdirectly from the European Treaty. The factthat businesses and the economy areincreasingly global in scope means thatclients are interested in global not just localrisks. One of themain recent developmentsin this area has been the rapid increase inregulatory enforcement in the emergingeconomies. It follows from this that havingstrong international relationships is a reallyimportant aspect of our work.

I would have thought this kind of workwas the preserve of the larger ‘City’firmsNot at all - as a firm we punch well aboveour weight in competition and regulatoryareas with real experience gained withinand working alongside the regulators. Wedeliver a first class client focussed serviceand that’s the key aspect for our clients -but being able to offer that service at a ratecity firms cannot match does not botherour clients too much either! The other thingthat is worth emphasising is that S&B hasa truly international focus. Although ourcompetitors may try and pigeonhole us as‘regional’ we really spend a lot of time

ensuring that we have strong internationalcapabilities and connections.

What’s the most interesting work youhave done so far in your career?Much of the work we do has interestingaspects, and work can be interesting indifferent ways. Some cases may give riseto interesting issues from a technical legalperspective, sometimes clients will haveparticularly interesting businesses, we maybe dealing with some particularlyinteresting individuals or indeed eventhough the matter is humdrum the way itdevelops or the job you are required to doon it can be interesting.

I like international work - it’s enjoyable andinvigorating learning about and dealing withdifferent approaches and cultures. Ofcourse stereotypes are unhelpful and canbe deeply inappropriate - but co-ordinatinga multi-jurisdictional merger filing can attimes feel like an experiment in culturaldifferences, with some jurisdictionsadopting an extremely rigorous anddetailed approach and others an approachthat is more ‘laissez-faire’. That isinteresting. But in terms of getting thepulse racing it’s hard to beat the first fewminutes of a dawn raid (although your pulsecan subsequently slow down considerablyas things progress…).

Does that answer the question? I couldmention ‘outdoor meetings’ on the golfcourse, tennis pro-ams or karaoke eveningsbut many misguided people might notconsider that work.

What next?It’s an exciting time for the firm. The firm isgrowing and the competition and regulatoryteam is expanding. Themain priorities in thisyear’s business plan are:

• developing our international relationshipsin key jurisdictions;

• focussing on ourmost important sectors;and

• staying on top of the recent changes toand developments in the UK competitionregime.

But one of themost exciting things about thejob is not really knowing the answer to thatquestion.

12

Jonathan Porteous - Banking+44 (0)1483 401233

[email protected]

Laura Hassall - Corporate (and Editor of IN)+44 (0)1483 406973

[email protected]

KenWoffenden - Managing Partner & Corporate+44 (0)1483 401260

[email protected]

DavidWilkinson - IP & IT+44 (0)1483 401207

[email protected]

Further information about the firm, areas of work, client briefing notes and details of seminars and events are all available at www.stevens-bolton.com. As the commentaries in thisbulletin are brief and changes in the law may occur subsequently, it is essential that professional advice is sought before any decision is taken. Stevens & Bolton LLP is notauthorised by the Financial Conduct Authority (FCA) but we are able in certain circumstances to offer a limited range of investment services to our clients because we are regulatedby the Solicitors Regulation Authority (SRA). We are also included on the register maintained by the FCA so that we can carry on insurance mediation activity, which is broadly theadvising on, selling and administration of insurance contracts. This part of our business, including arrangements for complaints or redress if something goes wrong, is regulatedby the SRA. This register can be accessed via the Financial Conduct Authority website at www.fca.org.uk/firms/systems-reporting/register/search.

Stevens & Bolton LLP | Wey House, Farnham Road, Guildford, Surrey GU1 4YDTel +44 (0)1483 302264 | Fax +44 (0)1483 302254 | www.stevens-bolton.com

Stevens & Bolton LLP is a limited liability partnership registered in England(registered number OC306955) and is regulated by the Solicitors Regulation Authority.

Documents

innteernwa tionsal b rief - stevens-bolton.com · innteernwa tionsal b rief Discoverwhat’snewintheworldofStevens&BoltonLLP Summer2014