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Winding Up Order Made Despite The Existence Of Earlier Proceedings In Germany (Barings (UK) Limited And Ors v Galapagos SA) – Insolvency/Bankruptcy

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Dispute Resolution analysis: The High Court has granted an
application to wind up a company incorporated in Luxembourg in a
decision which sheds light on the application of cross-border
insolvency principles following the UK’s departure from the
European Union.

Barings (UK) Limited and ors v Galapagos SA [2022] EWHC
1633 (Ch)

What are the practical implications of this case?

This is an interesting decision on the application of
cross-border insolvency principles post Brexit. As a result of the
transition arrangements following the UK’s departure from the
EU, the Recast Regulation on Insolvency Proceedings (“Recast
EIR”) continues to apply to determine questions of
jurisdiction provided proceedings validly described as main
proceedings had already been commenced prior to the end of the
transition period on 31 December 2020. The focus of this case was
on circumstances in which proceedings had been commenced and
described as main proceedings prior to that date, however, the CJEU
had subsequently determined that the designation as main
proceedings was invalid. It is apparent that Courts in England can
follow the decision of the CJEU and apply the UK’s Insolvency
Regulation which replaced the Recast EIR. It is not necessary for
the English Court to wait for the foreign Court to set aside the
earlier proceedings itself.

What was the background?

This is a judgment concerning an application to wind up
Galapagos S.A. (“GSA”). GSA is a company incorporated in
Luxembourg. It was a member of a group of companies whose principal
business was the manufacture of heat-exchangers. The ultimate
owners of the group are a consortium of private equity funds
managed by Triton Investment Management Limited
(“Triton”). GSA was not an operating company within the
group but was incorporated to facilitate financing transactions.
GSA was the borrower of group debt under a revolving credit
facility, a guarantee facility and senior secured notes. GSA also
acted as guarantor in respect of high yield notes issued by its
immediate parent company, Galapagos Holding S.A.
(“GHSA”). Under the terms of an intercreditor agreement,
the claims of the lenders under the credit and guarantee facilities
were ranked first, followed by the senior secured noteholders and
lastly the high yield noteholders. A long-running dispute arose
thereafter between the senior creditors of GSA and its junior
creditors. The senior creditors applied for an order winding up
GSA. While that application was pending before the Court, the
junior creditors procured the replacement of GSA’s English
directors with a German director. That German director brought
separate ex parte applications before the Dusseldorf District Court
for the opening of insolvency proceedings in that jurisdiction. The
English proceedings were then stayed. The German proceedings were
referred to the CJEU. The senior creditors argue that the CJEU
decision means that GSA’s winding-up can now proceed in this
jurisdiction. The junior creditors argue, however, that these
proceedings should remain stayed or be dismissed. They argue that
unless and until the German Courts have given effect to the CJEU
ruling by setting aside the Dusseldorf insolvency proceedings,
those proceedings remain the “main proceedings” for the
purpose of the Recast EIR.

What did the court decide?

The High Court in England retained exclusive jurisdiction to
open main proceedings when the Dusseldorf Court purported to do so
in September 2019. The proceedings in Dusseldorf cannot, therefore,
be characterised as main proceedings under the Recast EIR. This was
the finding of the CJEU and it was not necessary for this Court to
wait until the Court in Dusseldorf to set aside its earlier
determination that those proceedings were main proceedings. The
English Court was entitled to reach that decision itself on the
basis of the CJEU’s ruling. This means that the jurisdiction of
the Court is not governed by the Recast EIR as there were no
insolvency proceedings defined as main proceedings at the
commencement of the Brexit transition period. The jurisdiction is,
therefore, to be determined by the question of whether GSA’s
COMI continues to be in England and Wales, as required by the
version of the Insolvency Regulation which now applied in the UK
“UK IR”. After setting out a variety of factors drawn
from authorities such as Re Swissport Holding
[2020] EWHC 3556 (Ch), the Court concluded that
by 22 August 2019, the administration of GSA’s interests had
moved from Luxembourg to England. The core management team had been
relocated to England, the meetings were either physically based in
England or organised remotely from England. The office headquarters
had moved to Fareham and those changes had been notified to third
parties, including creditors. In exercising its discretion, the
Court was satisfied both that GSA has a sufficient connection to
England and that there was not only a reasonable possibility of
benefit to the senior creditors if a winding up order was made,
there was a clear and obvious likelihood of such benefit. A winding
up order was, therefore, made.

Case details

  • Court: High Court, Insolvency and Companies List (Ch)

  • Judge: Mrs Justice Bacon

  • Date of judgment: 30 June 2022

First published by LexisNexis

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
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