Foreign companies and extraterritorial aspects of the Insolvency Act 1986

Foreign Companies andExtraterritorial Aspects of the

Insolvency Act 1986Kate Dawson

PhD candidate, University of Manchester

I. IntroductionThirty years ago the problems posed by cross-border insolvencies were notwidely acknowledged. This may have been in some part due to the infrequentoccurrence of insolvencies with international elements. In fact, internationalinsolvencies were a topic of discussion for a few academics and practitioners.1

However, in more recent times the oft-quoted names of BCCI, Maxwell andPolly Peck have brought international insolvencies to the attention of a wideraudience. What has become apparent is that such insolvencies are becomingmore common and, in the forseeable future, that trend is likely to continue, astrade barriers are dismantled and modern methods of communication becomemore widespread. Furthermore it is now possible for a small or medium-sizedcompany to have business interests abroad and, accordingly, internationalinsolvencies are not con®ned to large multi-national companies. As a naturalconsequence of this increase, interest in this ®eld has correspondingly mush-roomed.2 Impetus for improvements has also manifested itself. The EuropeanBankruptcy Convention has been developed with a view to improving co-operation between states within the European Union and, along similar lines,UNCITRAL has completed a Model Law which it is intended could be usedby a state as a model for cross-border insolvency legislation.

The aim of this article is not to consider those developments, but instead toassess to what extent the Insolvency Act 1986 is, and should be, extraterritorialin its e�ect, in relation to foreign companies. If an Act, or provisions of an Act,are extraterritorial in their application then they purportedly have e�ectabroad, thereby applying to property, or legal or natural persons situateabroad. Whether there is recognition in practice of the English court's decision

1. For example, Trautman and Nadelmann inthe United States and Fletcher in the UnitedKingdom.

2. See Fletcher, The Law of Insolvency, 2nd edn(1996), chapters 28±31; and Smart, Cross-Border Insolvency, 2nd edn (1998).

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depends of course on the legal system of the foreign jurisdiction. However, thisdiscussion is not concerned with which countries will recognise Englishjudgments, but rather whether the English courts will apply the provisions ofthe Insolvency Act 1986 and give them extraterritorial e�ect. This will involvea discussion of any relevant case law and an analysis of the rules which havebeen developed to curb what is potentially an extremely wide power.

II. General rule of constructionThe general rule of statutory construction of English law is that UK legislationapplies only to UK nationals and to foreigners who have come to this countryand are therefore subject to the laws of this jurisdiction.3 Lord Scarman in theHouse of Lords, in a more recent tax case explained the principle derived fromex. p. Blain thus:4

``Put into the language of today, the general principle being there stated is simplythat, unless the contrary is expressly enacted or so plainly implied that the courtsmust give e�ect to it, United Kingdom legislation is applicable only to Britishsubjects or to foreigners who by coming to the United Kingdom, whether for ashort or a long time, have made themselves subject to British jurisdiction.''

He went on to state that the principle was a rule of construction only andtherefore, as Lord Wilberforce stated, the question that must be asked is, who iswithin the legislative grasp or intendment of the statute under consideration?5

It is evident from the case law, some of which will be discussed below, thatsome of the provisions of the Insolvency Act 19866 apply extraterritorially.As an illustration, when an English company is wound up in England, theassets of that company, wherever situate, are subject to a trust and are to beadministered by the English courts.7 Thus, the winding up is intended to haveworldwide e�ect.

It has also been established that the courts are willing to give extraterritoriale�ect to s. 1338 of the Act and seek to examine a director resident out of the

3. This was ®rst established in ex p. Blain (1879)12 Ch D 522 where the word ``debtor'' in s. 6of the Bankruptcy Act 1869 was held to beterritorial in its scope. James LJ stated (atp. 526): `Ìt appears to me that the wholequestion is governed by the broad, general,universal principle that English legislation,unless the contrary is expressly enacted or soplainly implied as to make it the duty of anEnglish court to give e�ect to an Englishstatute, is applicable only to English subjectsor to foreigners who by coming into thiscountry, whether for a long or short time,have made themselves during that time subjectto English jurisdiction''. See also Cooke v CharlesA Vogeler Co. [1901] AC 102 at 107.

4. Clarke v Oceanic Contractors Inc [1983] 2 AC 130at 145.

5. Ibid. at p. 152.6. Hereafter any reference to ``the Act'' is

intended to be a reference to the InsolvencyAct 1986.

7. See ss 144 and 229 of the Act.8. The section provides: ``(1) Where a company is

being wound up by the court, the o�cialreceiver or, in Scotland, the liquidator may atany time before the dissolution of the companyapply to the court for the public examinationof any person who ± (a) is or has been ano�cer of the company; or (b) has acted as aliquidator or administrator of the company oras receiver or manager or, in Scotland, receiver

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jurisdiction. In Re Seagull Manufacturing [1991] Ch 307 the company wasincorporated in England in 1983 and carried on the business of a computerutility organisation. Mr S, a director of the company, was a British subject butresident in Alderney at all material times and it was claimed, on the director'sbehalf, that that precluded the application of s. 133, i.e. he could not beordered to attend for public examination. Furthermore, it was argued thatr. 12.12 of the Insolvency Rules 1986 did not empower the court to serve anorder for public examination upon a person resident abroad. However,Mr Registrar Buckley on 17 July 1990 ordered Mr S to attend at the RoyalCourts of Justice to be publicly examined. The judge stated that the O�cialReceiver was entitled to serve a copy of the order on Mr S at the address inAlderney. These orders were then overturned on 25 September 1990 because itwas claimed they were made without jurisdiction. The O�cial Receiverappealed. However, in the High Court that decision was reversed. Mummery Jstated that in his judgment:9

``. . . section 133, on its true construction, plainly implies that its provision applyto all who fall within a class of persons speci®ed in section 133(1), whether theyare British subjects or not and whether they are within the jurisdiction of theEnglish court or not at the relevant time.''

He was of the opinion that the case was not comparable to the decision inRe Tucker [1990] Ch 148 because that case concerned the private examinationprovisions relating to bankrupts, and the width of the class speci®ed in theprovisions was so wide that the court decided that the territorial principle mustapply.10 The class of person who could be ordered to appear for publicexamination under s. 133 is limited to those concerned in a speci®ed capacitywith the winding up of the company. The learned judge also decided thatunder r. 12.12 the order of the court that Mr S be subject to a publicexamination, could be served out of the jurisdiction.

This case did not concern a foreign company; the foreign element which waspresent was the director's residency in Alderney. Nevertheless, it is an exampleof the willingness of the court to apply the provisions of the Act extra-territorially. Without the extraterritorial reach of s. 133 of the Act, it would bepossible for recalcitrant directors to escape the grasp of the Insolvency Act 1986

of its property: or (c) not being a person fallingwithin paragraph (a) or (b), is or has beenconcerned, or has taken part, in thepromotion, formation or management of thecompany . . .''.

9. [1991] Ch 307 at 316.10. The decision was made under the Bankruptcy

Act 1914. Mummery J was convinced, how-ever, that the equivalent provision under the1986 Act would be construed with the same

territorial limitation as s. 25(6) of the previousAct. Section 367(3) is the equivalent provisionto s. 25(6) and provides: ``The court may, if itthinks ®t, order that any person who if withinthe jurisdiction of the court would be liable tobe summoned to appear before it under section366 shall be examined in any part of theUnited Kingdom where he may be for thetime being, or in any place outside the UnitedKingdom''.

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simply by virtue of their absence from England. That certainly cannot be anacceptable state of a�airs.11

III. The jurisdiction to wind up a foreign company12

It is also possible for the English courts to wind up a company which is notincorporated in England, which is, in a sense, giving extraterritorial e�ect tothe winding up procedures in the Act.13 A foreign company14 under Englishlaw is one which was not incorporated in Great Britain. If the companyestablishes a place of business in Great Britain, it is then known as an `òverseacompany''15 which must meet certain requirements of the Companies Acts.16 Ifthe foreign company is classed as an `òversea company'', then the jurisdictionof the English courts to wind up the company is clearly established, and it maybe wound up as an unregistered company pursuant to s. 221 of the Act.17

However, oversea companies which have not complied with the requirementsof the Companies Acts and foreign companies may also be wound up under theAct. Before the courts will assume jurisdiction there must be evidence of asu�cient connection between the company and England. In the absence of abranch o�ce, the presence of assets in England is evidence of a su�cientconnection.18 In more recent cases19 it has been established that there need notbe assets in England before the courts will wind up a foreign company. It hasbeen suggested that these cases indicate that a su�cient connection may beshown by the existence of English creditors or by virtue of the fact the companyhas conducted a signi®cant amount of business in England.20

There has, however, been criticism of the ``su�cient connection'' test21

because it is too vague and therefore open to di�erent interpretations. Never-theless, it appears from the case law that the courts have not abused thepotentially wide powers given to them by the Insolvency Act 1986. Thecourts are placed in a position where there is no clear policy guidance fromParliament as to the jurisdiction of the courts to wind up a foreign company.Sections 221 and 225 of the Act have been enacted in successive Companies

11. However, it is submitted that in the case of aforeign company, where there was jurisdictionto wind up that company, s. 133 of the Actwould apply (see below).

12. It is not the objective of the writer to surveythe case law concerning the jurisdiction towind up foreign companies. For such a review,see Fletcher (op. cit., n. 2) at p. 731; and Smart(op. cit., n. 2), at p. 93.

13. Per Sir Donald Nicholls V-C in Re ParamountAirways [1993] Ch 223 at 240.

14. In this article the term foreign company willbe used to denote any company which was notincorporated within Great Britain.

15. Companies Act 1985, s. 744.16. Ibid., Part XXIII. ss 690A-703R.

17. Re Matheson Brothers (1884) 27 Ch D 225, inwhich Kay J held that the court had juris-diction to wind up a New Zealand companywith a branch o�ce in London.

18. Banque des Marchands de Moscou v Kindersley[1951] Ch 112; and Re Compania Merabello SanNicholas SA [1973] Ch 75, where Megarry J, ashe then was, summarised the jurisdiction of theEnglish courts to wind up foreign companies.

19. Re A Company (No. 00359 of 1987) [1988]Ch 210; and Re A Company (No. 003102 of1991) ex p. Nyckeln Finance Co. Ltd [1991]BCLC 539.

20. See Fletcher (op. cit., n. 2) at p. 737; andSmart (op. cit., n. 2) at p. 105.

21. See Smart (ibid.).



Acts and, subsequently, the Insolvency Act 1986, yet there appears to havebeen no clear indication from Parliament as to the scope of either section. Theprovisions themselves are not altogether clearly drafted. Section 221 of theAct is the provision which is most likely to be utilised to wind up a foreigncompany,22 but, surprisingly, it does not expressly mention foreign companies!Section 225, on the other hand, is an almost redundant section; because it ismore narrowly drafted that s. 221 of the Act and requires that the companymust have carried on business in Great Britain, it is rarely used, and yet theprovision remains unaltered. It is also worth noting that the Cork Report23

acknowledges the importance of cross-border insolvency issues, but indicatesthat it is outside its ambit to consider recommendations to improve the presentconfused state of a�airs.24

Thus, it must be concluded that the problems inherent in cross-borderinsolvencies and the complex questions which arise as a result of suchinsolvencies are recognized and are being dealt with on a practical level by thejudiciary. Unfortunately, there is no indication that Parliament has taken timeto consider whether it is acceptable that the judiciary have an unfettereddiscretion. Judges are, at present, left to make decisions without any expressguidance from Parliament. Although this has not led to any great injustice,perhaps it is time for Parliament to take a more coherent approach to theinsolvency of foreign companies.

IV. When do the provisions of the Act apply to foreign companies?The English courts have established that a foreign company can be wound upwhere there is a su�cient nexus between England and the company. The nextissue is, if the court considers that it has jurisdiction to wind up a foreigncompany, how far do the provisions of the Insolvency Act 1986 apply to thatwinding up?

It has been discussed above that the English courts have held that s. 133 ofthe Act can apply to a director of a foreign company who is resident out of thejurisdiction. Clearly, there is a cogent argument for the extraterritorialapplication of the section where the company involved is an English company.There is an established connection with England by virtue of the incorporation

22. Section 225 of the Act was originally enactedas s. 91 of the Companies Act 1928. It wasintroduced after the Russian Revolution towind up Russian businesses which had con-ducted business in England and had beendissolved in their native jurisdiction.

23. Report of the Review Committee on Insolvency Lawand Practice, Cmnd 8558 (1982).

24. Only a minute section of the report, chapter49, `Èxtra-territorial Aspects of InsolvencyLaw'', is dedicated to cross-border insolvency

and that led to s. 426 of the Act which was, inessence, a re-enactment of a provision of theBankruptcy Act 1914. The Cork Report does,however, recognise that extraterritorial aspectsof insolvency law ``have never been reviewed oroverhauled in the light of modern consti-tutional developments and as a result makea totally inadequate contribution to thestructure of international commercial life''(para. 1903).



of the company and it is thus not unjust or oppressive to apply the provisions ofthe Act to the directors of that company, whether they are resident in Englandor abroad. What is the position, however, where the foreign element is notsimply the residency of the company's directors, i.e. where the company itselfis foreign?

It has been suggested that a two-stage process25 could be used to answer thisquestion. First, the court must decide whether to make a winding up order inrespect of a foreign company. Secondly, if the court does make a winding uporder, then prima facie the words of the Act should be given their literalmeaning, thereby giving full e�ect to the provisions of the Act. It is submittedthat this must be the starting point for achieving fair liquidations of foreigncompanies, because the extraterritorial application of the Act is of paramountimportance particularly:26

``Where there is only one winding up then not to give full e�ect to the Act wouldex hypothesi lead to omissions in the winding up process which would not bepresent were there no foreign element. So to that extent the creditor of the foreigncompany would be left without a remedy which Parliament has thought itentitled to in an identical winding up of an English company.''

The corollary of the power compulsorily to wind up a foreign company mustsurely be that the provisions of the Act should apply, otherwise a separatesystem for the winding-up of foreign and English companies would exist. If theprovisions of the Act were generally applicable to foreign companies, thiswould suggest that were the facts of Re Seagull Manufacturing (above) to occuragain, but the case involved a foreign company, s. 133 of the Act would apply.

If the contrary view was taken from the outset, a foreign company, althoughbeing wound up in England, would not be subject to the provisions of the Actin the same way as an English company. Such a result does not, it is submitted,sit comfortably with the ability of the English courts to wind up a companywhich is not incorporated in England. Although it appears that Parliament hasnot expressly considered whether the provisions of the Act ought to apply to aforeign company, it must be preferable for the judiciary to conclude that theydo, otherwise, there would be a divergence in the way in which foreign andEnglish companies are treated. For there to be such a divergence as a matter ofprinciple requires justi®cation on policy grounds. This author is unaware ofany attempt to make such a justi®cation, and doubts whether such could bedone. However, it must be the case that where the power conferred on the courtis potentially so wide, some safeguards27 are in place to curb any abuse of thatpower.

25. Dawson, ``The Territoriality of the InsolvencyAct 1986 Where an Oversea Company hasbeen Wound Up by the English Court'' (1995)

15 Insolvency Lawyer 3 at 4.26. Ibid., at p. 5.27. See below.



V. Exercise of the extraterritorial discretionThe leading case is Re Paramount Airways (No. 2) [1993] Ch 223 which con-cerned a charter airline company which became subject to an administrationorder in 1989. The case is signi®cant because it was the ®rst opportunity for theCourt of Appeal to address the question of the extraterritorial operation of theAct and because it established safeguards applicable to the exercise of judicialdiscretion where the extraterritorial application of the Act was in question.

The facts of the case, insofar as they are relevant, were as follows. Moniesheld in a bank account and by a ®rm of solicitors were transferred to a bankaccount in Jersey by Mr F, a director of the airline. The bank account was heldby Ryco Trust Ltd, a Jersey company. Ryco was said to be managed by AnserGeneral Investments SA, which, in turn, was said to be owned or controlled byMr F. The money held in Ryco's bank account was then transferred to Anserand paid into an account which Anser maintained with Hambro in Jersey. Theadministrators alleged that the company's money was misappropriated andpaid away for no bene®t to the company and, thus, that Hambro was notentitled to the money. It was held that although the Jersey company was not aBritish subject, s. 238 could in principle apply to a company outside the UnitedKingdom. The question of whether s. 238 could apply to an oversea companyhas not been decided. However it has been suggested28 that the literal meetingof the section should be given. This is because in the judgment of Sir DonaldNicholls V-C no limitation of the words of the section could be found in thecase of an English company and, as such, it would seem unlikely that anylimitation could be found in the case of a foreign company.29

It has already been stated that in the courts' exercise of their discretion toapply provisions of the Act extraterritorially, safeguards against any abuse ofthat power must be in place.

Two such safeguards were established in the Court of Appeal by Sir DonaldNicholls V-C. First, there must be a su�cient connection between the defend-ant and England for an order to be made against him.30 Secondly, even wherethe court considered that prima facie there was a case to answer, thereremained a discretion over whether to allow service of the order out of thejurisdiction.31 It is submitted that the ®rst of these safeguards is likely to bepresent where the foreign company is being wound up by the English courts.Despite this, the courts retain a degree of discretion when deciding whether tomake an order for service out of the jurisdiction.

28. Op. cit., n. 25, at p. 6.29. Ibid.: `Òne would expect the two positions

should dovetail into each other, inasmuch as ifin the case of an English company in Englishliquidation there was no principle which couldlegitimately distinguish between transactionswhich were, and transactions which were not,su�ciently closely connected to England to

warrant the assumption of jurisdiction by theEnglish courts, then likewise there would seemto be no principle upon which one coulddecide that a foreign company was insu�-ciently connected to deny that assumption ofjurisdiction''.

30. [1993] Ch 223 at 239.31. Ibid., at p. 241.



A. A third safeguard?It has been suggested that the court must also be satis®ed that there is no moreappropriate forum in which the application ought to be made.32 In otherwords the rule of forum non conveniens should be applicable in cases where there isan application for an order to be served out of the jurisdiction.33 A recent caseinvolving the concept, although this was not expressly stated, is the case ofRe Howard Holdings [1998] BCC 549. The company was incorporated in theRepublic of Panama in 1986. Facing ®nancial di�culties, an order for thecompany to be wound up in England was made in 1992. In February 1997, theliquidator applied for leave to serve an ordinary application in the winding-upon three directors of the company at their place of business in Monaco. Therefollowed an application to discharge the order.

The three applicants were the only directors of the company up until itswinding-up. In October 1989 the company entered into an agreement with aRussian foreign trade enterprise, described as ``Sudoexport'', for the purchaseof a vessel known as Hull 176, at a cost of US$20 million. To ®nance this dealthe company borrowed US$12 million from Bankers Trust. In the ensuingmonths the company defaulted on its repayments to Sudoexport and BankersTrust and, consequently, the vessel was arrested and sold. Bankers Trustrecovered its debt under its ship mortgage, while Sudoexport was left witha substantial claim for the balance of the purchase money in excess ofUS$4 million. The liquidator then applied to the court for relief under s. 214 ofthe Act against the directors of the company. It was claimed that when thedirectors authorised the acquisition of the vessel, they knew or ought to haveknown that the company had no means of meeting its obligations, and that inall probability the company would go into insolvent liquidation.

Chadwick J referred to the requirements for service of an order laid down inRe Paramount Airways by Sir Donald Nicholls, the Vice-Chancellor. First, theremust be a ``real issue'' between the liquidator and the defendant(s). It wasargued on behalf of the directors that although there would be an arguablecase if the decisions concerning the management of the company had beenmade in England, the fact that they were made in Monaco meant that the lawof Panama, as the place of the company's incorporation, or, alternatively, thelaw of Monaco, should govern the actions of the directors. It would thereforebe unfair to apply English law to the actions of the directors because, at thetime the action was taken, the applicability of English law was not envisaged.

The learned judge stated that it was clear that once a winding-up order hasbeen made in respect of a foreign company, the court is empowered to makedeclarations against foreign directors of that company.34 He did not accept thesubmission of counsel for the directors that it was unfair to apply English law to

32. See Smart (op. cit., n. 2), at p. 25.33. See Dicey and Morris, Con¯ict of Laws, chapter

12, at pp. 395 to 405, especially at p. 398.

34. [1998] BCC 549 at 552.



the actions of the directors, stating that s. 214 of the Act imposes a new liabilityon directors of an insolvent company to contribute to the assets of thatcompany, where appropriate. He accepted that were the laws of Panama, asthe company's place of incorporation, shown not to recognise that directorswere obligated in some way to the company's creditors to ensure that thecompany was solvent, then a s. 214 application may be inappropriate. How-ever, on the evidence before him this was not proven. Thus, there was a realissue to be tried. The foreign elements of the case were insu�cient to prove atthis stage that an application under s. 214 of the Act would be unsuccessful.

As well as considering whether it is appropriate to apply English law to theactions of errant directors of a foreign company where a s. 214 order is madeagainst them, one might also consider the legitimate expectations of `òrdin-ary'' business people within the English business community. Such peoplecould well expect that directors of foreign companies doing business which wasin some way connected to England may potentially be liable under s. 214 of theAct.35

The second question the judge asked himself was whether it is unreasonablefor a trial to take place in England or whether there is some more appropriateforum. He concluded that an application under s. 214 of the Insolvency Act1986 must necessarily take place in this jurisdiction, where the insolvency codeis administered. Consequently, the application by the directors to discharge theorder allowing service out of the jurisdiction was dismissed.

Although the forum non conveniens rule may come into play in decidingwhether to serve an order out of the jurisdiction, its importance should not beoverstated. It may be the case that there will be a more appropriate forum fortaking action against directors of a foreign company, by virtue of the fact thatthe company is foreign. The jurisdiction in which the company wasincorporated would probably be a more appropriate forum than England.However, certain factors should be borne in mind before the court decides thatit is not appropriate to serve an order out of the jurisdiction.

If a concurrent winding up of the company's place of incorporation is takingplace, then it is likely that the English liquidation will be ancillary to theprincipal liquidation.36 Thus, the main role of the English winding up is toensure that any assets in England are administered and, after preferentialcreditors are paid, that any surplus is turned over to the main liquidation. Insuch a situation it may be more convenient that action be taken in the countryof incorporation against directors or fraudulent transfers. It is worth noting at

35. Chadwick J did not discuss this point.36. In General Steam Navigation Co. v Guillou (1843)

11 M&W 877 an English company had abranch o�ce in Australia. A compulsorywinding up was taking place in Australia,while a voluntary winding up was going on inEngland. It was stated that: `àny order made

by the Australian courts for winding up inAustralia would merely be ancillary, just as inthe converse case an order made in thiscountry for winding up an Australian com-pany could only be ancillary to an Australianwinding up''.



this juncture, however, that although under English law the law of the place ofincorporation is regarded as the correct jurisdiction37 to determine the status ofa company, it may not be the only appropriate forum. Many companies areincorporated in one jurisdiction solely for tax purposes and their centralmanagement and control is exercised in a totally di�erent jurisdiction. In suchcases the jurisdiction from which the company is managed may be a moreappropriate forum in which to take action against the company or its o�cers.

However, where the winding up in England is and is probably going to bethe only liquidation, the situation is slightly di�erent. Where there is nowinding up in the place of incorporation, omissions in the winding up processare a reality. In Dicey and Morris it is stated that the court will normally granta stay on the grounds of forum non conveniens unless there are circumstanceswhich lead to the conclusion that justice would not be served if a stay wasgranted.38 It is submitted that if no other winding up is proceeding it would beunfair to limit the power of the court to serve an order. For example, ondirectors of a foreign company, on the grounds of forum non conveniens becausethe creditors may not be able to seek redress in another jurisdiction. Perhaps,therefore, if a literal translation of forum non conveniens is used ( forum notconvenient), emphasis is placed more appropriately than on whether there is amore appropriate forum. It will often be the case that there will be a moreconvenient forum than England, but just because some other forum is moreconvenient does not mean that England is not a su�ciently convenient forum.

The safeguards established in Re Paramount Airways (above) act in two ways.First, if it is accepted that prima facie the provisions of the Act should apply toforeign companies, the safeguards act to prevent any unjust application of thoseprovisions. If there are circumstances, for example, which indicate that it wouldbe oppressive to apply s. 214 of the Act to the director of a foreign company,the court may decline to make an order for service out of the jurisdiction.Secondly, it is also important that where the courts become involved in thewinding up of a foreign company, they do not interfere where it would be moreappropriate for action to be taken in another jurisdiction. The safeguards, inshort, are there to create a balance between the e�cient and fair liquidation ofa foreign company and unwarranted interference with the jurisdiction offoreign courts, particularly the courts of the company's place of incorporation.

VI. Practical problemsThe fact that sections of the Act are extraterritorial does not necessarily meanthat it will be, practically speaking, possible to serve a summons on a personnot resident in the United Kingdom. The broad drafting of r. 12.12(3) of the

37. Insolvency Rules 1986, r. 155; see Dicey andMorris (op. cit., n. 33), at p. 1107.

38. Insolvency Rules 1986, r. 31(2); see Dicey andMorris (op. cit., n. 33), at p. 404.



Insolvency Rules 1986, that the court ``may order service to be e�ected . . . insuch a manner as it sees ®t'', may greatly assist the court in serving an order outof the jurisdiction. However, in the words of Lord Wilberforce in Clark v OceanicContractors Inc [1983] 2 AC 130 if it can be inferred that persons should be``within the legislative grasp or intendment'' of the law, then this should be thecase, regardless of whether they were in England at all material times orwhether or not they can be served with the summons. In reality it may not bepossible for o�cers of a foreign company to be served with an order of anEnglish court; nevertheless, in the absence of contrary indications, Parliamentmust have intended that the Act should apply to such people. So, in e�ect,although justice may not be done in the end, it can be seen that there is not oneset of rules for the o�cers of English companies and one for foreign companies.After all, it is not for the courts to ruminate on the practical problems of serviceout of the jurisdiction, as Mary Arden QC has stated:39

`Ì am not concerned with whether the order [ for public examination] can bee�ectively enforced against a person out of the jurisdiction.''

The practical problems of enforcement of an order of the English courtout of the jurisdiction are categorically not an issue which should in¯uence thedecision of the judge, since the enforcement of any court order may proveproblematic.

VII. ConclusionThe discretion of the English courts with regards to foreign companies isundoubtedly very wide. Nevertheless, this has not resulted in an excessivenumber of oppressive decisions. In order to prevent a two-tier system ofliquidations developing, it is necessary that prima facie the provisions of theInsolvency Act 1986 apply to a foreign company. There is a signi®cant degreeof discretion, however, which permits the court to decline to make an order forservice out of the jurisdiction, if that is what is required in the interests ofjustice.

In these days where the numbers of cross-border insolvencies are ever morelikely to increase, it is important that there is co-operation between nations.Thus, safeguards must be present to curb the power of the court to prevent ittaking action where such action would be more appropriate in another

39. Re Seagull Manufacturing (No. 2) [1994] Ch 91at 99. A second case involving SeagullManufacturing also concerned extraterri-toriality; however, in Re Seagull Manufacturing(No. 2) the extraterritorial e�ect of s. 6(1) ofthe Company Directors' Disquali®cation Act

1986 was in question. The o�cial receiverbrought an action for the disquali®cation of adirector of Seagull Manufacturing ± a Mr S.The respondent was a British national, but atthe relevant time he was resident and dom-iciled in Alderney in the Channel Islands.



jurisdiction. Nevertheless, the discretion conferred on the court allows the lawto develop and to adapt to each individual case.

However, one last point should be made. As was stated above, Parliamenthas given no clear indication as to legislative intendment of the Act, withregards to foreign companies. This (what could be described as) laissez-faireattitude is indicative of a general failure on the part of Parliament toacknowledge that the problems posed by international insolvencies should beaddressed now. The judiciary have had to develop rules to deal with foreigncompanies on a practical level, but it has come to the point where Parliamentshould endeavour to create some sort of coherent framework within which thejudiciary could work. In conclusion, therefore, it is time that Parliament soughtto clarify the status of foreign companies under the Insolvency Act 1986 andgenerally to encourage international co-operation in this area.



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Foreign companies and extraterritorial aspects of the Insolvency Act 1986