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Welcome /  Blog /  2017-10-doc7 Supreme Court of Gibraltar on COMI

2017-10-doc7 Supreme Court of Gibraltar on COMI

Gregory Hugh Colin King is a fraudster. That’s verbatim the way the Supreme Court of Gibralter on 31 July 2017 introduces one of the first cases to which the EU Insolvency Regulation 2015 (EIR 2015) applies. King was a lawyer and a Glasgow car dealer, before becoming a hedge fund manager in Gibraltar. He is, via several of his companies or companies he controls, alleged to have defrauded investors of over US$600 million in a sham concerned with a hedge fund (Heather Capital Ltd), the liquidator of which (Mr. Duffy), was a supporting creditor. This case only concerns a slice of the fraud, £6 million of one of the victims, Advalorem Value Asset Fund Ltd (Advalorem). The court explains that in an earlier judgment, dated 12 January 2017, it gave the liquidator of Advalorem permission to serve a statutory demand on King in Spain as well as giving permission to serve an application for a bankruptcy order out of the jurisdiction on Mr King’s residence or at least the place where he was residing, near Marbella. The questions the Court has to solve: 1 Did the court have international jurisdiction in the meaning of Article 3 EIR 2015 in a case where the filing for bankruptcy dated from 5 June 2017, so from three weeks prior to the date the EIR 2015 came into force, i.e. on 26 June 2017. This also touches upon the question whether the earlier judgment of 12 January 2017 is a judgement ‘opening’ insolvency proceedings in the meaning of Article 2(7), including the question of the ‘time of the opening of the proceedings’, in the meaning of Article 2(8) EIR 2015; 2 If the EIR 2015 applies, which rules establish and determine the debtor’s centre of main interest (COMI). The first question is a question of transitional law. Article 84 EIR (‘Applicability in time’) provides in paragraph 1 that the provisions of the EIR 2015 shall apply only to insolvency proceedings opened after 26 June 2017, and in paragraph 2 that the (old) Insolvency Regulation, although repealed (Article 91 EIR 2015), shall continue to apply to insolvency proceedings which fall within the scope of that Regulation and which have been opened before 26 June 2017. In order to determine whether proceedings were ‘opened’ before or after the entry into force the precise meaning of the wording ‘time of opening of proceedings’ must be determined. A ‘judgment opening insolvency proceedings’ (see Article 2(7) EIR 2015), includes (i) the decision of any court to open insolvency proceedings or to confirm the opening of such proceedings; and (ii) the decision of a court to appoint an insolvency practitioner. The court is satisfied the definition of ‘judgment opening insolvency proceedings’ and the ‘time of the opening of the proceedings’ (see Article 2(8) EIR 2015), i.e. the time at which the judgment opening insolvency proceedings becomes effective, regardless of whether the judgment is final or not, resulted in the point of view that the court had to apply the EIR 2015. It is appreciated that indeed the criterion is not the date of an application for insolvency, but the date op the decision of opening the insolvency proceedings itself is determinative. Then the second question. Typically, when there is a scotsman living in Spain and doing business in Gibralter, the COMI question – detemining the court’s international jurisdiction – pops up. The question is whether King, as a natural person, falls under the scope of Article 3 (‘International jurisdiction’), the third and fourth subparagraph: in the case of an individual exercising an independent business or professional activity, the COMI shall be presumed to be that individual’s principal place of business in the absence of proof to the contrary. That presumption shall only apply if the individual's principal place of business has not been moved to another Member State within the 3-month period prior to the request for the opening of insolvency proceedings. In the case of any other individual, the COMI shall be presumed to be the place of the individual's habitual residence in the absence of proof to the contrary. This presumption shall only apply if the habitual residence has not been moved to another Member State within the 6-month period prior to the request for the opening of insolvency proceedings. The Gibraltar Supreme Court was satisfied on the basis of the evidence that the debtor did carry on his business through companies in Gibraltar and that these companies appeared to be mere extensions used for fraudulent activities. The evidence (provided by the petitioning creditor) included (i) that King owned assets in Gibraltar, (ii) that within the period of three years prior to the date of his affidavit he had carried on business in Gibraltar, either personally or by means of an agent had cash assets in Gibraltar, (iii) that he was the ultimate beneficial owner of various Gibraltar companies, (iv) that has and has had significant interest in connection with many companies in Gibraltar, (v) that he was listed as a director of Gibraltar Assets Management Ltd, a company incorporated in Gibraltar which was a member of the London stock exchange, (vi) that he was party to a loan agreement where the governing law was Gibraltarian law, (vii) that for a limited period between May and July 2007, he may have lived at an address in Gibraltar. The court also assesses various information from third party sources (including press articles in the Wall Street Journal, the Sunday Herald, the Scottisch Financial News and the Sun, mentioning that Pope Benedict XVI had given King an honour in a ceremony in Gibraltar, be it in 2008). This all is easily ascertainable by a third party. The court concludes: ‘So it can be seen if the applicant for the bankruptcy order shows that the respondent exercises an independent business or professional activity in Gibraltar, Gibraltar will be the centre of main interest. If it is not, then the fourth sub paragraph applies and the centre of main interest will be Spain.’ The latter view is, formally, incorrect, as it is not for a Gibraltar court to decide whether COMI can be established in another member state, in this case Spain. Professor Bork (EWiR 18/2017) indicated that as far as he can oversee this is the first court case under the EIR 2015. In the game of ‘who is the first’, I put my cards on District Court Amsterdam 12 July 2017, ECLI:NL:RBAMS:2017:5383, leaving aside that on 14 October 2015 a Dutch court already aplied the EIR 2015 by way of anticipation, see this blog under 2015-10-doc16. Advalorem Value Asset Fund Ltd v Gregory King, Supreme Court of Gibraltar, 2016/COMP/039 http://www.gcs.gov.gi/images/judgments/supremecourt/2017/advalorem_value_asset_fund_ltd_v_gregory_hugh_colin_king.pdf More on the judgment opening insolvency proceedings (para. 10521b), on international jurisdiction regarding natural persons (para. 10588 et seq) and concerning Article 84 (para. 10934c) in my book International Insolvency Law Part II. European Insolvency Law (Wessels Insolvency Law Volume X), Deventer: Kluwer, 4th ed., 2017, ISBN 9 789013 145021. For information, see http://bobwessels.nl/2017/09/2017-09-doc4-wessels-international-insolvency-law-part-ii-european-insolvency-law/