Banks: security over assets of foreign companies

Banks who lend to foreign companies (or even to English incorporated companies who shift their centre of main interests ("COMI")) should be aware of the possibility that a foreign representative might apply to the English court to prevent dealings with assets in England over which they have security.

This point arises out of the Cross-Border Regulations 2006, which came into force on 4 April 2006, implementing the UNCITRAL Model Law on Cross-border Insolvency.

A company which has its COMI outside the EU at the date of its insolvency (including any company whose COMI has moved from inside the EU to outside the EU) may go into insolvency proceedings outside the EU. The foreign representative of the company may be in a position to seek relief in England under the Cross-Border Regulations, claiming that the insolvency proceedings are either foreign main proceedings of foreign non-main proceedings. In either case the foreign representative may seek a moratorium in England. If the insolvency proceedings are foreign main proceedings (i.e. commenced in the jurisdiction where the English court decides that it has its COMI) a moratorium responding to that which would apply in a compulsory liquidation in England would be available as of right; if it is a foreign non-main proceeding, then the foreign representative may apply for a discretionary stay, and in a foreign main proceeding he may apply for a wider moratorium than is available as of right. The request for a discretionary stay might include a request for a prohibition on enforcement of security over assets situated in England.