1.4.2. Section 426 Insolvency Act'

The Insolvency Act 1986 provides for a statutory basis for the courts to give assistance

to foreign courts in insolvency matters. The central provision of the Insolvency Act

dealing with cross-border insolvency i s section 4 2 6 ( 4 ) :

The courts having jurisdiction in relation to insolvency in any part of the United

Kingdom shall assist the courts having the corresponding jurisdiction in any other

part of the United Kingdom or any relevant country or territory.

On the o n e hand, section 4 2 6 IA extends beyond the principles of c o m m o n law in that

the discretionary powers granted to the courts are not limited to any particular form

of assistance, such as 'ancillary winding-up'. On the other hand, however, it mandates

the English courts to give assistance to foreign courts of specific 'relevant' countries

or territories only.'" The common law rules of cross-border insolvency law remain

applicable as far as other countries are concerned.

Although the wording 'shall assist' may suggest otherwise, section 4 2 6 1A 1986 does

not make the English court 'an agent' for the foreign court. " The giving of assistance

remains in principle discretionary/ 1 Instead, it is indicated that under section 4 2 6 IA

1986 the courts are to respond to requests for assistance in good faith and that the

assistance requested should be given 'unless there is some good reason for not doing

s o ' / 1 Co-operation is envisaged at court level. A foreign office-holder does not have

direct access to the English courts to seek assistance. Under section 4 2 6 the request

must come from a court 'having corresponding jurisdiction' to the United Kingdom

courts 'having jurisdiction in relation to insolvency'.

With regard to the nature of assistance available subsection 3 provides that

11] or the purpose of subsection (4) a r e q u e s t . . . is authority for the court to which

the request is made to apply, in relation to any matters specified in the request,

the insolvency law which is applicable by cither court in relation to comparable

matters falling within its jurisdiction (emphasis added II).

In other words, by virtue of section 4 2 6 ( 5 ) IA 1986 English courts would appear to

have two insolvency laws at their disposal in responding to a request and formulating

the appropriate assistance.'' The courts are however not limited to relief provided for

under English or the relevant foreign insolvency law. In Hughes v. Hannover the court

held that, as Parliament had not intended to restrict but instead to enhance the powers

of the courts to lend assistance in foreign proceedings, section 4 2 6 ( 5 ) IA 1986 does

not restrict the court to the insolvency law of either forum but also makes available to

i t its own general jurisdiction and powers under the laws of England and W a l e s / '

The choice between the two insolvency laws constitutes a significant change from the

common law, where, as indicated above, English law is the normally applicable law.

However, the Insolvency Act remains virtually silent on how the court is to make its

choice of applicable law.'1 In fact, one way of looking at the provision is that what it

actually does is to confront courts with the very need to make a choice of law. In cases

where the two insolvency laws differ - and this will normally be the case - the choice

of one or the other law will produce different outcomes. Eor instance, Re Dallhohl

 

Estates (UK) l'ty. Ltd. concerned insolvency proceedings in Australia of a company

incorporated in that country. The company was the tenant of land in England, under

a lease which according to its terms was terminable upon winding-up or insolvency.

If the company was put into administration under English law, however, the lease

could be maintained. At the relevant time, Australian law did not contain an equivalent

to the administration procedure under the Insolvency Act 1986 - while the procedure

in England was considered to be available only for companies incorporated under

English law. The British court found that the purpose of section 426 was to provide

jurisdiction the court might otherwise not have, in order to lend the assistance

requested. Accordingly, the request by the Australian court for an English administration

order was granted and the lease maintained. The court however failed to clarify

why - as a matter of private international law or policy - this choice of English law

was m a d e / '

It maybe recalled that the United States Bankruptcy Code essentially tails on the same

point, although the Code does provide relevant factors to guide the court in making

its decision. In an even more non-committal fashion the Insolvency Act simply states

that

[ i ]n exercising its discretion under this subsection (s. 4 2 6 ( 5 ) ) a court shall have

regard in particular to the rules of private international law.

The meaning of this provision is elusive and provides little to no (normative) guidance

in making the inevitable choices of law. Apart from anything else, section 4 2 6 IA 1986

arguably constitutes a significant change to the rules of private international law of

insolvency/" Furthermore, courts are to have regard /// particuhirXo the rules of private

international law; but no indication is provided as to which other factors might be

relevant. Thirdly, it is not impossible that on the basis of the rules of private international

law, the law of a third country would be applicable law. A choice for that law

does not however appear to be available under section 426. The instruction to the

courts, it is submitted, should be understood as reflecting two familiar but competing

concerns of modern cross-border insolvency regulation. On the one hand, it is appreciated that courts must be able to assess each case on its own merits. Therefore

decisions based on section 4 2 6 involve 'judicial processes ( . . . ) which cannot readily

be reduced to a standardised series ot precepts'." Flexibility is of the essence in crossborder

insolvency. On the other hand, the courts are not to proceed on a purely case

by case basis, but should labour to establish a level ot certainty and predictability by

employing the familiar instruments of private international law where possible."