Limited recourse clauses questioned

ARM Asset Backed Securities SA, a company incorporated in Luxembourg, issued bonds. ARM’s regulator in Luxembourg refused to authorise the business. ARM presented a winding-up petition in London and applied for the appointment of provisional liquidators for an orderly distribution of its assets.

Notwithstanding the location of ARM’s registered office in Luxembourg, the High Court was satisfied that relevant management decisions were taken in England and that was clear to third parties. Therefore the COMI was in England.

Of most interest was the approach of the judge to the limited recourse clause in the bonds. It was held that ARM was insolvent (on both a cash-flow and balance sheet basis), even though the rights of the creditors to recover payment will be ‘as a matter of legal right’ restricted to the available assets. This analysis allowed the judge to avoid deciding the EC Regulation applies to solvent companies…

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