UK court claims jurisdiction over company in Chapter 11

Eversheds, Freshfields Bruckhaus Deringer and Sidley Austin Brown & Wood have advised on a groundbreaking cross-border insolvency. A High Court ruling in Brac Rent-A-Car International gives UK courts jurisdiction over US-registered companies in Chapter 11 for the first time, providing the company has sufficient UK interests.

Sidley put Brac’s parent company Budget Rent a Car into Chapter 11 in the US last July. The company’s Europe, Middle East and Africa subsidiaries were run out of the UK and there was pressure on Brac from EU creditors, principally Italy by Car, represented by SJ Berwin.

Brac’s US parent, meanwhile, was planning to sell its subsidiary to Avis Europe, represented by long-term adviser Freshfields. Eversheds, acting for Brac’s directors, and Sidley, with the support of Freshfields, moved to petition the court for an administration order to protect Brac and safeguard the assets and the sale.

Freshfields associate Richard Tett said: “The Chapter 11 process was designed to maximise value for creditors, but in this case that wasn’t working in Europe.” Avis was the only buyer for Brac, but the lawyer-heavy Chapter 11 process was dragging out the sale.

Sidley’s newest insolvency recruit Patrick Corr led a team for the US firm. Former Pinsent Curtis Biddle corporate recovery head Corr moved to Sidley a year ago to become the third partner in the US firm’s cross-border insolvency group. For Freshfields, the deal was led by Tett and restructuring partner Ken Baird with corporate partner Christopher Bown handling the acquisition.

Justice Lloyd held that in light of the EU Regulation on Insolvency Proceedings, the only test for the court’s jurisdiction was whether the centre of the debtor’s main interest was in the UK. Brac’s administrative headquarters was in Hemel Hempstead.

Corr said that the case will have major implications for jurisdiction in cross-border insolvencies. He told The Lawyer: “Article 16 not only accomodates but actively encourages the principle of first past the post.”

US companies may now try to handle EU insolvencies through London, as the UK insolvency regime is viewed as friendlier than those in other jurisdictions. Baird said: “For the first time, companies may look at contingency planning through the UK.” While Corr asked: “Will London become the Delaware of Europe?”