On 27 April 2020, Robert Paterson assisted by Kate Herbert of Moon Beever LLP obtained what is believed to be a novel order from the High Court on behalf of the administrators of Karen Millen Deutschland GMBH (“the Company”), Lee Manning and Ben Woodthorpe of Resolve Advisory Ltd (“the English Administrators”).
The Order of Chief Insolvency and Companies Court Judge Briggs grants permission under paragraph 66 of Schedule B1 of the Insolvency Act 1986 (“the IA 1986”) for the Administrators to make a distribution to unsecured creditors of the Company by making a payment to the German Administrator in the secondary proceedings.
Prior to its administration, the Company was the German subsidiary of the Karen Millen group and operated stores and concessions in Germany. The English companies in the Karen Millen group had already entered into administration and the administrators, Robert Harding and Richard Hawes of Deloitte LLP had achieved a sale of the group’s worldwide brand.
An application was made to appoint an administrator of the Company in Germany (where the Company was incorporated and registered) however, the German court rejected this application on the grounds that the Company’s centre of main interests was in England and Wales where its board was located.
On 11 September 2019 the English administrators were appointed administrators of the Company. The English administration proceedings are the “main proceedings” under the Recast Regulations even though the Company was a German entity. A German administrator was subsequently appointed by the German courts in order to deal with the German creditors which became the “secondary proceedings.”
In the period leading up to the proceedings in Germany, the English Administrators were concerned that funds held to the credit of the Company in its German bank account might be dissipated. The English Administrators therefore requested these funds be transferred to their realisation account and thus under their control. The transfer from the German bank to the English administrators took place on the same day that the German Administrators were appointed. The question was then whether the funds fell to be dealt with in the English main proceedings or the German secondary proceedings.
This potentially raised issues of the law on cross-border bank payments. However, the situation was unusual in that there were no UK creditors who wished to receive a dividend, but there were creditors in Germany who were eligible for a dividend (namely Company employees). It was agreed between the Administrators that provided the English Administrators had the power to do so, the funds would be transferred to the German Administrator, (net of expenses incurred) to be distributed to the employees in accordance with German insolvency law and local preferential status.
It was contended that the court had the power to make the order sought by virtue of paragraphs 63, 65(3) or 66 of Schedule B1 IA 1986. It was submitted that paragraph 66 was the best fit whereby an administrator may make a payment “otherwise than in accordance with paragraph 65 or paragraph 13 of Schedule 1 if he thinks it likely to assist achievement of the purpose of administration”.
CICCJ Briggs made the order sought under paragraph 66 of Schedule B1 as it plainly achieved the purpose of administration in so far as it would enable the Company’s creditors to receive a dividend respecting the priority rules under German law. This case is a good example of cross-border cooperation between officeholders.