One helps to refine some familiar principles of Scots insolvency law and the other confirms that overseas companies can be wound up before the Scottish Courts.
- Colonnade Properties Limited and Others -v- Beechmount Limited (in Liquidation), [2023] CSIH 10
The Inner House confirmed that a contract remains binding on a company following liquidation without express provision to the contrary.
Beechmount had three shareholders, two directors and one principal asset, Beechmount House. Following a breakdown of the relationship between the two directors, two litigations were raised and ultimately settled following a long mediation. The extra-judicial agreement was recorded by way of a settlement agreed between Beechmount, its shareholders and directors.
The settlement agreement sought to: (i) regulate the sale of Beechmount House; (ii) regulate the subsequent liquidation of the company and distribution of proceeds; and (iii) encourage parties to cooperate in relation to certain potential tax issues with HMRC.
Beechmount went into liquidation. An action was brought for payment in accordance with the provisions of the settlement agreement against the company, in liquidation.
Clause 3 of the agreement dealt with the potential tax issues. The parties agreed inter alia to appoint an independent expert on behalf of the company to represent its interests in discussions with HMRC. No such tax advisor was formally appointed prior to the liquidation.
Clause 5 dealt with the distribution of the proceeds of the sale of Beechmount House further to the resolution of matters in Clauses 3 (& 4). Much evidence was led in the Outer House as to whether “resolution” had occurred. The Outer House erred in finding that the contract was frustrated on the basis that the directors, due to the company’s liquidation, could not appoint an expert and thus, the payment obligations under Clause 5 never crystalised.
The Inner House suggested that the question of compliance with Clause 3 took the focus away from the more fundamental legal principals of the case. When appointed, a liquidator can either adopt a contract previously entered into by a company to which they have been appointed, and perform the obligations contained therein, or the liquidator can repudiate the contract and the company will be liable for damages for the said breach. The liquidator was incorrect in refusing to fulfil the obligations and not to make payments under the settlement agreement.
The Inner House decision provides some comfort for contracting parties and brings us back to the well-established principals and duties of the liquidator on appointment.
- Kingston Park House Limited -v Granton Commercial Industrial Properties Limited, [2022] CSIH 59
The Court looked at the question of “When should a Scottish Court order the winding-up of an overseas company?”
The Outer House granted a winding-up petition brought by Kingston Park House Limited against Granton Commercial Industrial Properties Limited and appointed joint interim liquidators. Granton argued that the Outer House had no jurisdiction to do so as Granton was incorporated and registered overseas.
Granton owed sums in excess of £7m to Kingston under various loan agreements for the purchase of plots of land at Granton Harbour in Edinburgh. Such lending was secured by way of standard securities. Being incorporated and registered in Jersey, it was no question that Granton was deemed to be an “unregistered company” in terms of s220 of the Insolvency Act 1986. S221 of the 1986 Act provides the Scottish Court with a discretionary power to wind up such a company where it has a principal place of business in Scotland if inter alia the company is unable to pay its debts. Granton fell into this category.
The Inner House reminded us of the three core requirements, adopted into Scots Law by Lord Hodge in HSBC, Petitioner 2010 SLT 281, for when the Court may exercise this discretion:-
- There must be a sufficient connection with Scotland which may, but does not necessarily have to, consist of assets within the jurisdiction;
- There must be a reasonable possibility, if a winding-up order is made, of benefit to those applying for the said order; and
- One or more persons interested in the distribution of the company’s assets must be persons over whom the Court can exercise a jurisdiction.
The reclaiming motion was refused. The Inner House was satisfied that 1-3 were met. Interestingly, the Inner House noted that these three requirements “should not be applied as if they were hard-edged rules of law. They are simply factors that may be relevant to the exercise of the court’s discretion depending on the particular facts of the case”.
