‘Flip-Up Pre-Packs’ – A new approach to accessing the UK insolvency regime

The UK has long-since established itself as a jurisdiction of choice for complex cross-border restructurings involving corporate groups whose principal operations are overseas. Typically, the English Court has accepted jurisdiction because the borrower or issuer entity had shifted its centre of main interests (“COMI”) to England, opening-up substantially the full range of restructuring and insolvency options available under English law; or because the obligations being restructured were English-law governed and expressly subject to the English Court’s jurisdiction, which provides a ‘sufficient connection’ to the UK for the court to sanction a scheme of arrangement.

Notwithstanding the above, in certain situations, a COMI shift may not be practical (e.g. for tax reasons) and/or possible (e.g. if the debt was borrowed by an operating company), and a borrower group will often need to restructure obligations that are not governed by English law. The recent decision in Re Christophorus 3 Ltd establishes that, if an intercreditor agreement containing certain commonly used terms is in place, there is a third way of accessing the UK insolvency regime – namely, by ‘flipping-up’ the borrower group to an English (former) subsidiary of the principal borrower, and placing that English company into a UK insolvency process. The new ‘flip-up’ technique will not displace the COMI shift and/or the use of English law governed documents as methods of establishing the jurisdiction of the English Court, but the door is now open for more overseas groups to access the UK regime.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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