Hooley was granted floating charges over three Scottish companies with assets in India and subsequently appointed an administrator in respect of them. Shortly thereafter Hooley entered into contracts to purchase the whole of the business and assets of the companies from the administrator. It then transpired that the companies were already subject to insolvency proceedings in India.
Hooley is currently challenging the validity of the various orders through the Indian courts. Its purpose in this action was therefore to support its claims by confirming that the transfer in its favour is effective under Scots law. Ganges Jute Private Limited ("Ganges"), a creditor in India, sought to oppose the action.
There were two main issues for the court to consider:
Whether the powers of the Scottish administrator were limited to the extent they are recognised by the Indian insolvency proceedings; and
Whether the administrator appointed under the floating charge had been validly appointed under paragraphs 14 and 16 of Schedule B1 to the Insolvency Act 1986.
In respect of the first issue the court examined (for the first time in Scotland) the principle of 'Modified Universalism'. Universalism is the concept that multinational insolvencies should be administered by a single court applying a single bankruptcy law. Modified Universalism provides that the court has a common law power to assist foreign winding up proceedings so far as it properly can. Ganges therefore argued that the powers of the administrator are exercisable only to the extent that they are recognised as legally valid by Indian law.
However, agreeing with Hooley, the court found that any proceedings in India must instead be regarded as ancillary to the Scottish insolvency proceedings. The court referred to Lord Sumption in the case of Singularis Holdings Ltd v PriceWaterhouseCoopers  UKPC 36 who stated that Modified Universalism is founded upon: "the public interest in the ability of foreign courts exercising insolvency jurisdiction in the place of the company's incorporation to conduct an orderly winding up of its affairs on a worldwide basis, notwithstanding the territorial limits of their jurisdiction."
The Insolvency Act
In relation to the second issue, paragraphs 14 and 16 of Schedule B1 to the Insolvency Act 1986 were considered:
- Paragraph 14 permits "the holder of a qualifying floating charge" to appoint an administrator.
- Paragraph 16 states that "an administrator may not be appointed under paragraph 14 while a floating charge on which the appointment relies is not enforceable".
Ganges argued that in order for a floating charge to be a "qualifying floating charge" it had to secure the whole, or substantially the whole, of the company's property, not just under Scots law but also the jurisdiction where the company's assets are located. It was argued that as the floating charges had not been registered in India and were granted in breach of the Indian court order they did not "secure" the companies' property. Therefore, as the charges failed under paragraph 14, they were not "enforceable" for the purposes of paragraph 16.
However, the court disagreed with Ganges, finding that paragraph 14 did not indicate that the inquiry as to whether a person is entitled to appoint an administrator need go further than an examination of the terms of the instrument creating the charge. To do otherwise would not only prevent an administrator being appointed while a floating charge is not enforceable but also prevent one being appointed until the question of whether the charge is enforceable was settled.