Administrators appointed to yarn distributor’s German subsidiary

Administrators have been appointed to the German subsidiary of a Keighley-based distributor of knitting yarns and patterns that ceased trading at the end of last year.

Lee Lockwood of Begbies Traynor in Leeds and Ray Claughton of Rushtons Insolvency in Shipley were appointed on January 5 2018 as joint administrators of Designer Yarns (Deutschland) GmbH.

The appointment was made via an application to the English Courts using the powers set out under EC Regulation 2015/848.  This enables a company whose centre of main interest (COMI) is within a different EU state to that of its registration, to be subject to insolvency proceedings in the territory of its COMI.

In this case, on December 14 2017, Julian Pitts of Begbies Traynor and Ray Claughton had been appointed as joint administrators over Keighley-based Designer Yarns Limited (DYL), A wholesaler of wool, it had traded successfully for many years, but suffered as a result of higher costs and customers having better access to manufacturers.

The German company was a wholly owned subsidiary of DYL which was used to sell wool on the continent, but had also struggled in recent years and had been supported by DYL. When DYL ceased to trade, the German company had no financial support and no supply of wool and was, therefore, unable to continue trading.

Having been managed by the sole English director from the UK, the German staff at the company were not well placed to be able to seek German insolvency protection. Under German insolvency rules, a large debt due to DYL from the company would have been treated as subordinate to all other creditors’ claims which is not the case in UK law.  Consequently, the director and the administrators of DYL felt it was in the best interests of the company and its primary creditor to seek the application of English insolvency proceedings.

Andrew Walker of Irwin Mitchell Solicitors in Leeds assisted the administrators in assessing the complex factors determining the COMI of the company before making an application to the English Courts.

“For English administrators to be appointed over a foreign company is a relatively rare occurrence,” said Lockwood.  “We were able to satisfy the courts that the German company’s COMI was in England meaning an English administration order was appropriate.

“We are now working with the German employees and advisers within the territory to ensure statutory matters are complied with both in England and German as well as ensuring that employees in the territory are assisted and assets realised.

“This was a fairly complex case and a great demonstration of the international insolvency and legal expertise we have here in Yorkshire.”