Some cross-border insolvency items from Australia and England

Two cross-border insolvency papers from Australian Judges; a scheme judgment from the UK, with the Judge criticising the parties, saying the court is not merely to be a rubber stamp ‘at the end of a restructuring which has been under discussion for over a year’; and a brief reminder of UNCITRAL’s Working Group V – Insolvency examining a number of cross-border issues next month.

Australian recognition proceedings

A very useful coverage of Australian cross-border insolvency law and the recognition of foreign insolvency proceedings is contained in this paper given by Justice Robert McDougall, at the 31st LAWASIA Conference in Cambodia, in November 2018.[1]

The paper focuses on the issue of the recognition and the consequential relief granted by Australian courts.

“Although the latter is often considered the raison d’être for the Model Law, it is the former which provides the key to unlock it. This is because it is only once foreign proceedings are recognised that a foreign representative can seek orders to enable it to complete its cross-border liquidation or re-organisation”.

As the paper explains, many corporations now do not exist within a single jurisdiction where they are amenable to one insolvency law.

“Whilst collective action may be more economically more efficient, how can a set of nations, each with different views on insolvency procedure, create such a system?”

That difficulty, the paper says, is best illustrated with by way of example:

“Many of Australia’s largest companies are traded on the Australian Securities Exchange and other exchanges around the globe. They may have thousands of employees worldwide, with current operations in many nations. They may sell billions of dollars of goods or services to multiple overseas markets. Now, consider what would happen if one of those companies became insolvent. Let us accept that collective action is the “more efficient” way to proceed. Where will the administrator be appointed? What if an administrator from Sydney and one from London both purport to try to re-organise and liquidate the global assets of that company? Which rules of insolvency will apply to the administration? How will creditors know, in advance, what those rules are? What if, despite the appointment of a single global administrator, a Brazilian creditor commences proceedings in the Brazilian courts, seeking to secure assets presently located within Brazil to enable it to satisfy its entire claim?”

The paper is commended.

An update on cross-border insolvency law in Australia

Justice McDougall refers to another recent paper from Australia, entitled Of Singaporean yachts, Chilean Ponzi schemes, and the Italian merchant marine (among others): An update on cross-border insolvency law in Australia.[2]

UNCITRAL Working Group V – Insolvency

UNCITRAL WGV is meeting in Vienna from 10-14 December 2018 to discuss and progress a number of cross-border projects.  LAWASIA will be represented by UNCCA at that session.

The position should not be reached in which the Court is presented with a metaphorical “gun to the head”

The complexities of cross-border insolvencies are further illustrated by a recent English decision involving a scheme of arrangement preceding a US Ch 11 bankruptcy, of a Bermuda registered company listed on the Singapore Exchange, as the ultimate holding company of a group of companies which comprise a major global commodities trader, which had encountered financial difficulties caused, among other things, by an industry-wide decline in commodity prices between 2014 and 2016: see Re Noble Group Ltd [2018] EWHC 2911 (Ch) (02 November 2018).

Practitioners might note that Justice Snowden was critical of the conduct of the parties, in setting out a very tight timetable for approval of the scheme.

“178. …this is simply not an appropriate way for the parties involved to approach the Court at the end of a restructuring which has been under discussion for over a year.  As has been demonstrated on many occasions, flexibility and the ability to move swiftly when a genuine need arises is a particularly attractive and useful feature of the process for schemes of arrangement.  The Companies Court will also always do what it can to accommodate the business needs of its users.  However, it has been made crystal clear on numerous occasions that the Court is not a “rubber-stamp” for schemes of this (or any other) type.  It is important that the Court is not taken for granted and its willingness to assist must not be abused.

  1.           That means that the Judge hearing a scheme case needs to be given adequate time for pre-reading and for the hearing, including time to consider what decision to make and to prepare a judgment.  The parties involved in restructuring discussions must understand that they cannot run things down to the wire for their own benefit and without due regard for the proper process of the Court.  Negotiations must be finalised in good time.  The position should not be reached in which the Court is presented with a metaphorical “gun to the head” and the Judge is in effect told that if he does not comply with the company’s application immediately, he will be responsible for the collapse of the company because other creditors (and in this case the SIC) will be unwilling to extend their deadlines”.

Copies of papers available from Michael Murray.

 

[1] Recognition of Foreign Insolvency Proceedings – An Australian Perspective, Paper prepared for the 31st LAWASIA Conference on 3 November 2018, Siem Reap, Cambodia, Justice Robert McDougall, a Judge of the Supreme Court of NSW; Adjunct Professor, Faculty of Law, UTS, Sydney.

[2] Justice Julie Ward, a Chief Judge in Equity, Supreme Court of NSW. Paper delivered at the 35th Annual BFSLA Conference, Queenstown, 1-3 September 2018.

 

Posted by admin