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Model Law on Cross-Border Insolvency – its procedural limitations

The Model Law on Cross-Border Insolvency is not quite as expansive in its assistance to foreign liquidators and trustees as it may appear.  It did not assist Mr King, the US bankruptcy trustee of Zetta Jet, incorporated in Singapore, in trying to recover a luxury yacht named the Dragon Pearl, moored in Australia, and claimed to have been bought with funds misappropriated from the company.   

King’s US bankruptcy proceedings having been ‘recognised’ in Australia, he commenced recovery proceedings in respect of the yacht in the Federal Court of Australia, under the Australian Corporations Act 2001, and under Article 23 of the Model Law.

Art 23 provides that upon recognition of a foreign proceeding, the foreign representative has standing to initiate recovery actions arising under s 588FF and other relevant sections of the Corporations Act. That is said to apply in relation to an action for the purposes of a foreign proceeding in the same way it would apply if the action were for the purposes of a proceeding in relation to a company within the meaning of section 9 of the Corporations Act.   

But, as the Court held, the significant limitation of Art 23 is that while it provides for recognised foreign representatives to bring proceedings in a foreign jurisdiction, it is drafted narrowly and does not give any substantive remedy. Here, Zetta Jet was a Singaporean company, it was not a company under s 9 of the Corporations Act to which s 588FF applies.  Art 23 does not serve to expand the operation of s 588FF, as was argued by King, such that the section can apply to a non-section 9 company.

Nor does Art 23 state conflict of laws rules. In each case it is a question of looking at the national conflict rules to determine whether any proceeding of the type brought under Article 23 can properly proceed.

“The effect of [King’s] submission, if correct, is to alter the substantive insolvency law of Australia so that voidable transaction claims …. can now be brought with respect to the affairs of foreign corporations which do not conduct business in Australia and which are not registered here either. This takes Art 23 well beyond being a standing rule”.

What may be at times the limited purpose of Art 23 is to avoid the need to appoint a local liquidator through the opening of fresh insolvency proceedings.

“This is what the enactment of the Model Law was intended to avoid”.

King (Trustee), in the matter of Zetta Jet Pte Ltd v Linkage Access Limited [2018] FCA 1979.

Outcome

There were other issues involved in this judgment, and in many related judgments.  The Dragon Pearl remains subject to an injunction, restraining its departure, until 31 January 2019, when the matter is next in court.

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