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Cross-border insolvency – the Canberra session

I was pleased to have been involved with others in giving a presentation on UN Day 24 October 2019 to commemorate 25 years of cross-border insolvency reform from UNCITRAL. My session in Canberra was chaired by the Hon Dr Warwick Neville, of the Federal Circuit Court of Australia, with commentary from Ms Prue Bindon, of the Canberra bar.

I was also pleased to see in the audience a number of my colleagues from government who are involved in insolvency law reform, as well as academics and local insolvency and legal practitioners.

While my paper will appear on the UNCCA website, I give these extracts following.

Some history

Cross-border insolvency goes back quite a way as I explained, with the 1542 Bankruptcy Act enacted to chase those “absconding debtors” who

“craftily obtaining into their hands great substance of other men’s goods and do suddenly flee to parts unknown … for their own pleasure and delicate living”.

Attempts at retrieving overseas assets continued, one Scottish debtor avoiding a liquor tax by fleeing, with his assets, to Ireland, so that he

“might safely snap his fingers in the face of a disgruntled Scottish Revenue.”

In Australia’s early colonial days, we had cross-border problems – a winding up order in NSW did not necessarily assist in recovering assets in Victoria. That continued well into the 20th century in corporate insolvency, the Harmer Report in 1988 being forced to write a section on Domestic cross-frontier insolvency which could involve the need for ‘recognition’ of insolvency proceedings across state frontiers. Bankruptcy had resolved all that with its federal 1924 Act.

Writing in 1992, just as the deliberations on the model law were beginning, Professor Keay said that unless something was worked out “bankruptcy administration will be regarded, in some quarters, cynically and in others with disdain”.

Comity

In those days, although there was comity, one early qualifier was reciprocity, which Keay described as a “special brand of parochialism”, used often by courts as a “device to protect the interests of domestic creditors”. He notes that in chasing the overseas assets of Christopher Skase, the court said that

‘[t]o put this point more simply, we can hardly expect the Spanish authorities to assist Australian courts in relation to a matter of a kind in which Australia would not assist Spanish court’.

Comity does remain important, with Justice Logan recently saying that its importance is

“if anything, even greater in modern times when advances in science and technology have made the transfer of funds across international borders an almost instantaneous process …”.

Letters of request are statutory examples of comity, still much used despite the Model Law.

The Model Law

All this is contextual, my paper then going through some of the main elements of the Model Law, including its limitations: jurisdiction, group insolvencies, recognition of insolvency judgments. My estimate is that over 100 foreign representatives have applied under the Model Law before Australian courts since 2008.

The foreign representative

Given the sponsoring of the sessions by ARITA, I gave some attention to the “foreign representative” whether that be an overseas insolvency practitioner or debtor in possession seeking recognition before Australian courts, perhaps enlisting local Australian practitioners as local agents; or an Australian insolvency practitioner seeking recognition overseas.

I raised three issues that have arisen.

  1. Duty of disclosure

The foreign representative must make full disclosure to the Court, including as to the impact of the automatic stay under Art 20. In Nordic Trustee v OGX an application to the English High Court was made for recognition of Brazilian insolvency proceedings without disclosing the impact of the automatic stay on arbitration proceedings that had been kept out of the Brazilian insolvency. On the party to the arbitration rushing to court to have the recognition set aside, Justice Snowden’s response to the court being misled was severe. I covered this case in the ARITA Journal at the time.

A more serious failure to disclose occurred in Cherkasov v Olegovich where recognition of a Russian liquidator’s proceedings was revoked because he failed to disclose an extensive background history not quite suggesting, as the Judge said, a “retaliatory campaign by the Russian state” against the defendant.

2. Misconduct

Those cases raise issues of misconduct of the foreign representative. Australian liquidators’ proceedings were recognised under the Model Law in NZ and they were subsequently found to have engaged in misconduct. However, Heath J said that he could not sanction them because they were officers of the Australian courts, not NZ’s: ANZ v Sheahan and Lock [2012] NZHC 3037.

That raises the issue of what regulatory oversight is given to Australian practitioners overseas; and what legal authority Australian courts have over foreign representatives in Australia. For those interested, see my Cross-border regulation of insolvency practitioners (2018) INSLB 55.

See also Bankruptcy and Corporations Schedules Div 40 s 40-40(1)(l) which extend review of practitioner conduct to matters outside Australia. The ARITA Code 4th ed extends to its members practising outside Australia.

3. Local assistance

While local practitioners can be appointed to assist a foreign representative, under Arts 19 or 21, cost may be a factor. Logan J declined to appoint an Australian trustee to act as a receiver in Cooksley for that reason; it could all be managed by the NZ Official Assignee.

If a local practitioner is designated to assist, a creditor may challenge their independence. In Slater the Court assessed the conflict in terms of ‘public policy’ under Article 6. But note that no such statement of independence is required of the foreign representative when seeking recognition of their foreign proceedings.

UNCCA

UNCCA has its UNLAWS scheme whereby interested lawyers and law students can attend UNCITRAL Working Group sessions, as I did, with a student, in Vienna in December 2016.

For some, the opportunity has prompted their further involvement in international law.

I mention three – Claire Stubbe (New York, 2017), who now works for the World Bank in New York; Myles Bayliss, whose winning essay on virtual assets in insolvency gave him a ticket to the recent IBA Conference in Seoul; and Samantha Pacchiarotta, who is studying a masters in international law at Maastricht (both Vienna, 2018).

Michael Murray, Chair, Expert Advisory Group WGV, UNCCA

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