I was invited to present at the INSOL International Academic Colloquium on 12 September 2023 in Tokyo on the panel concerning ‘Insolvency Professionals’, along with Dr E Streten (Aus) and Professor J Sugimoto (Japan) and chaired by Professor Charles Booth (USA). 
My session – the cross-border regulation of insolvency practitioners – generated several useful questions from participants which prompted my further research.
The outcome of that research, in outline, follows.
IP as a professional
As an opening comment, my view is that the work of an insolvency practitioner (IP) as a professional receives little attention in the academic literature, with the IP often appearing as a mere functionary in the context of the particular insolvency structure being discussed. This is despite the reality that
‘[i]n the field of insolvency there are two actors whose integrity and expertise are central to the functioning of the insolvency system: judges and administrators. … ‘these two actors perform the core tasks. Thus, learning about the qualities of these actors is almost always more important to an understanding of an insolvency system than knowledge of its legal rules and procedures’.
And that any law— even the best one— is of little use unless there are personnel who are willing and capable to transform the written rules into reality and daily practice, with the authors saying that if they
‘were forced to choose, we would opt for bad law and good personnel over good law and bad personnel’.[1]
Foreign representatives
It follows that most or all jurisdictions have processes to oversee and regulate IPs and support them. My focus here is how that oversight and regulation, and support, is maintained while the IP is acting outside their home jurisdiction as a foreign representative under the UNCITRAL Model Law, or under a letter of request.
Australian liquidator in England
To illustrate, I use the example of an Australian liquidator – AL – whose proceedings are recognised as foreign main proceedings under the Model Law in England, and who pursues investigations, examinations and proceedings there.
While there, AL engages in misconduct about which complaint is made to the High Court of England and Wales.
Officer of the court?
The Judge could say that AL is not an officer of the High Court and it has no jurisdiction to offer a remedy or sanction, that it is a matter for AL’s home jurisdiction: see ANZ v Sheahan [2012] NZHC 3037.
“Status as an officer of the court entails amenability to the court’s supervisory jurisdiction, including its punitive and disciplinary powers. There is no indication that the CBIR was intended to permit this court to exercise such powers against a foreign professional, merely because he had obtained an order for recognition. … Absent authorisation by the foreign court, this [English] court cannot exercise the supervisory jurisdiction of that [foreign] court over its own officers”: Glasgow v ELS Law Ltd [2018] 1 WLR 1564 at [81]-[86]; [2017] EWHC 3004 (Ch).
As to how the home jurisdiction would be alerted to the misconduct of its IP is unclear.
This approach is consistent with Art 10 of the Model Law, that the sole fact that an application for recognition is made by a foreign representative does not subject that foreign representative to the jurisdiction of the courts for any purpose other than the application.
Reg 29
But while the UK, along with jurisdictions like US, Australia, New Zealand and Singapore have adopted Article 10 in their respective cross-border insolvency laws, the UK has also provided a remedy provision for misfeasance by foreign representatives, similar to that applicable to local insolvency practitioners in UK. See Part 8 of the Cross-Border Insolvency Regulations 2006 – Reg 29 Misfeasance by a foreign representative.
Reg 29 allows a complainant to allege that the foreign representative has misapplied or retained money or other property of the debtor; has become accountable for money or other property of the debtor; has breached a fiduciary or other duty in relation to the debtor; or has been guilty of misfeasance. The Court may order the foreign representative to repay, restore or account for money or property; to pay interest; or to contribute a sum to the debtor’s property by way of compensation for breach of duty or misfeasance.
Hence, in our example, the Court could also act under Reg 29 of the CBIR to offer a remedy if the conduct falls within the relevant categories.
Whether it would or could go on to sanction the Australian IP is another matter.
Revocation
Ultimately, the High Court could revoke the recognition order, even ab initio. In Cherkasov v Olegovich [2017] EWHC 3153 (Ch), the High Court relied upon Article 6 which allows a court to refuse an application under the Model Law if it would be manifestly contrary to public policy. As the Court said in that case: “Article 6 is to be read restrictively and will only be relevant in a very small number of cases. But this case falls clearly within that small class”.
But despite concerns of the US court in Cozumel Caribe, SA de CV,[2] the Judge said that Article 6 is not a licence for a US court to make “an independent determination about the propriety of individual acts of a foreign court.” And in Creative Finance,[3] while the US Court severely queried the conduct of the debtor and its appointed liquidator, it expressed no view “as to whether the Liquidator’s conduct was or was not sufficient, under BVI law, to ensure that his “duties [were] fulfilled.” That is a matter for the BVI courts”. Again, how the BVI courts would be advised of the US court’s concern is unclear.
Coming back to our English example, except on an ad hoc basis there is no process allowing a Judge to refer the misconduct of the Australian liquidator to an Australian court or regulator. The Guidelines for Communication and Co-operation between Courts in Cross-Border Insolvency Matters and the Modalities of Court-to-Court Communication, both published by the Judicial Insolvency Network,[4] do not deal with such communications.
English trustee in Australia
Using the parallel example of an English trustee – ET – whose proceedings are recognised as foreign main proceedings in Australia, and who pursues investigations, examinations and proceedings there, I assume there is no need to notify the RPBs or the UK Insolvency Service, nor even to advise creditors.
While in Australia, ET engages in misconduct about which complaint is made to the Federal Court of Australia.
As with the England example:
- The Judge could say that ET is not an officer of the Federal Court and it has no jurisdiction to offer a remedy or sanction.
- There is no equivalent of Reg 29 of the CBIR in Australia.
- Ultimately, the Federal Court could revoke the recognition order.
- Except on an ad hoc basis the Federal Court has no process of referring the misconduct to an English court or regulator.
The foreign representative
Little attention is in fact given under the Model Law to the foreign representative – their experience, knowledge or qualities. Neither the recognition of the foreign proceedings and even less so the foreign representative call for much evidence on a recognition application. Thus, the decision to grant recognition
“should not involve an examination of the merits of the foreign court’s decision or the foreign representative’s suitability”, subject to the operation of Art 6,[5] and the acceptance of the foreign representative occurs “with no special formalities (other than a translation, where needed)”.[6]
This is despite the range of high or low requirements to be an IP across jurisdictions. It is a product of the need for accessibility to the Model Law and of comity between courts, to accept the foreign representative of another court.
Model Law Article 2(d) defines a “foreign representative” as a “person or body, including one appointed on an interim basis, authorized in a foreign proceeding to administer the reorganization or the liquidation of the debtor’s assets or affairs or to act as a representative of the foreign proceeding”. The term “representative” is a neutral one and does not indicate the need for any particular qualification to perform the role. Bob Wessels queries whether the right of access to the foreign court a personal right or may the representative transfer the entitlement to another person via a power of attorney? As to which, Art 10 suggests the personal character of the foreign representative in the eyes of the court in the enacting state.
He also raises whether discovery rules applicable in the enacting state would apply to the foreign representative; if so, “a manoeuvre could be to have an attorney or legal representative act as the foreign representative, instead of the debtor-in-possession (if allowed under the law of the enacting state)”. And although there is a right of “direct” access, he says it is advisable and practical to engage a lawyer in the foreign state to assist, given the potential difficulty in understanding the language and the foreign legal and procedural system: see Who it the “foreign representative” under the Model Law (MLCBI)? 1 October 2023, by Bob Wessels
Even absent language or other such difficulties, the court may, but only on request, appoint a local person as agent to assist the foreign representative. So, in Palmer (Trustee), in the matter of Slater (Bankrupt) (No 2) [2016] FCA 960 (16 August 2016) (austlii.edu.au) the Court acted pursuant to s 6 and article 21(1)(e) of the Model Law, to entrust the administration and realisation of all of the assets of the bankrupt located in Australia to nominated Australian trustees as the Australian representatives of the English trustee. That case also involved the bankrupt challenging, unsuccessfully, the independence of the Australian representatives, under Australian law.
Applicable law
A particular issue here is the applicable law, a project which UNCITRAL WGV is currently debating. The draft UNCITRAL guide provides that
“the lex fori concursus governs the mechanisms for selection, appointment, removal and replacement of the insolvency representative … a method of calculating remuneration … the role of the court and creditors in oversight of the work done by the insolvency representative; and liability of the insolvency representative. With respect to the latter, non-insolvency laws may be applicable especially if the insolvency representative is subject to certain professional standards and regulations …”.
Hence, in AM Holdings Ltd v Batten & Anor [2018] EWHC 934 (Ch) (26 April 2018) (bailii.org), the High Court applied Reg 29 against Guernsey administrators, who were alleged to have sold property in London for an undervalue [the claim was dismissed], with Guernsey law [lex fori concursus] applied.
A point was made during my INSOL session that, as misfeasance is a tort, the lex loci delicti might apply. The wording of Reg 29 itself suggests English law should apply.
Note that while the rule in ex parte James applies only to officers of the local court and not to foreign office holders, even if authorised under the Model Law [Re Lehman Brothers International (Europe) [2015] EWHC 2270 at [174]], the court in Mitchell & Anor v Al Jaber & Ors [2023] EWHC 364 (Ch) held that the foreign office holder could invoke ex parte James in their home jurisdiction if it were so available.
Debtors in possession; letters of request
I did not cover these at my INSOL session because of timing constraints, and that continues. Much of what I have written in the Model Law context would apply to letters of request, but beyond that, they need separate consideration. Debtors in possession may be foreign representatives and in OGX the board of directors of the debtor were found to have engaged in an abuse of process although no sanction was pursued: Nordic Trustee ASA & Anor v Ogx Petróleo E Gás SA (Em Recuperação Judicial) & Anor [2016] EWHC 25 (Ch) (12 January 2016) (bailii.org). They likewise need separate consideration.
Other regimes
New Zealand
New Zealand has a particular cross-border regime that supplements its adoption of the Model Law, and its letters of request regime. I explained this in Insolvency licensing bodies confirmed for New Zealand’s new regulatory regime – Murrays Legal, of August 2020.
This requires insolvency practitioners operating in New Zealand to be licensed by an accredited body, being the New Zealand Institute of Chartered Accountants (NZICA). As an accredited body, NZICA has regulatory functions under the Act and only it can issue licences. Membership of NZICA is also an avenue by which a person can obtain a licence.
The regulatory regime applies to all insolvencies in New Zealand, regardless of where the insolvency practitioner is based.
Overseas insolvency practitioners must obtain a New Zealand insolvency practitioner’s licence before acting in a New Zealand insolvency.
There are particular concessions to Australian registered liquidators, who are exempt from NZICA membership requirements but they must enter into a ‘written arrangement’ with NZICA under s 58 of the Insolvency Practitioners Regulation Act 2019 in relation to their experience and competency and other attributes. That arrangement is binding as if the Australian IP were a member of NZICA.
How that operated in a particular case is explained here: Australian voluntary administrators appointed as New Zealand interim liquidators – Murrays Legal
India
Before it decided to defer any CBI law reform, India was contemplating its own ‘reg 29’, along with the foreign representative being required to register with the Insolvency and Bankruptcy Board of India (IBBI) which itself would regulate any breaches. The foreign representatives were to be subject to a code of conduct specified by IBBI, and to a penalty provision, similar to that applicable to domestic insolvency professionals under the Insolvency and Bankruptcy Code 2016. IPs seeking access to a foreign insolvency system and infrastructure were to be bound to report such assignments to IBBI.
Much of what was proposed in India would have addressed many of the concerns I raise here.
Regulators
There appears to be no arrangement between national insolvency regulators to regulate practitioners while they are operating as foreign representatives outside their home jurisdiction or assist the courts to regulate. This includes IAIR: The International Association of Insolvency Regulators.
The two regulators in Australia are AFSA (bankruptcy) and ASIC (corporate).
Note that in Australia, under the respective harmonised bankruptcy and corporations schedules 2, s 40-40, an IP can be sanctioned if “(l) [the IP] has failed to carry out adequately and properly (whether in Australia or in an external Territory or in a foreign country): (i) the duties of [an IP]; or (ii) any other duties or functions that [an IP] is required to carry out under a law of the Commonwealth or of a State or Territory, or under the general law…”: my emphasis.
Professional bodies
There also appears to be no arrangement between professional bodies to regulate practitioners while they are operating as foreign representatives outside their home jurisdiction or assist the courts to regulate. There is however a wide variation internationally in the role of such bodies to regulate beyond their own members.
ARITA’s Code applies to its members “practising outside of Australia”: 1 Application. Accounting bodies, of which IPs are invariably members, belong to international accounting networks but with no evident regulatory role.
Support
I opened by saying that my focus was not only on oversight and regulation, but also support, and these can be complementary, and that what was required among IPs were ‘good personnel’ whatever the state of the particular law. The role of the IP is difficult enough in the home jurisdiction, let alone in other less familiar jurisdictions. INSOL International does a very good job in educating us on laws across all jurisdictions, for practice and law reform purposes, and facilitating connections. I simply suggest something more, that an IP arriving in a foreign jurisdiction should be able to register and tap into local contacts, information about the court and regulatory systems, land and company registers, something in the nature of the GAA Passport or similar.
Concluding thoughts
Whether what I have raised calls for attention or reform I will let others decide. In response to a question from the chair of my session, whether there is particular cause for alarm at the lack of cross-border regulation, my response was ‘no’, but it is a regulatory gap that provides some opportunistic incentives. As with Australia’s recent PJC report, I leave any reform ideas for any comprehensive review. But I ask a few questions as prompts.
Do we really need to retain the quaint concept of officer of the court? While ordering a sequestration or winding up is a judicial task,[7] that does not necessarily mean that IPs should become officers of the court.
Should England’s reg 29 approach be adopted, of giving the court some power to remedy loss caused by a foreign representative, while leaving sanctions to the home jurisdiction?
As another alternative, India would have delegated much of the court role to the IBBI.
In that respect, should regulatory arrangements be best left to the regulators who could require, for example, any cross-border application to be notified and reported on; again, India would have required this of its foreign representatives. Lines of communication between regulators would need to be established.
It is not uncommon in Australia for a judge to direct that her or his judgment be referred to the regulator, when issues of concern come up in the hearing. It does not seem that this occurs on an international cross-border level. Courts could add to their existing lines of communication the ability to refer IPs for misconduct.
Comment
Any comment is invited.
Michael Murray
+61 402 248 353
michael@murrayslegal.com.au
========================================================
[1] A Global View of Business Insolvency Systems, Westbrook, Booth, Paulus and Rajak, The World Bank and Brill, 2010, at 203.
[2] CLOUT case 1311 (uncitral.org)
[3] CLOUT case 1624 (uncitral.org)
[4] Cross-Border Insolvency Practice Note: Cooperation with Foreign Courts or Foreign Representatives (GPN-XBDR) (fedcourt.gov.au)
[5] Sealy & Milman: Annotated Guide to Insolvency Legislation 2012: Volume 2, p 187.
[6] Sealy & Milman: Annotated Guide to Insolvency Legislation 2012: Volume 2, p 173.
[7] Arbitration and insolvency disputes: A question of arbitrability, INSOL Special Report, July 2020
