Posts Tagged Bankruptcy

OCEAN Rig: COMI shopping cautiously welcomed by US Bankruptcy Court.

I have often argued that the European Commission and by extension the EU’s Insolvency Regulation is wrong in taking as a starting point that forum shopping in insolvency matters as a rule needs to be discouraged. This aversion towards forum shopping is one of the main reasons for the UK and other Member States to keep Schemes of Arrangement and other restructuring devises well out off the reach of the Regulation. (The Brussels I recast for instance allows for much more strategic choice of court use).

Thank you Debra Dandeneau for flagging the US Bankruptcy Court, Southern District of New York’s decision in Ocean Rig. The Court essentially argues that to use forum shopping in a restructuring /insolvency case is absolutely acceptable provided it is done in good faith, particularly with a view to maximizing chances of survival and /or maximal recovery by the creditors. Note that the Court, in determining COMI for the various companies in the group, pays specific attention to the ascertainability, by third parties, of COMI.

A judgment to be applauded. And this posting, incidentally, is the 500th on this blog. To 1000 and beyond!

Geert.

(Handbook of) EU private international law, 2nd ed. 2016, Chapter 5, Heading 5.1, Heading 5.4.6.

, , , , , ,

Leave a comment

Spizz v Goldfarb. Applying the US presumption against extraterritoriality in bankruptcy cases.

Charles Oellermann has excellent analysis of Spizz v. Goldfarb Seligman & Co. (In re Ampal-Am. Israel Corp. 562 B.R. 601 (Bankr. S.D.N.Y. 2017). The U.S. Bankruptcy Court for the Southern District of New York ruled that the avoidance provisions of the Bankruptcy Code do not apply outside the U.S. because, on the basis of the language and context of the provisions, Congress did not intend for them to apply extraterritorially. In so holding, it applied the Morrison test which was central to the United States’ Supreme Court ruling in Kiobel, which of course has been the subject of repeated analysis on this blog.

Whether an avoidance action (which in civil law jurisdictions would be tackled by an actio pauliana) is extraterritorial in and of itself, is not easily ascertained. In his review, Charles has superb overview of case-law applying a centre of gravity test: depending on the facts of the case, parties’ action does or does not take place outside the US in relation to the parties’ domicile, the subject of the transaction, etc.  He also rightfully highlights that courts are aware that even if one were to apply the provisions extraterritorially, a US judgment might not be easily enforced against foreign debtors.

Case-law is evidently not settled and one imagines that the extraterritoriality of bankruptcy laws will in some form further end up at the USSC.

Geert.

 

, , , , , , ,

Leave a comment

Forum shopping alive and well outside the EU Insolvency Regulation. High Court (Bankruptcy) in Kekhman.

In Kekhman, the High Court (Kekhman) refused to reverse an earlier decision establishing jurisdiction for personal bankruptcy. COMI was not in the EU- the Insolvency Regulation therefore does not apply. Jurisdiction was upheld even though the applicant had only been personally been in the UK for one or two days.

Applicant argued pro jurisdiction mainly on the basis of

(a) the absence of a personal bankruptcy regime in the Russian Federation;

(b) the availability of assets in the jurisdiction (£200,000 which was to be made available to the official receiver);

(c) connection to the jurisdiction in the form of contractual English law/jurisdiction provisions;

(c) the opinion of a Russian lawyer, that the courts of the Russian Federation would recognise the bankruptcy;

(d) the fact that an English bankruptcy would allow for the investigation of Mr Kekhman’s affairs and an orderly realisation of Mr Kekhman’s assets for the benefit of his creditors as opposed to realisation on a first come first served basis;

(e) the promise that Mr Kekhman would cooperate with the official receiver and any trustee appointed;

(f) the prospect of Mr Kekhman’s financial rehabilitation.

Personal presence has long been withheld as sufficient ground for jurisdiction in England.

Section 265 Insolvency Act 1986 now provides

“Conditions to be satisfied in respect of debtor. (1) A bankruptcy petition shall not be presented to the court (…) unless the debtor(a) is domiciled in England and Wales, (b) is personally present in England and Wales on the day on which the petition is presented, or (c) at any time in the period of 3 years ending with that day (i) has been ordinarily resident, or has had a place of residence, in England and Wales; or (ii) has carried on business in England and Wales’.

Once jurisdiction has so been established, the Court has discretion to confirm or refuse jurisdiction in the case at issue, on the basis of relevant authority in case-law (and further instruction in the Act).

Baister CR reviewed precedent at length (including recent case-law on schemes of arrangement in the English courts) and held pro jurisdiction. Where his arguments are mostly likely to catch attention is his review of forum shopping, good and bad: The authorities, and in particular the corporate ones, demonstrate that the courts here are prepared to countenance what is in reality forum shopping, albeit of a positive, by which I mean a legitimate, kind’ (at 104).  There is no suggestion in this case that the bankruptcy order was sought for an improper purpose (…) beyond, the Applicants would say, Mr Kekhman’s seeking to avoid the harsh consequences of Russian law (much as it might be said the companies in the two scheme cases [i.e. schemes of arrangement, GAVC] mentioned above sought to avoid the potential consequences for them of the lack of a scheme jurisdiction in their respective countries). (at 110) Rather, it seems to me that Mr Kekhman has come to this jurisdiction to fill a lacuna in the laws of the country where he is domiciled and resides. Many of the cases we have looked at, though primarily, I accept, in the corporate realm, indicate that the courts here have often been content to assist in such circumstances (at 111).

Russian assets can still be gone after by the Banks in Russia, using Russian law. English will be credited to them by the English courts using English law.

A refreshing defence of forum shopping which in my view unfairly has been utterly blacklisted in the Insolvency Regulation.

Geert.

, , , , , , , , ,

Leave a comment

The corporate veil in wedlock – Supreme Court decides Petrodel v Prest on the basis of trust

Update 21 September 2016. For an application in the environment field, see [2016] EWCA Crim 1043 R v Powell and Westwood and analysis by Robert Biddlecombe, who brought the case to my attention.

Postscript 21 September 2015: Petrodel was applied by the High Court in Wood v Baker. The corporate veil was pierced in a bankruptcy case.

I noted in my post on Eni that the waters remain deep in national law re piercing the corporate veil. Point made by the Supreme Court on 12 June 2013, in Petrodel v Prest (a matrimonial assets case which was decided on the basis of trust), where Lord Neuberger stated obiter  “if piercing the corporate veil has any role to play, it is in connection with evasion”.

Lord Sumption’s take was “there is a limited principle of English law which applies when a person is under an existing legal obligation…which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control. The court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company’s separate legal personality“. He added ‘The principle is properly described as a limited one, because in almost every case where the test is satisfied, the facts will in practice disclose a legal relationship between the company and its controller which will make it unnecessary to pierce the corporate veil.’

Lord Clarke, agreeing with Lord Mance and others, stated “the situations in which piercing the corporate veil may be available as a fall-back are likely to be very rare”.

The focus in the UK is very much a presumption against piercing the veil and leaving the distinct nature of corporations intact – consequently a high burden of proof for those wishing to pierce.

Geert.

, , , , , , , , , , , , , ,

Leave a comment

%d bloggers like this: