Posts Tagged Insolvency

Forum shopping and personal insolvency. The High Court (briefly) in Wilson and Maloney (in re McNamara). Is this the last UK reference to the CJEU?

[2020] EWHC 98 (Ch) Wilson and Maloney (bankruptcy trustees of Michael McNamara), concerns mostly Article 49 TFEU (freedom of establishment) and Article 24(1) of the Citizens’ Rights Directive 2004/38 (equal treatment). (At 114) the critical question is whether the exclusion of pension rights on bankruptcy is something that can impact on the right of establishment, or is otherwise within the scope of Art 49 TFEU.

The substantive case at issue concerns the inclusion or not of in investment in a certain pension scheme, into the bankruptcy. My interest in the judgment lies in the succinct reference to forum shopping under insolvency regimes.

Mr McNamara was made bankrupt on 2 November 2012 on his own petition, presented that day. Prior to his bankruptcy Mr McNamara had been a high profile property developer operating primarily, if not exclusively, in the Republic of Ireland. But he and his wife had moved to London in July 2011, and the Court accepted that he had moved his centre of main interests (or COMI) from Ireland to England by the date of presentation of the petition.

Nugee J decided to refer to the CJEU for preliminary review (this having happened on 23 January, clearly one of the last if not the last UK reference to go up to the CJEU). Whether COMI was moved for forum shopping purposes is not likely to feature in the eventual judgment – for there does not seem to be any suggestion that the move of COMI to England had not been properly established.

Geert.

 

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Heiploeg: Transfer of undertakings, employee protection and pre-packs. The Dutch Supreme Court Advocate-General on the implications of CJEU Smallsteps.

I am no expert in all things insolvency and restructuring. I have an interest in it because of the conflict of laws issues (see the Insolvency Regulation) and the relationship with Brussels Ia. I am also interested in the labour law implications of corporate restructuring. These trigger highly relevant ethical, economic, and legal concerns.

Directive 2001/23 protects employees’ rights in the event of transfer of undertakings. The position of employees of course may be seen by potential investors as a hurdle to get onboard. Employees are inevitably on their cost cutting horizon. (For emperical Dutch research see Aalbers et al here and review in NL of same on Corporate Finance Lab).

The Directive exempts (Member States may provide otherwise) bankruptcies ‘proper’ and analogous insolvency proceedings. (They have to be under the management of what the Insolvency Regulation now calls an insolvency practitioner: an insolvency trustee, in other words). In C-126/16 Smallsteps, the Court held that pre-packs also known as ‘hushed bankruptcies’ do not qualify: since such a procedure is not ultimately aimed at liquidating the undertaking, the economic and social objectives it pursues are no explanation of, or justification for, the employees of the undertaking concerned losing the rights conferred on them by Directive 2001/23 (at 50).

Frederik De Leo reported here more extensively and with more knowledge of the issues, on the implications of Smallsteps, including implications for both the Dutch and the Belgian Statutes and proposals on pre-packs and corporate restructuring. On the Dutch implications, Robert van Moorsel had interesting insight here (in Dutch).

In Heiploeg, which was initiated before judgment in Smallsteps but is still being litigated (by Trade Unions), the Dutch Supreme Court /Hoge Raad is now essentially asked to apply the various conditions which the Court of Justice imposed for the bankruptcy exception of Directive 2001/13 to apply. Its procureur-generaal (essentially here fulfilling the role of an Advocate-General at the CJEU) opined in a well-documented Opinion on 1 November 2019 (apologies for late reporting: the Opinion traveled all sorts of corners in my briefcase) and proposes that the Supreme Court annul the lower court’s application of Smallsteps (which had found that the conditions for exception from the employees’ rights Directive did apply).

The Opinion is not I fear accessible to non-Dutch speakers – I am hoping proper experts will report more extensively once the Hoge Raad’s judgment is out.

Geert.

 

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UB v VA (Tiger SCI): The CJEU dots the i’s on forum rei sitae in insolvency.

In C-493/18 UB v VA, proceedings took place between UB, on the one hand, and VA, Tiger SCI, WZ, as UB’s trustee in bankruptcy, and Banque patrimoine et immobilier SA, on the other, concerning the sale of immovable property originally owned by UB and mortgages granted over that property by UB and the action taken by WZ to have those transactions declared ineffective as against the bankruptcy estate.

A little bit of factual background may be useful – for that reference is best made to the judgment. Essentially, an avoidance (insolvency pauliana) action was launched given suspicious transactions between UB and his sister. On 10 May 2011, UB was, on his own petition, declared bankrupt by Croydon County Court. On 1 July 2011, WZ was appointed UB’s trustee in bankruptcy, with effect from 6 July 2011.  At WZ’s request, Croydon County Court authorised WZ on 26 October 2011 to bring an action before the French courts in order, first, to have the bankruptcy order registered and, second, to obtain a ruling that the sale of the properties referred to in paragraph 12 above and the mortgages granted over those properties to VA (‘the sales and mortgages at issue’) were transactions at an undervalue or for no consideration under the relevant United Kingdom bankruptcy law provisions. WZ thus sought a decision authorising the restitution of those properties to UB’s bankruptcy estate, for the purposes of their disposal. The French courts granted the declaration.

The legal issue under consideration is the reach of the Insolvency Regulation’s establishment of jurisdiction for the courts of the Member State of COMI. Does it extend to an action by a trustee in bankruptcy appointed by a court of the Member State in which the insolvency proceedings were opened (here: the UK) the purpose of which is to obtain a declaration that mortgages registered over immovable property situated in another Member State (here: France) and the sale of that property are ineffective as against the bankruptcy estate.

The CJEU correctly emphasises that the Insolvency Regulation old or new does not impose any rule conferring on the courts of the place where immovable property is located international jurisdiction to hear an action for the restitution of those assets to the bankruptcy estate in insolvency proceedings. Furthermore, concentrating all the actions directly related to the insolvency proceedings before the courts of the Member State within the territory of which with those proceedings were opened is consistent with the objective of improving the efficiency and speed of insolvency proceedings having cross-border effects. Support for this ex multi: Wiemer & Trachte.

The English courts therefore should have exercised jurisdiction per vis attractiva concursus – the file before the CJEU does not reveal its hesitation to do so. It does reveal that UB claims among others that the insolvency proceedings in England had already been concluded and presumably therefore the pauliana time-barred.

Geert.

(Handbook of) EU private international law, 2nd ed. 2016, Chapter 5 Heading 5.4.1. Chapter 2 Heading 2.2.2.10.1

 

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Canadian recognition of Syncreon Group English Scheme of Arrangement underscores new markets for restructuring tourism.

An essentially Dutch group employs English restructuring law and has the resulting restructuring recognised in Canada. Need one say more to show that regulatory competition is alive and well and that the UK, England in particular need not fear a halt to restructuring forum shopping post Brexit.

Blakes first alerted me to the case, the Initial recognition order 2019 ONSC 5774 is here (I have not yet managed to locate the final order). Insolvency trustee PWC have a most informative document portal here. See also the Jones Day summary of the arrangements here. The main issue of contention was the so-called third party release in favour of Syncreon Canada which could have bumped into ordre public hurdles in Ontario as these clearly have an impact on the security of underlying debt. The way in which the proceeding are conducted (fair, transparent, with due consideration of minority holders etc.) clearly have an impact on this exercise.

Geert.

(Handbook of) EU Private International Law, 2nd edition 2016, Chapter 2, Chapter 5.

 

 

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Sabbagh v Khoury. The jurisdictional gift that keeps on giving. In today’s instalment: the possibility for qualified acknowledgment of service (prorogation) following claimant’s alleged concessions, and amended claim.

Sabbagh v Khoury [2019] EWHC 3004 (Comm) evidently builds upon the High Court and Court of Appeal previous judgments. Pro memoria: claimant established jurisdiction against all the defendants she wished to sue in relation to each element of her claim. Following judgment by the Court of Appeal and the refusal of permission to appeal further by the Supreme Court, the defendants had to decide whether to acknowledge service and accept the jurisdiction of the English Courts or to refuse to acknowledge service.

That jurisdiction should be debated at all was the result of claimant wanting to amend her claim, and having earlier been partially granted such permission. At 13: each defendant decided to acknowledge service and accept the jurisdiction of the English Courts but in each case they purported to qualify the terms on which they acknowledged service, hinging particularly on CPR Part 14: Admissions, and suggesting that a “concession” made on claimant’s behalf that certain Share Sale Agreements relied on by the defendants were “existent, valid and effective“, should have an impact on jurisdiction.

It is interesting to see the qualifications verbatim: at 13: ‘Thus in its letter of 26 March 2018, CMS Cameron McKenna Nabarro Olswang LLP on behalf of the Sabbagh defendants qualified their Acknowledgement of Service as being “… confined to the existing claims set out in the Claim Form, to the limited extent that the Court of Appeal accepted the English court’s jurisdiction over such claims, but subject to the numerous concessions your client has made including but not limited to her explicit abandonment of any claim to be presently entitled to or for delivery up of shares …”. Jones Day, the solicitors then acting for the first defendant similarly qualified his Acknowledgement of Service – see their letter of 26 March 2018. Baker McKenzie qualified the other Khoury defendants’ Acknowledgement of Service as being “… only in respect of the two claims as set out in the Claimant’s Claim Form … and is subject to the numerous concessions the Claimant has made to date …” and added that: “We understand that the Claimant intends to seek to amend her Particulars of Claim and our clients’ position as to whether any such amendment(s), if allowed, impact on the jurisdiction of the court over our clients as regards any claims other than those to which this Acknowledgement of Service is filed is fully reserved, including as to jurisdiction and/or the arbitrability of any such amended claims”. In the circumstances, it is probable that the amendment Baker McKenzie had in mind was one substantially in terms of the draft re-amended Particulars of Claim that had been placed before the Court of Appeal.’

At 21 ff Pelling J discusses the relationship between the amended claim, the earlier findings on jurisdiction, and the ‘concession’, leading at length eventually to hold that there was no impact of the concession on the extent of jurisdiction,

As Pelling J notes at 1 in fine: ‘Even allowing for the value at risk in this litigation all this is obviously disproportionate.’ One assumes the role of various counsel in the alleged concessions made earlier, must have had an impact on the energy with which the issue was advocated.

The case will now proceed to trial, lest there be any other jurisdictional challenges.

Geert.

(Handbook of) EU Private International Law, 2nd ed. 2016, Chapter 2, Heading 2.2.12.1

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Skarb Państwa v Stephan Riel (qq insolvency trustee Alpine Bau).

Salzburg-based Alpine Bau had been carrying out a considerable amount of roadwork engineering for the Polish State. The courts at Vienna started insolvency proceedings in 2013, appointing Mr Riel as what is now called the ‘insolvency practitioner’. Austria is the centre of main interests, the Austrian procedure the main proceedings. A little later a secondary proceeding is opened in Poland. Skarb Państwa, the Polish finance ministry or treasury, seeks in those proceedings the payment of debt it claims is outstanding vis-a-vis the Polish State. It also seizes the Austrian courts in a separate proceeding, asking it to confirm the existence of debt owed to it (the amount almost exactly the amount it specified in the Polish secondary proceedings) and at the same time a stay in its pronouncement until the Polish courts have ruled on the fate of the claim in Poland. Essentially therefore the Austrian action is a conservatory action, a hedging of the treasury’s bets.

An interesting angle is that in the Austrian proceedings the Treasury claims application of the Brussels Ia Regulation, particularly its Article 29 lis alibi pendens rule. The Austrian courts reject the existence of the debt and they do not entertain the lis alibi pendens request (the request for a stay).

The first question in C-47/18 (judgment 18 September) was whether Brussels Ia or the Insolvency Regulation are engaged. The CJEU (at 33) emphasises the need for both avoidance of overlap and of non-cover by either (‘doivent être interprétés de façon à éviter tout chevauchement entre les règles de droit que ces textes énoncent et tout vide juridique’), in the relation between the two Regulations: the infamous dovetail which as I have flagged in earlier posts, the Court in my view does not get entirely right. References are to Valach, Wiemer & Trachte, Feniks, Nickel & Goeldner). Here, the Treasury bases its action on Article 110 of the Austrian insolvency act (allowing, and urging first-tier creditors (such as, inevitably, Inland Revenue) to have their claims properly registered so as to ensure the priority in the picking order against the other creditors). The claim therefore is subject to the Insolvency Regulation 1346/2000.

The Court subsequently and unsurprisingly holds that Brussels Ia’s lis alibi pendens rule cannot somehow apply deus ex machina. At 43: insolvency is excluded from the Regulation; this exclusion is all or nothing: if the Regulation does not apply, none of it applies, including its procedural rules. These have, in BIa context, the clear purpose of ruling out as much as possible procedures pending in more than one Member State on the same issue. The Insolvency Regulation, by contrast, allows for concurrent proceedings, albeit primary and secondary ones, and (in Article 31 of the old Regulation; tightened in the current version 2015/848) encourages co-operation and exchange of information to avoid irreconcilable judgments.

(The further question asked refers to debt documentation requirements).

Geert.

Handbook of) EU private international law, 2nd ed. 2016, Chapter 5 Heading 5.4.1. Chapter 2 Heading 2.2.2.10.1

 

 

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NN2 Newco limited and Politus BV. The Nyrstar (Belgium) scheme of arrangement’s jurisdictional confirmation.

Update 13 September 2019 same principles on jurisdiction (and reference to NN2Newco) made by Falk J in [2019] EWHC 2412 (Ch) Syncreon Group BV. Update 13 January 2019 ditto [2019] EWHC 3615 (Ch) Lecta Paper where reference is also made to Codere. Jurisdiction upheld on the basis of Article 25 and Articles 8 juncto 4 Brussels Ia.

Update 20 August 2019 For an Irish approval of a scheme of arrangement with extensive US links see Re Ballantyne RE Plc & the Companies Act 2014 [2019] IEHC 407, reported here.

The Nyrstar business was created on 31 August 2007 by combining the zinc and lead
smelting and alloying operations of Zinifex Limited and Umicore NV/SA. Nyrstar is a global multi-metals business, with a market leading position in zinc and lead, and growing positions in other base and precious metals. It is one of the world’s largest zinc smelting companies based on production levels. The Nyrstar business has mining, smelting and other operations located in Europe, the Americas and Australia and employs approximately 4,200 people. The ultimate group Parent is incorporated in Belgium and has corporate offices in Zurich, Switzerland.

Its debt is now being restructured using an English scheme of arrangement, with a variety of new companies being formed as corporate vehicles for same. Readers of the blog will not be surprised: this is a classic example of regulatory (restructuring) competition, which I regularly report on the blog (most recently: New Look, with further references there).

In [2019] EWHC 1917 (Ch) re NN2 Newco limited and Politus BV, Norris J applies the now estblished jurisdictional test, with one or two points of attention. Against the scheme company jurisdiction is straightforward: this is England incorporated. Against the scheme creditors, English courts apply the jurisdictional test viz the Brussels Ia Regulation arguendo: if it were to apply (which the English Courts have taken no definitive stance on), would an English court have jurisdiction?

At 11: viz the Notes:

They are now governed by English law (in place of New York law). Clause 12.06 of the governing Indenture now reads:- “The courts of England and Wales shall have jurisdiction to settle any disputes that arise out of or in connection with the Indenture, the Notes and the Guarantees, and accordingly any legal action or proceedings arising out of or in connection with the Indenture the Notes and the Guarantees (“Proceedings”) may be brought in such courts. The courts of England and Wales shall have exclusive jurisdiction to settle any Proceedings instituted by [NNH or NN2]… in relation to any Holder or the Trustee on behalf of the Holders (“Issuer Proceedings”). [NNH and NN2], each of the Guarantors, the Trustee and each Holder (each, “a Party”) irrevocably submit to the jurisdiction of such courts and agree that the courts of England and Wales are the most appropriate and the most convenient courts to settle Issuer Proceedings and accordingly no party shall argue to the contrary. Notwithstanding the foregoing, this section 12.06 shall not limit the rights of… each of the Holders to institute any Proceedings against [NNH and NN2] in any other court of competent jurisdiction, nor shall the taking of Proceedings in one or more jurisdictions preclude the taking of proceedings in any other jurisdiction….”

This is an asymmetric jurisdiction clause. The English Courts have jurisdiction over all disputes and the parties agree that they are the most convenient forum and submit to the jurisdiction of the English courts. NNH and NN2 are bound to use the English courts if they sue the Holder of a Note, because the English courts have exclusive jurisdiction in such a case. But the Holder of a Note can also sue NNH and NN2 in any Court that otherwise has jurisdiction, so the English courts have a non-exclusive jurisdiction in such a case.

At 13:

The original governing law of the Existing Bonds was English law. But the holders voted to amend the jurisdiction clause in the Trust Deed to provide: “The courts of England and Wales shall have exclusive jurisdiction to settle any disputes that arise out of or in connection with the Trust Deed and the Bonds, and accordingly any legal action or proceedings arising out of or in connection with the Trust Deed and the Bonds (“Proceedings”) may be brought in such courts. [NNV and NN2] and the Trustee (in its own capacity as such and on behalf of the Bondholders) irrevocably submit to the jurisdiction of such courts and waive any objection to Proceedings in such courts whether on the ground of venue or on the ground that the Proceedings have been brought in an inconvenient forum. Notwithstanding the foregoing, Belgian courts have exclusive jurisdiction over matters concerning the validity of decisions of the Board of Directors of NNV of the general meeting of shareholders of NNV and of the general meeting of Bondholders.”

This is a symmetrical jurisdiction clause with a “carve out” for specific proceedings.”

At 18 ff the details of the scheme are outlined. It involves Trafigura financial instruments, Trafigura now being Nyrstar’s controlling shareholder. At 31 ff jurisdiction is discussed. There is no abusive forum shopping (per Codere; which I reference here). The usual Article 8 and Article 25 routes are discussed. With respect to Article 25, the English jurisdiction clauses in the Existing Notes and the Politus Facility are asymmetric; however Norris J at 41 (with reference to authority) does not see that as an obstacle seeing as Article 25 covers both symmetric and asymmetric choice of court.

A final hurdle is whether any order sanctioning the scheme is likely to be effective or whether it is apparent even at this stage that the scheme will not be recognised in other relevant jurisdictions even if sanctioned: this will eventually be settled at the sanctioning hearing however Norris J already indicates that it is unlikely that expert evidence will yield surprising (objectionable) results.

Scheme meetings may therefore be convened.

Geert.

(Handbook of) EU Private International Law, 2nd edition 2016, Chapter 2, Chapter 5.

 

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