Posts Tagged Insolvency

Vinyls Italia: Szpunar AG on the chemistry between the Insolvency Regulation and Rome I. And again, on the pauliana.

In C-54/16 Vinyls Italia (in full: Vinyls Italia SpA, in liquidation v Mediterranea di Navigazione SpA) Szpunar AG opined last week (the Opinion is not available in English). At the core of the case is the application of Article 13 of the Insolvency Regulation 2000 (Article 16 in the 2015 version; see my general review here), however the case opens an interesting discussion on the meaning of ‘international’ in ‘private international law’.

For the general context of Article 13 (16 new) I should like to refer to my review of Lutz and Nike. At issue in the case at hand are payments made by Vinyls to Mediterranea for the transport of chemicals of the former by the latter. Both are Italian registered companies. Shipment was presumably carried out in Italy (an extra-Italian element in the actual transport does not feature in the factual analysis re ‘international’, which I refer to below). However the contract made choice of law in favour of English law. Mediterranea makes recourse to Article 13 juncto English law as the lex contractus to ward off an attempt by Vinyls to have the payments return to its books.

First up is the question whether courts should apply Article 13 ex officio: for Mediterranea’s claim was made after the procedural deadline foreseen by Italian law. Szpunar AG in my view justifiably suggest it does not: he refers to the Virgos Schmit report [„Article 13 represents a defence against the application of the law of the State of the opening, which must be pursued by the interested party, who must claim it” – § 136 of that report, para 43 of the AG’s Opinion) and to the CJEU’s finding in C-310/14 Nike at 26. The AG does point to the particulars of the case: Mediterranea seemingly had provided proof supporting its view that the substantial conditions of Article 13 had been met (in particular an expert opinion by an English lawyer) but had not expressis verbis requested its application. Szpunar refers the final say to the Italian court, which needs to judge on the basis of Italian civil procedure however does suggest that it seems fairly inconceivable to have provided proof for the fulfillment of a legal proviso, without meaning to request its application.

The question on the applicability of Rome I at all (which is required if Mediterranea want to make recourse to the provisions of English law as lex contractus per Rome I or the Rome convention) may not make it to the CJEU. As Szpunar AG notes, the underlying contract dates prior to 17 December 2009, which is the cut-off date of the Rome I Regulation. The referring court being a court of first instance, it is not in a position to request preliminary review of Rome I’s predecessor, the 1980 Rome Convention. The AG completes the analysis anyway (the Court itself will not, should it find Rome I not to be applicable) and takes in my view the right, expansionist approach (one which I also defend in my handbook): especially given the presence of Article 3(3)’s proviso for ‘purely domestic’ contracts, it is clear that it suffices for Rome I to be applicable that parties make choice of court in favour of a foreign law. Further in the opinion (137 ff) he also suggests that such application is not tantamount to fraude a la loi (fraus legis) and again I agree: the relevance of fraus has been seriously diminished by the provisions on party autonomy in both Rome I and the Rome Convention.

The use of choice of law per Rome I (or the Convention) in turn serves as a jack to trigger the application of the insolvency Regulation. That too is correct in my view, and with undramatic consequences. Choice of law for the underlying contract only identifies its lex causae (where relevant, with an impact on Article 13 of the Insolvency Regulation). It does does not of course in and of itself determine the lex concursus: the latter is determined by the Insolvency Regulation once /if insolvency occurs. Parties have no means to manipulate this at the time of the formation of the contract.

Exciting, conceptual stuff. Most probably the Court itself will not be in a position to assess it all.

Geert.

(Handbook of) EU Private International Law, 2nd ed. 2016, Chapter 3, Heading 3.2.1; Heading 3.2.8.1; chapter 5; Heading 5.7.1.

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Hooley: Modified universalism outside the EU’s Insolvency Regulation.

Hooley [Hooley v The Victoria Jute Company Ltd and others [2016] CSOH 14] has been sitting in my in-box for a few months. It concerns the liquidation (particularly: selling of companies’ assets by liquidators under Scots law) of companies incorporated in Scotland but with COMI (centre of main interests) outside the EU. In particular, India.

Given the presence of COMI outside the EU, the Insolvency Regulation does not apply. Indeed the Court of Session (Lord Tyre) does not refer to it at all.Findings would have been very different were the Regulation to apply: place of incorporation has to give way to COMI, where these two do not coincide, in which circumstance the place of incorporation at best may open secondary proceedings.

At issue was among others (and for the first time in a Scots court, I understand) the consideration of ‘modified universalism’: ie what is the practical impact of there being a company incorporated in Scotland, given Scots courts and administrators jurisdiction over the insolvencies, when the companies’ business is mainly carried out abroad and when proceedings are also pending abroad.

Per Rubin v Eurofinance, Universalism” means the “administration of multinational insolvencies by a leading court applying a single bankruptcy law.”  The principle of modified universalism was stated by Lord Sumption in Singularis Holdings Ltd v Pricewaterhouse Coopers [2015] AC 1675 (PC) at para 15 as being that “the court has a common law power to assist foreign winding up proceedings so far as it properly can” (see also Lord Collins at paragraph 33 and Lord Clarke of Stone‑cum‑Ebony at paragraph 112).

Essentially Lord Tyre had to decide whether the Scottish administrators’ powers were only exercisable to the extent that their exercise was recognised as legally valid by the law of the relevant non-UK jurisdiction. He held (at 36) that the proceedings taking place in India were ancillary to the administration proceedings in Scotland. The powers of a validly appointed administrator to a Scottish company were therefore not limited by the Indian winding up.

As often of course this judgment is but one side of the coin. Indian courts are at liberty to disregard the Scots findings. Any purchasers of Hooley assets therefore will have a compromised title. One assumes this has an impact on price.

Geert.

(Handbook of) EU private international law, 2nd ed. 2016, Chapter 5, Heading 5.1, Heading 5.5.

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Secondary insolvency proceedings in Hanjin Europe. Plenty held, plenty assumed.

The Rotterdam court in Hanjin Europe held on the opening of secondary proceedings in The Netherlands, in application of the European Insolvency Regulation (EIR), with main proceedings and COMI in Germany. On the application of the insolvency Regulation there are few that match prof Wessels’ insights and I am happy to refer to them. Indeed it is Bob who alerted me to the case. Prof Wessels in particular points us to the following considerations:

  • the relationship between Annex A, Annex C and the abstract definition of ‘insolvency’ in the EIR. Useful precedent is Eurofood.
  • the power of a provisionary liquidator to request the opening of secondary proceedings.
  • the exact meaning of ‘establishment’, inter alia following judgment in Interedil.
  • whether applicant has to show an interest in requesting secondary proceedings.

Geert.

(Handbook of) European private international law, 2nd ed. 2016, Chapter 5.

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Mulhaupt /SCI Senior Home. The Court follows the AG’s lead on rights in rem.

When I reviewed Szpunar AG’s Opinion in C-195/15 Mulhaupt /SCI Senior Home, I predicted (it’s a safe prediction, nothing whiz-bang about it) that the Court would probably come to the same conclusion in less words and with less references to the overall context.

It did. It cherry-picked the AG’s arguments and came to the same conclusion. Of particular note is its insistence, with the AG, that even though a derogation must be interpreted strictly, it is nonetheless appropriate to ensure that the exception is not deprived of its effectiveness.

Please refer to my review of the AG’s Opinion for more detail. Final conclusion: security created by virtue of a provision of national law, such as that at issue in the main proceedings, by which the real property of a person owing real property taxes is, by operation of law, to be subject to a public charge and that property owner must accept enforcement of the decision recording that tax debt against that property, constitutes a ‘right in rem’ for the purposes of that article.

Geert.

(Handbook of) EU private international law, 2nd ed. 2016, Chapter 5, Heading 5.7.1 ).

 

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KA Finanz. The CJEU finds it does not need to entertain the corporate exception in European PIL and turns to EU corporate law instead.

Thank you, Matthias Storme, for alerting me late last night that judgment was issued in Case C-483/13 KA Finanz AG. The CJEU is asked to clarify the ‘corporate exception’ to the Rome Convention and subsequent Regulation on the law applicable to contractual obligations. The two main questions ask whether the ‘company law’ excepted area includes (a) reorganisations such as mergers and divisions, and (b) in connection with reorganisations, the creditor protection provision in Article 15 of Directive 78/855 concerning mergers of public limited liability companies, and of its successor, Directive 2011/35. I have a little more on the background in previous posting and I expressed my disappointment with Bot AG’s Opinion here.

The Court, like the AG, justifiably rejects a great deal of the questions as inadmissible, mainly due to the secondary law, interpretation of which is sought, not applying ratione temporis, to the facts at issue. It then in essence simply turns to European company law, in particular Directive 2005/56, to settle the issue. Why exhaust oneself with analysis of the corporate exception, if a different piece of EU law exhaustively regulates the issue? At 56 ff

It is stated in Article 2(2)(a) of Directive 2005/56 that a merger by acquisition is an operation whereby one or more companies, on being dissolved without going into liquidation, transfer all their assets and liabilities to another existing company, namely the acquiring company.

As regards the effects of such an operation, it is stated in Article 14(2)(a) of Directive 2005/56 that a cross-border merger brings about, from the date when the merger takes effect, the transfer of all the assets and liabilities of the company being acquired to the acquiring company.A merger by acquisition therefore entails the acquisition by the acquiring company of the company being acquired in its entirety, without extinguishing the obligations that a winding-up would have brought about, and, without novation, has the effect of substituting the acquiring company for the company being acquired as party to all of the contracts concluded by the latter. Consequently, the law which was applicable to those contracts before the merger continues to be applicable after the merger. It follows that EU law must be interpreted as meaning that the law applicable following a cross-border merger by acquisition to the interpretation of a loan contract taken out by the acquired company, such as the loan contracts at issue in the main proceedings, to the performance of the obligations under the contract and to how those obligations are extinguished is the law which was applicable to that contract before the merger.

(here: German law).

I appreciate the narrow set of facts upon which the CJEU holds allows one to distinguish. The spirit of the Court’s judgment in my view must however be what I have advocated for some time. Other than for a narrow set of issues immediately surrounding the very creation, life and death of the merged company, for which lex societatis applies, European private international law upholds lex contractus (often: lex voluntatis: the law so chosen by the parties) for the considerable amount of contractual satellites involving a merger and similar operations. Rome I is fully engaged for these contracts, including its provisions on third party impact of a change in governing law (this is relevant where the parties to the merger, decide to amend applicable law of the inherited contracts).

Geert.

 (Handbook of) EU private international law, 2nd ed. 2016, Chapter 2, Heading 2.2.6.5, Chapter 3, Heading 3.2.2 .

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Winkler v Shamoon. Another High Court look at the ‘wills and succession’ exception.

In Winkler v Shamoon [2016] EWHC 2017 Ch Mr Justice Henry Carr broadly follows Mrs Justice Susan Carr in Sabbagh v Khoury (which I have reviewed earlier) on the interpretation of the ‘wills and succession’ exception in the Brussels I Recast (and the Lugano convention). [The Justices themselves, incidentally, are neither related nor married, I understand]. In so doing, Sir Henry follows Dame Susan’s approach vis-a-vis the exclusions in the Brussels I Recast.

Ms Alexandra Shamoon accepts that she is domiciled in the UK for the purposes of the Brussels Regulation.  However, she applies for an order on essentially the same basis as that set out above, contending, in particular, that the claim relates to succession and therefore falls outside the scope of the Brussels Regulation. Brick Court have summary of the case and hopefully do not mind me borrowing their heads-up of the facts:

the case concerns the estate of the late Israeli businessman, Sami Shamoon.  Mr Shamoon owned and controlled the Yakhin Hakal Group of Israeli companies and was known in his lifetime as one of the wealthiest men in Israel.  The claim was brought by Mr Peretz Winkler, formerly the Chief Financial Officer and manager of Yakhin Hakal, against Mrs Angela Shamoon and Ms Alexandra Shamoon, the widow and daughter respectively of Mr Shamoon and the residuary legatees under his will.  In his claim Mr Winkler alleged that prior to his death Mr Shamoon had orally promised to transfer to him certain shares worth tens of millions of dollars.  On the basis of the alleged promise Mr Winkler claimed declarations against Angela and Alexandra Shamoon as to his entitlement to the shares (which they are due to receive under Mr Shamoon’s will).  Angela and Alexandra challenged the jurisdiction of the English Court to hear the claim on the basis that it was a matter relating to “succession” within article 1(2)(a) of the Brussels Regulation and therefore fell outside its scope (and that England was not the natural or appropriate forum for the dispute).

If the claim does fall within the scope of the Regulation, jurisdiction is quite easily established on the basis of the defendant’s domicile – albeit with contestation of such domicile in the UK by Mr Shamoon’s widow and daughter.

Carr J held that the claim was one relating to succession and therefore fell outside of the Brussels I Recast (at 53 ff). While I may concur in the resulting conclusion, I do not believe the route taken is the right one. Sir Henry follows Mrs Justice Carr’s approach in applying the excluded matters of the Brussels I Recast restrictively. I disagree. Exclusions are not the same as exceptions: Article 24’s exclusive rules of jurisdictions are an exception to the main rule of Article 4; hence they need to be applied restrictively. Article 1(2)’s exclusions on the other hand need to be applied solely within the limits as intended. Lead is also taken from Sabbagh v Koury with respect to the role of the EU’s Succession Regulation. Even if the UK is not party to that Regulation, both justices suggest it may still be relevant in particular in assisting with the Brussels I Recast ‘Succession’ exception. If the approach taken in Winkler v Shamoon is followed it leads to a dovetailing of the two Regulations’ respective scope of application. Not a conclusion I think which is necessarily uncontested.

The High Court concludes (at 72) ‘this claim is excluded from the Brussels Regulation and the Lugano II Regulation as its principal subject matter is “succession” within the meaning of Article 1(2)(a).  In particular, it is a claim whose object is “succession to the estate of a deceased person” which includes “all forms of transfer of assets, rights and obligations by reason of death”. It is a succession claim which concerns “sharing out of the estate”; and it is a claim within the definition of “succession as a whole” in Article 23 of the Succession Regulation, as a claim whose principal subject matter concerns  “the disposable part of the estate, the reserved shares and other restrictions on the disposal of property upon death”: Article 23(h); and an “obligation to …account for gifts, …when determining the shares of the different beneficiaries”: Article 23(i).

Intriguingly, of course, had the UK be bound by the Succession Regulation, and given the dovetailing which the judgment suggest, the next step after rejection of jurisdiction on the basis of the Brussels I Recast, would have been consideration of jurisdiction following the Succesion Regulation. It is ironic therefore to see the Regulation feature as a phantom piece of legislation. Now you see it, now you don’t.

Geert.

(Handbook EU Private international law, Chapter 2, Heading 2.2.2.10).

 

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Schemes of arrangement: No scheming, and no hastily arranging, please. The High Court adjourns hearing in Indah Kiat.

I have reported before on various schemes of arrangement which the English Courts gave the go-ahead even when they concerned non-English companies (I should flag that in two of those, Apcoa and Van Gansewinkel, I acted as expert). Thank you Arie van Hoe for bringing Indah Kiat to my attention some weeks ago.

Indah Kiat is a Dutch BV seeking an order convening a single meeting of its scheme creditors to consider and if thought fit approve a scheme of arrangement pursuant to Part 26 of the Companies Act 2006. The application is strenuously opposed by one of the Scheme Creditors, APP Investment Opportunity LLC (“APPIO”), which contests the jurisdiction of the court to entertain or sanction the Scheme. Such opposition is different from the other schemes which I mention in my previous postings.

In the first instance, APPIO simply seeks an adjournment of the Scheme Company’s application on the grounds that inadequate notice has been given to Scheme Creditors. However, it also raises a significant number of other issues concerning the adequacy of the evidence and disclosure by the Scheme Company, together with questions concerning the procedure and scope of the court’s jurisdiction to sanction creditor schemes for foreign companies in relation to debts governed by foreign law.

The Scheme Company is a special purpose vehicle which was incorporated for financing purposes in the Netherlands. It sought the COMI way to enable English courts to obtain jurisdiction over the scheme. English jurisdiction, required to carry out the Scheme, usually rests on either one of two legs: COMI, or making English law the governing law of the underlying credit agreements (if necessary by changing that governing law en route).

The COMI route to jurisdiction in many ways defies the proverbial impossibility of having one’s cake and eating it. For the establishment of a company’s centre of main interests, the courts and practice tend to refer to the EU’s Insolvency Regulation. Yet that schemes of arrangement do not fall under the Insolvency Regulation is a crucial part of the forum shopping involved in attracting restructuring advice to the English legal market. This is especially so for the aforementioned second route to jurisdiction (a change in governing law). however it is also true for the first form. Snowden J refers to that at para 85-86 of his judgment.

Indah Kiat has effected its change of COMI (rebutting the presumption of COMI being at its registered seat) by notifying its creditors via a number of clearing houses for the Notes concerned. APPIO contest that this notification sufficed for change in COMI. There are not enough relevant facts in the judgment to consider this objection thoroughly, however APPIO’s misgivings would not seem entirely implausible.

Snowden J notes that whilst protesting the jurisdiction, in the first instance APPIO simply seeks an adjournment of the convening hearing on the grounds that inadequate notice has been given of it to Scheme Creditors. It contends that given the complex nature of the Scheme and the factual background, there is no justification for an urgent hearing of the application. The Court agreed and the convening hearing (different from the sanction hearing, which follows later) was adjourned until 3 March. Snowden J further gave extensive argument obiter as to why the Scheme’s information was insufficient in the form as it stood at the hearing.

He then revisits (82 ff) the jurisdictional issue, which I have already signalled above: what role exactly COMI should play, how the Brussels I recast intervenes, what the impact is of likely recognition of the sanction (if any) in Indonesia, The Netherlands, and the US; and what if any role the relevant US judgments in the case should play: there will be plenty of points for discussion at the convening and sanction hearing. (I mentioned above that the convening hearing was scheduled around 3 March; I have not heard from the case since however if anyone has, please do let me know).

I do not think Indah Kiat has made the jurisdictional hurdle higher for Schemes of Arrangement involving foreign companies. Rather, the fierce opposition of an important creditor has brought jurisdictional issues into sharper perspective than had been the case before.

Geert.

(Handbook of) EU Private International Law, Chapter 5, Heading 5.4.2).

 

 

 

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