Posts Tagged Insolvency

Valag: Clarifying vis attractiva concursus.

This one long overdue – I am adding it to the blog for completeness’ sake. C‑649/16 Valach was held end of December 2017. The CJEU relies heavily on Tunkers and recital 6 of the (old) Insolvency Regulation: the regulation should be confined to provisions governing jurisdiction for opening insolvency proceedings and judgments which are ‘delivered directly on the basis of the insolvency proceedings and are closely connected with such proceedings’: the latter two criteria guide the CJEU.

In the case at issue, the action for liability at issue in the main proceedings is the direct and inseparable consequence of the performance by the committee of creditors, a statutory body established by Slovak law when insolvency proceedings are opened, of the task specifically assigned to them by the provisions of national law governing such procedures. Consequently, it is clear that the obligations which form the basis of bringing an action for liability in tort against a committee of creditors, such as that at issue in the main proceedings, originate in rules that are specific to insolvency proceedings (at 35-36).

As for the second criterion, it is the closeness of the link between a court action and the insolvency proceedings that is decisive for the purposes of deciding whether the Brussels I Recast’s insolvency exception is triggered. That is the case here: at 38: in order to ascertain whether the liability of the members of the committee of creditors may be engaged because of the rejection of the restructuring plan, it will be necessary to analyse in particular the extent of that committee’s obligations in the insolvency proceedings and the compatibility of the rejection with those obligations. Such an analysis clearly presents a direct and close link with the insolvency proceedings, and is therefore closely connected with the course of those proceedings.

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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Espírito Santo (in liquidation): CJEU on vis attractive concursus in the event of pending lawsuits (lex fori processus).

The title of this piece almost reads like an encyclical. C-250/17 Espirito Santo (in full: Virgílio Tarragó da Silveira Massa v Insolvente da Espírito Santo Financial GroupSA – readers will appreciate my suggestion of shortening), held last week, concerns the scope of Article 15 juncto 4(2)(f) of the EU’s Insolvency Regulation 1346/2000 (materially unchanged in Regulation 2015/848).

In many jurisdictions lawsuits pending are subject to vis attractiva concursus: all suits pending or not, relevant to the estate of the insolvent company are centralised within one and the same court. In the context of cross-border insolvency however this would deprive the courts and the law of the Member State other than the State of opening of proceedings, of hearing cq applying to, pending suits.

The Court has now held along the lines what is suggested in the Virgos-Schmit report: only enforcement actions are subject to Article 15. Lawsuits pending which merely aim to establish the merits of a claim without actually exercising it (in the judgment: ‘Substantive proceedings for the recognition of the existence of a debt’), remain subject to the ongoing proceedings in the other Member State.

The judgment evidently has more detail but this is the gist of it. Of note is that yet again, linguistic analysis assists the court in its reasoning.

Geert.

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

 

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Colin King: On the application ratione temporis of the Recast Insolvency Regulation.

I thought I had but seemingly had not, flagged Bob Wessels’ timely alert to [2016] COMP 039 Colin King (Supreme Court of Gibraltar). The judgment first of all looks at the temporal scope of application of the Regulation, holding correctly that it is not the filing for bankruptcy which is relevant but rather the time of actual openings of those proceedings. Further, it makes correct application of the various presumptions and definitions vis-a-vis natural persons.

Not a shocking judgment but one which is a good read for a gentle introduction to COMI. And as Bob notes, it was not quite the first to apply the new EIR.

Geert.

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

 

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Agrokor DD – Recognition of Croatian proceedings shows the impact of Insolvency Regulation’s Annex A.

Update 2 April 2018 For related developments in Slovenia, see Dr Sladic’s analysis here.

If one needed further illustration that the Brussels I Recast and the Recast Insolvency Regulation do not dovetail (a concept which I explore ia here) [2017] EWHC 2791 (Ch) Agrokor DD is it.

The English courts are being asked to recognise Agrokor’s extraordinary administration as a foreign main proceeding under the Cross-Border Insolvency Regulations 2006 (CBIR). For the facts of the case and Hogan Lovells breakdown of the judgment see here.

Of note for this blog is that Croatia have not included the emergency procedure foreseen Agrokor Act in the relevant Annexes to the Insolvency Regulation. Consequently no matter how much the procedure in the abstract meets with the definition of insolvency proceedings, it does not fall under the Insolvency Regulation hence recognition and enforcement of same does not follow that Regulation. Neither does it follow Brussels I Recast: for the procedure most definitely meets with the ‘insolvency’ exception under that Regulation. Matthews J justifiably refers to both in passing only, noting they have no calling here.

Recognition was eventually granted. Despite some serious relevant differences between Croatian and English insolvency law, none of these as so serious as to trigger ordre public objections. As Jake Hardy notes: if no man is an island, nor is any debt obligation – no matter how English it has painted itself to be.

Geert.

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

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Supreme Tycoon: common law power to recognise and assist foreign insolvency proceedings extends to voluntary liquidations.

Thank you colleagues at Hogan Lovells for flagging [2018] HKCFI 277 Supreme Tycoon in which the Hong Kong Court of First Instance ruled that the common law power to recognise and assist foreign insolvency proceedings extends to voluntary liquidations.

In so ruling, the court rejected the Privy Council obiter finding in Singularis (see the HL link above) highlight the Court’s rather convincing arguments in not following the Privy Council, including one I like a lot namely that the principle of modified universalism, the rationale underlying the common law power of assistance, and the purpose of cross-border insolvency assistance do not prima facie call for a distinction between compulsory and voluntary winding-up.

Geert.

(Handbook of) EU Private International Law, 2nd ed. 2016, Chapter 5, Heading 5.1.

 

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International Bank of Azerbaijan: Principle or practice of ‘modified universalism’ in (cram-down resulting from) insolvency proceedings.

[2018] EWHC 59 (Ch) International Bank of Azerbaijan is an excellent illustration of the practicality v the doctrine of modified universalism in international insolvency law, as well as of the binding force of precedent even in a changing world. Hildyard J first summarises at 2 the question raised as ‘whether the Court has power to grant a permanent moratorium or stay to prevent a creditor exercising its rights under a contract governed by English law in order to prevent that creditor enforcing its rights contrary to the terms of the foreign insolvency proceeding by which all creditors were, under the relevant foreign law, intended to be bound. If it does, the second question is whether in its discretion the Court should exercise that power.’

IBA has fallen into financial difficulties, obliging it to enter into a restructuring proceeding under Azeri law. The Foreign Representative, Ms Gunel Bakhshiyeva (hence also giving her name to the official case-name) had the High Court issue an order  recognising the Restructuring Proceeding as a foreign main proceeding. That recognition order imposes a wide-ranging moratorium preventing creditors from commencing or continuing any action against IBA or its property without the permission of the Court.  The plan proposed by IBA pursuant to the restructuring proceeding has been approved by a substantial majority at a meeting of creditors in Azerbaijan, sanctioned by the relevant Azeri court, and as a matter of Azeri law, the plan is now binding on all affected creditors, including those who did not vote and those who voted against the Plan: a classic cram-down.

Respondents in the case contend that the plan cannot bind them. In each case their relationship as creditor with IBA is governed by English law. They rely on the (1890) rule in Gibbs, which states that a debt governed by English law cannot be discharged by a foreign insolvency proceeding. Reformulating the essential issues at 19, Hildyard J summarises them as

(1) Whether the Court has jurisdiction to extend a moratorium imposed under the CBIR without limit as to time, and in particular, beyond the date on which the foreign proceeding will terminate; and

(2) If so, whether the Court should refuse to lift the continuing moratorium in favour of a creditor whose debt is governed by English law, so as to prevent that creditor from achieving a better return than that enjoyed by all of the company’s other creditors under a restructuring plan promulgated in the jurisdiction in which the company is registered and has its centre of main interests (“COMI”).

At 44 ff Hildyard J excellently summarises the rule, and the critical reception of it in recent scholarship, the latter suggesting it is not just out of touch with a less anglo-centric view of the world, but also inconsistent with the English courts themselves expecting foreign recognition of schemes of arrangement (SAs being of a corporate, not lex concursus nature but nevertheless fishing in the same waters as insolvency proceedings) conducted in the English courts with English law as the lex causae.

Having summed up all the arguments against the rule and yet recent continued application of it, Hildyard J at 58 dryly notes that his place in the hierarchy means that he cannot simply swipe the rule aside: he must apply it and simply assess whether it applies in the current circumstances. More particularly, whether at one and the same time the ‘rule’ may formally be observed by accepting the continuation of the rights which English law confers, and yet also the principles of modified universalism which the UNCITRAL Model Law gives effect to.

Lengthy discussion then follows of the pros and contras, with the High Court eventually finding no persuasive argument to set aside the rule, particularly not by the English application of the UNCITRAL model law. Counsel had argued that qualifying the model law as procedural as opposed to substantive law, would enable the Court effectively to sidestep Gibbs as precedent. However Hildyard J prefered to accept the full force of precedent rather than sweeping it aside by the procedural pretext.

The substantive rule clearly is ripe for reconsideration by the Court of Appeal.

(Handbook of) EU Private International Law, 2nd ed. 2016, Chapter 5, Heading 5.1.

 

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COMI in NIKI.

Thank you Bob Wessels for again alerting us (with follow-up here [update 15 January 2018 and here ; looks like regular revisits of prof Wessels’ blog are in order) and also reporting by Lukas Schmidt here) timely to a decision this time by the German courts in Niki, applying the Insolvency Regulation 2015, on the determination of COMI – Centre of Main Interests. Bob’s review is excellent per usual hence I am happy to refer for complete background.

Of particular note is the discussion on the extent of a court’s duty to review jurisdiction ex officio; the court’s correct assumption that in the event of foggy circumstances, the EIR’s presumption of COMI at the place of incorporation must have priority; and finally in my view the insufficient weight the court places on ascertainability by third parties.

Geert.

(Handbook of) EU Private International Law, 2nd ed. 2016, Chapter 5, Heading 5.6.1.

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