Key takeaways

There have been relatively few applications for recognition under the UNCITRAL Model Law since the pandemic started. Significantly these cases continue to recognise foreign insolvency proceedings that have not previously been considered by the Australian courts.

Australian courts have also recognised the operation of Australian-law stays on the enforcement of rights under the Corporations Act 2001 (Cth) (Corporations Act) beyond our shores.

For lawyers able to leverage their client's rights across multiple jurisdictions, whether under the Model Law or by seeking to invoke rights based on principles of comity or other statutory rights, recent cases have expanded the opportunities to restructure and save businesses.

In depth

UNCITRAL Model Law applications have continued to advance the law

In 2020 and 2021 there have been several applications under the Cross-Border Insolvency Act 2008 (Cth) for recognition in Australia of foreign insolvency proceedings under the Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade (Model Law). Overall though, given the truly global reach of the economic impact of the pandemic, there have been relatively few such applications to date. The businesses of those restructured entities are in expected industries: aviation, logistics and experimental new energy opportunities.

• The Federal Court has recognised a Thai law reorganisation proceeding¹, and most recently a Reorganisation Plan², both for Thai Airways, as foreign main proceedings. Whilst the court acknowledged there was no precise analogue in Australian law to the Thai processes, they were recognised as being most closely analogous to voluntary administration. Stays in terms provided under Part 5.3A of the Corporations Act were ordered.
• A court appointed insolvency administrator under German law obtained orders recognising in Australia his appointment over Greensill Bank AG.³ The German process was considered analogous to a court winding up, with comparable stays ordered accordingly The court also made ancillary orders empowering the foreign liquidator to conduct public examinations.
• The new United Kingdom moratorium procedure⁴ has been recognised as being a foreign insolvency proceeding.⁵ The incorporation in England of the company defending the winding up application though was not enough to make the UK its centre of main interest. It was just a holding company, whilst its subsidiaries' operations were outside the UK. No orders were made under the Model Law.

The NSW Supreme Court also considered whether to grant a stay in support of the foreign UK proceeding under the Corporations Act, a rarely used option⁶. Without sufficient evidence of any viable reorganisation, the court refused the stay and instead appointed liquidators.

• An Italian shipping company, invoking the concordato preventivo insolvency procedure in Italy, obtained interlocutory stay orders pending a full hearing of its recognition application.⁷ The appropriate stay for this Italian procedure, as has previously been recognised, is that available under a voluntary administration. The court made orders acknowledging the possibility that secured creditors may, nevertheless, attempt to exercise maritime liens against vessels in Australian waters.

The Corporations Act has operation outside Australia for insolvency appointments, according to the Federal Court⁸

One way to extend internationally stays and protections available under Australian law is to rely on the Model Law in jurisdictions which have adopted it into law. The Federal Court however has also shown it is willing to make orders locally about the reach of Australian law internationally.

In this case, Australian company, Vector Resources Limited (Administrators Appointed) (Vector), had acquired shares in a Seychelles incorporated company (MGIH6) from a British Virgin Islands incorporated company (MGI). Performance of that sale agreement was assured by way of an escrow agreement. Under that agreement a BVI corporate secretarial-services firm held documents to effect a retransfer of shares in the event of a default. Relevant default notices had been issued before administrators were appointed to Vector. Disputes under those agreements were covered by a comprehensive arbitration agreement.

Vector then entered voluntary administration. On the application of the administrators, a BVI court granted an interim injunction to stop the share transfer, pending final determination of the dispute. The administrators then applied to the Federal Court: first, for orders to serve their Federal Court application outside Australia, and then, for final relief about the impact of Australian insolvency laws on those arrangements.

The Court considered the escrow agreement was a security interest over the property of Vector (the shares in MGI) under the Personal Property Securities Act 2009 (Cth), Consistent with previous decisions. The agreement secured performance of Vector's obligations by facilitating a retransfer of the shares in the event of a breach. The Court considered there was a prima facie case the property in the foreign company's shares vested in Vector because this interest was not registered on the Personal Property Securities Register. It allowed service of the application outside Australia for that reason. When the case came back before the Court for final determination, the judge stopped short of deciding that point. However, the reasoning of that first judgment is persuasive. Parties are on notice of the need to register escrow agreements on the PPSR, if the party which may default is an Australian incorporated company.

The escrow agreement being a security interest, the Court went on to consider if the moratorium under section 440B of the Corporations Act applied outside Australia. It did. The stay on enforcing a security interest during the administration will apply, in this case because the shares being transferred were not the whole or substantially all of the property of Vector. For Australian-law purposes, this stopped the escrow agreement operating during the administration, and should have prevented MGI from exercising its rights to re-conveyance. Significantly, Justice McKerracher was prepared to give extraterritorial effect to section 440B under a contract where the property and respondent parties were outside Australia.

Helpful law made in Australia: International Courts may not agree …

The Federal Court in the Vector case recognised an injunction, made to enforce a section 440B moratorium outside Australia, would have little legal effect on the parties wholly outside the jurisdiction. It refused to issue an injunction on that basis. The Court acknowledged that a declaration might nevertheless be recognised by a foreign court on principles of international comity. That recognition could give Australia law operation in other jurisdictions.

The difficulty for an Australian court, when rightly recognising the Corporations Act says it applies outside Australia, is that foreign courts may still disagree. The next step in the Vector dispute itself highlighted conflicting case law in other jurisdictions. For example, English courts, considering an English law governed contract, will not have regard to a restriction on enforcing ipso facto rights under non-English insolvency laws.⁹ The East Caribbean Supreme Court, in the Vector administrators' own application in this case, appeared inclined to take that position in relation to any moratoria under the Corporations Act, and refused to recognise them. The decisions set the stage for further litigation over relevant rights in the Vector Resources administration.¹⁰

... but the decisions create opportunities to facilitate international corporate restructures

For parties advised on their rights across multiple jurisdictions, these recent Australian decisions offer opportunities to enforce and protect rights that could facilitate an international restructuring.

1 Didyasarin v Thai Airways International Public Company Limited [2020] FCA 1154; Didyasarin v Thai Airways International Public Company Limited (No 2) [2020] FCA 1509. See our previous alert here

2 Didyasarin v Thai Airways International Public Company Limited (No 3) [2021] FCA 1092

3 Frege in his Capacity as Foreign Representative of Greensill Bank AG v Greensill Bank AG [2021] FCA 330; Frege in his Capacity as Foreign Representative of Greensill Bank AG v Greensill Bank AG (No 2) [2021] FCA 510

4 Under Part A1 of the Insolvency Act 1986 (UK), which commenced on 20 June 2020. See our discussion here

5 In the matter of Hydrodec Group Plc [2021] NSWSC 755

6 Section 581 Corporations Act

7 Michele Bottiglieri Armatore SpA, in the matter of Michele Bottiglieri Armatore SpA [2021] FCA 795

8 Tucker, in the matter of Vector Resources Limited [2021] FCA 112; Tucker v Mongbwalu Goldfields Investments Limited [2021] FCA 135

9 Fibria Celulose S/A v Pan Ocean Co. Ltd & Anor [2014] EWHC 2124

10 https://www.kordamentha.com/creditors/vector-resources-limited