Key takeaways
Recognition of a foreign insolvency appointment under the UNCITRAL Model Law on Cross Border Insolvency ("Model Law"), when the usual criteria for recognition are otherwise met, will only be refused when doing so would be manifestly contrary to Australian public policy. Simply identifying a potentially contrary reason as "policy", is not sufficient. The threshold for refusal is high.
The Federal Court of Australia has indicated it will take the same approach as the Singaporean International Commercial Court in the case of Re PT Garuda Indonesia (Persero) Tbk2 (where Baker McKenzie represented Garuda). In Singapore, "manifestly" has been omitted from the phrase "manifestly contrary to public policy" when setting the boundaries for recognition to be refused. Australia adopts the full phrase, and as this case shows, also interprets the exception highly restrictively.
In depth
The decision concerns Canadian subsidiaries of an Australian company listed on the NASDAQ, part of the Iris Energy Group. The group owned and operated Bitcoin mining data centres. The Canadian subsidiaries specifically owned equipment located in British Columbia for cryptocurrency mining. Relevantly, a director of the subsidiaries, as well as directors and officers of its parent company, reside in Australia.
In June 2023, the subsidiary companies entered bankruptcy in Canada. The appointed trustee undertook examinations of officers, including those located internationally, within Canadian limitations on the number of examinations permitted and constraints on procedures for those examinations. Court proceedings were also brought in Canada, seeking orders that the Bitcoin mined by the subsidiaries was held as collateral for the group’s financing arrangements. The trustee was unsuccessful in that litigation.
Subsequently, the trustee sought to extend its investigation by applying for recognition of the Canadian bankruptcies in Australia under the Cross-Border Insolvency Act 2008 (Cth) and the Model Law. The Australian parent company intervened in that application, opposing that relief and arguing that such recognition would be manifestly contrary to Australian public policy.3 This argument failed. Orders were made recognising the Canadian insolvency proceedings and enabling public examinations.
Arguments that recognition would be manifestly contrary to Australian public policy because it would facilitate examinations beyond those that had been performed, or permitted in Canada, were rejected. Canadian law allowed for further examinations on application to its courts. The Court considered that undertaking further public examinations in Australia would be consistent with the trustee’s duties and not be contrary to Australian public policy. The allegation that recognition was sought for the trustee to conduct fresh court proceedings in Australia on a basis that had failed in Canada was also an overstatement. The trustee had merely indicated an intention to complete its investigations. The parent company has sought to appeal the decision, with the hearing scheduled for 28 March 2025.
In a further application by the parent company, the Federal Court also refused to stay the recognition of the Canadian bankruptcy pending the hearing and determination of the appeal. Applications to stay examinations needed to be made by the examinees themselves if they can show prejudice. Federal Court records indicate that proceedings relating to examinations have since been commenced by the trustee.
Both decisions indicate that Australian courts are supportive of the use of examination powers in aid of foreign insolvency appointments within the scheme of the Model Law.4
1 PricewaterhouseCoopers Inc in its Capacity as Foreign Representative of IE CA 3 Holdings Ltd v IE CA Holdings Ltd [2024] FCA 1208 and Iris Energy Ltd v PricewaterhouseCoopers Inc in its capacity as foreign representative of IE CA 3 Holdings Ltd [2024] FCA 1297
2 You can read more about this decision here: Singapore International Commercial Court recognises Garuda's Indonesian restructuring in landmark decision
3 Under article 6 of the Model Law
4 As discussed further here:https://insightplus.bakermckenzie.com/bm/restructuring-insolvency_2/australia-far-reaching-questions-examination-powers-to-assist-cross-border-liquidation
