Will a local court recognise concurrent foreign restructuring or insolvency proceedings over a local debtor? What is the process and test for achieving such recognition?
Restructuring & Insolvency
Italy recognises any judgment opening insolvency proceedings handed down in other EU Member States (section 16, Council Regulation 1346/2000 on insolvency proceedings (Insolvency Regulation)). This also applies to court approved settlements, preservation measures and judgment deriving directly from insolvency proceedings and closely linked with them.
If the Insolvency Regulation does not apply and there is no bilateral convention with the country of the debtor's COMI, recognition of foreign judgments applies when the following conditions are met:
- the judge that issued the decision had jurisdiction;
- the defendant knew of the proceeding and could take part in it and defend himself;
- the decision is definitive and not contrary to another judgement issued by the Italian courts;
- no proceeding on the same matter is pending before the Italian courts;
- the judgment's provisions are not contrary to public policy.
A court order is required only in case (i) an objection is raised that the above requirements for recognition are not met or (ii) an enforcement procedure is required based on the foreign judgment or order.
In Spain, cross-border insolvency proceedings declared within the EU (except Denmark) are automatically recognized under the Regulation 2000/1346.
The effects of said recognition will be increase once Insolvency Regulation 2015/848 enters into force (June 26, 2017). From then on, any judgement opening new insolvency proceedings in one Member State automatically produces the same effects in any other Member State. Said new Regulation also broadens the legal framework allowing the insolvency administrators appointed in the insolvency proceedings which have been opened to enforce their rights abroad and, if necessary, to be assisted by local authorities when performing said function.
However, when the insolvency proceeding is not declared in a Member State, and there is no bilateral treaty in force between the two countries, Spanish Insolvency Act rules apply. The application of the Spanish internal rules on the recognition of the insolvency proceedings resolutions will be subject to the reciprocity principle, meaning that they cannot be alleged by the parties when there is no reciprocity or cooperation with the authorities of the foreign country where the resolutions were issued.
Foreign rulings that declare the opening of insolvency proceedings (whether main or secondary ones) will be recognized by means of the exequatur process regulated in the Spanish Civil Procedural Act. Once a foreign resolution is recognized, any other resolution issued after the former does not need to fulfil an exequatur procedure. Recognition can only be rejected if its effects are contrary to Spain’s public policy.
A local court in Japan may recognise foreign restructuring or insolvency proceedings. The process is initiated by a debtor’s filing to the Tokyo District Court, which has exclusive jurisdiction on such recognition proceedings. The test for recognition is based mainly on the necessity of such recognition. For example, if foreign restructuring or insolvency proceedings are obviously ineffective over assets in Japan, such recognition would be denied.
As a result of Denmark’s opt-out of the EU rules on justice and home affairs, Denmark is outside the Insolvency Directive that concerns mutual recognition of insolvencies in the EU.
However, Denmark recognises based on Directive 2001/24EF and 2009/24EF insolvencies over credit institutions and insurance companies if insolvencies proceedings have been commenced in another EU Member State.
In addition to the above EU directives no express rules apply on recognition of foreign restructuring of insolvency proceedings in Denmark with the exception of the Nordic Bankruptcy Convention, see below.
The Danish Minister of Justice may lay down guidelines for recognition of foreign insolvencies proceedings in Denmark, but so far the Minister of Justice has not used this power. In case law it is consequently assumed that as long as the Minister of Justice has not laid down guidelines for the recognition of foreign insolvency proceedings, foreign insolvency proceedings do not prevent other creditors from individual creditor action in respect of the debtor’s assets in action.
However, Denmark has acceded to the Nordic Bankruptcy Convention together with Norway, Sweden, Finland and Iceland according to which insolvency or restructuring proceedings against a debtor in one of the Nordic countries mean that the debtor’s assets in the home country of the debtor and in the other Nordic countries are also covered by the insolvency or restructuring proceedings.
Based on the Nordic Bankruptcy Convention the insolvency courts in Denmark will consequently recognise insolvency or restructuring proceedings from the other Nordic countries.
Australian courts act cooperatively with foreign courts and insolvency practitioners, and will recognise the jurisdiction of the relevant court where the ‘centre of main interest’ is located. This approach follows the UNCITRAL ‘Model Laws’ on insolvency with were codified into Australian law through the Cross-Border Insolvency Act 2008 (2008) (Cth).
To receive recognition, evidence of the existence of the foreign proceedings must be tendered. A court has power to grant both provisional relief pending the determination of a recognition application and, if a finding of recognition is made, a broad power to grant ‘any appropriate relief’ requested by the foreign representative. The types of relief that can be granted included:
- staying the commencement or continuation of induvial actions or individual proceedings concern the debtor’s assets, rights, liabilities or obligations;
- staying execution against the debtor’s assets to the extent it has not been stayed; and
- providing for the examination of witnesses, the taking of evidence or the delivery of information concerning the debtor’s assets, affairs, rights, obligations or liabilities.
Whilst conceivable that an Australian company’s centre of main interest could be recognised as being outside Australia, a foreign restructuring that purported not to company with the Australian Corporations Act and the Australian regulatory regime (imposed by ASIC and the ASX) would unlikely be recognised.
In addition, the Foreign Judgments Act 1991 (Cth) creates a general system of registration of judgments obtained in certain foreign countries. This legislation only extends to judgments pronounced by courts in countries where, in the opinion of the Governor-General, substantial reciprocity of treatment will be accorded by that country in respect of the enforcement in that country of judgments of Australian courts.
The application to register a foreign judgment must be made by a judgment creditor to the appropriate court (usually the State or Territory Supreme Court) within six years of the date of judgment or, if an appeal has been taken, within six years of the last judgment in the appeal proceedings.
The Companies Winding Up Rules 2008 (as amended) provide for a Cayman Islands appointed liquidator to enter into protocols with foreign officeholders appointed by a foreign court for the purpose of promoting the orderly winding up of the company's affairs and avoiding conflicts between the competing winding up proceedings in the Cayman Islands and the foreign jurisdiction.
Section 241 of the Companies Law also allows a foreign representative (defined as a trustee, liquidator or other official appointed for the purposes of a foreign bankruptcy proceeding) to apply to the Court to make orders ancillary to the foreign bankruptcy proceeding. Such orders include:
- An order recognising the foreign representative's right to act in the Cayman Islands on behalf of or in the name of the debtor;
- An order granting a stay of proceedings or the enforcement of a judgment against the debtor;
- An order requiring certain persons with information regarding the debtor's business or affairs to be examined and/or to produce documents to the foreign representative; or
- An order requiring the debtor to turn over property to the foreign representative.
Swiss insolvency proceedings are intended to apply universally for local debtors. Swiss authorities would, thus, not recognize and give effect to any foreign main insolvency proceedings opened outside of Switzerland. That said, certain foreign restructuring proceedings (including a UK scheme of arrangement) may not be viewed as insolvency type of proceedings from a Swiss perspective but rather as court rulings or contractual matters where recognition may be available. This will have to be looked at on a case by case basis.
Any judgment opening insolvency proceedings handed down by a court of an EU Member State which has jurisdiction shall be recognized in all other Member States (Article 19 EU Regulation 2015/848). The courts of the Member State within the territory of which the centre of the debtor's main interests (COMI) is situated, have jurisdiction to open main insolvency proceedings (Article 3 of Regulation 2015/848). However, any Member State may refuse to recognize such insolvency proceedings where the effects of such recognition would be manifestly contrary to that State's public policy, in particular its fundamental principles or the constitutional rights and liberties of the individual (Article 33 EU Regulation 2015/848).
Similarly, insolvency proceedings opened in a non EU jurisdiction are recognized, unless, in particular, such recognition would lead to a result which is manifestly incompatible with major principles of German law, in particular with basic rights (Sec. 343 Insolvency Act).
The Insolvency Law provides that foreign restructuring or insolvency proceedings may be recognized by local Insolvency Courts, provided that the following requirements are met: (i) the respective proceeding must be a foreign collective proceeding (judicial or administrative in nature), carried out pursuant to a law regulating the insolvency, bankruptcy or reorganization of insolvent entities and in which the assets and business of such insolvent entities are subject to the control or surveillance of a foreign court for their restructuring or liquidation; (ii) the recognition must be requested by a foreign representative that must be a person or corporate body duly appointed in a foreign proceeding to manage the restructuring or liquidation of the assets or business of insolvent entities or to act as a representative of the foreign proceeding; and (iii) the recognition request must meet certain requirements provided by the Insolvency Law (e.g. it must be filed together with certain documents and with the competent court).
British Virgin Islands
Part XVIII of the IA adopts the UNCITRAL Model Law on Cross-Border Insolvency for recognising foreign office holders, and for giving and seeking assistance in insolvency proceedings; however, this Part has not been brought into force, and the generally held view is that it is unlikely to come into force in the near future. As such, there is no formal procedure by which foreign office-holders may seek recognition in the BVI courts and thereby be afforded the same powers as a locally appointed office-holder.
The position is ameliorated somewhat by Part XIX of the IA, which provides the basic statutory framework for judicial assistance in insolvency proceedings. It allows foreign representatives in certain types of insolvency proceedings to apply to the BVI court for assistance. It also preserves the court’s common-law powers to provide aid in relation to foreign proceedings. The proceedings to which Part XIX applies are collective judicial or administrative proceedings in which the property and affairs of the debtor are subject to control or supervision by a foreign court taking place in designated territories. This definition is wide enough to encompass certain types of foreign restructuring procedures.
The BVI court, when faced with such an application, is required to do what will best ensure the economic and expeditious administration of the foreign proceedings, to the extent that that is consistent with certain guiding principles. Section 467 IA states that the orders that the court can make in aid of the foreign proceedings are wide, and include orders—
- restraining the commencement or continuation of proceedings against a debtor or in relation to the debtor’s property,
- restraining the creation, exercise or enforcement of any rights against the debtor’s property,
- requiring a person to deliver up the property of the company to the foreign representative,
- making any order or granting any relief the court considers appropriate to facilitate, approve or implement arrangements that will result in the coordination of BVI insolvency proceedings with foreign insolvency proceedings,
- appointing an interim receiver of any property of the debtor, and
- making such other order or granting such other relief as it considers appropriate.
The provisions appear to be wide enough for the BVI court not only to provide procedural assistance but also to apply substantive principles of BVI insolvency law, and the BVI court has discretion whether to apply the law of the BVI or the law applicable to the foreign proceedings.
It is important to note that the court will only be able to assist the foreign office holder under these statutory provisions if the proceedings are taking place in one of the following jurisdictions: Australia; Canada; Finland; Hong Kong; Japan; Jersey; New Zealand; the UK; and the USA. If the foreign office-holder was appointed in proceedings in a different jurisdiction, the support they may receive will be very limited, though they will be able to bring certain claims based on their title to assets contained in the insolvent estate (including causes of action), if sufficient title is vested in them.
The Supreme Court is congnisant that Bermuda companies often form part of a larger corporate structure which conducts business and holds assets in various parts of the world. In an insolvency or restructuring context therefore, it is important for there to be cooperation between the different jurisdictions in which proceedings will be necessary.
There is no statutory provision regarding the treatment of cross-border concurrent insolvency proceedings in other jurisdictions. The Bermuda courts, however, have co-operated with foreign proceedings, allowing the foreign court to take the lead role where it can be shown that to do so would be in the best interests of the company, especially where the foreign court has the closest connection to the company or is the most appropriate jurisdiction to make an order (Re Contel Corporation Limited  Bda LR 13).
Similarly, there is no statutory provision requiring the Bermuda courts to recognise foreign restructuring or insolvency proceedings. However, the Bermuda court has held on numerous occasions that it has discretion to do so and will often recognise and assist foreign proceedings in circumstances where:
- The company has a sufficient connection with the foreign jurisdiction (such as property, assets, liabilities, or management in the foreign country) so as to make it the most convenient jurisdiction to hear the application;
- The company similarly has a sufficient connection with Bermuda to justify the Supreme court’s involvement (for example, the foreign company has conducted business in Bermuda or has assets which will necessitate litigation in Bermuda);
- The assistance sought by the foreign liquidators would be available in the jurisdiction of the main insolvency proceedings; and
- Local Bermuda law or public policy does not prevent it.
During the course of 2016 and 2017, the Bermuda court has made a number of orders:
- Assisting a foreign court in a restructuring by appointing ‘light touch’ provisional liquidations and thereby triggering the statutory stay to give the company breathing space to promote a scheme or compromise in the foreign jurisdiction; and
- Recognising a foreign restructuring by ordering a permanent stay of proceedings being brought in Bermuda against the company by the compromised creditors.
Most of the cases before the Court in recent times have related to the restructuring of US oil and gas ventures under Chapter 11 of the US Bankruptcy Code which have included Energy XXI Ltd, C & J Energy Services Ltd, Up Energy Ltd, and Titan Petrochemicals Ltd.
To further the cooperation mandate of the Supreme Court and increase the effectiveness of cross-border insolvencies and restructurings, the Court has adopted the new “Guidelines on Communication and Cooperation between Courts in Cross-border Insolvency Cases” promulgated by the Judicial Insolvency Network whose members include Judges from Australia, the BVI, Canada, the Cayman Islands, England & Wales, Hong Kong SAR, Singapore and the United States. The guidelines address key aspects of communication and cooperation between courts, and as at March 2017, they have been adopted by Singapore, the United States, Delaware, and Bermuda.
The Bermuda court has consistently demonstrated a highly flexible approach to the recognition of foreign proceedings and will continue to do so. However, given the lack of express statutory provision dealing with assistance and recognition, it is an open question whether this approach will withstand scrutiny of the Courts of Appeal.