CROSS-BORDER INSOLVENCY

1. CROSS-BORDER INSOLVENCY

2. CROSS-BORDER INSOLVENCY IS NOT EXAMINABLE ! • Cross-border insolvency is NOT part of the Insolvency course syllabus for Summer 2009-2010 and is NOT examinable • It is intended to add it to the course for Winter 2010 • These slides are only on the website in case you are interested

3. CROSS-BORDER INSOLVENCY • In May 1997 the United Nations Commission on International Trade Law (UNCITRAL) adopted a Model Law on Cross-Border insolvency. • The Model Law has since been adopted throughout Europe and also in Great Britain, Japan, the United States, Canada and New Zealand. • The Cross-Border Insolvency Act 2008 (Cth) provides that the UNCITRAL Model Law, as modified by the Act, is to take effect as a law of Australia. The UNCITRAL Model Law is a schedule to the Act.

4. OPERATION OF THE MODEL LAW • It provides access to Australian courts to a person administering a foreign insolvency proceeding, for the purpose of seeking a temporary stay of proceedings in Australia against assets of an insolvent debtor. • It permits a foreign representative to commence an insolvency proceeding in Australia where the debtor is subject to a foreign proceeding, and participate in an Australian insolvency proceeding in relation to that debtor. • It allows foreign creditors the same rights as Australian domiciled creditors regarding the commencement of and participation in insolvency proceedings in Australia. • It applies the concept of “Centre of Main Interest” to allow a court to determine whether a proceeding is a “Foreign Main Proceedings” or a “Foreign Non-Main Proceeding”.

5. INTERPRETATION OF MODEL LAW • International jurisprudence in interpreting and dealing with the Model Law will assist Australian courts to interpret it. • In Re Betcorp Limited (In Liquidation) 400 B.R. 266 - the US Bankruptcy Court gave judgment in favour of an Australian liquidator in a Cross Border Insolvency proceeding under Chapter 15 of the US Bankruptcy Code. The Australian voluntary winding up was recognised in the US as a “foreign main proceeding” - see article.

6. THE AUSTRALIAN ELEMENTS INTRODUCED • The Model Law operates in relation to both personal and corporate insolvency i.e. the Bankruptcy Act 1966 and Chapter 5 of the Corporations Act 2001; • Banks and insurance companies are exempted from the operation of the Model Law by regulation. • The Federal Court of Australia has exclusive jurisdiction in proceedings under the Model Law relating to individual debtors (i.e. bankruptcy). • Both the Federal Court and the State Supreme Courts have jurisdiction under the Model Law in relation to corporate insolvency. • A reference to a person or body administering a re-organisation or liquidation under the laws of Australia is taken to be a reference to the trustee in bankruptcy or the registered liquidator.

7. THE AUSTRALIAN ELEMENTS INTRODUCED cont... • A foreign representative applying in Australia for recognition of a foreign proceeding is obliged to identify and report on all foreign proceedings in respect of the debtor, and must also report on any Australian proceedings. • There is an automatic stay on commencement or continuation of proceedings in Australia as if the stay or suspension arose under the Bankruptcy Act or the Corporations Act. • The debtor’s right to transfer, encumber or otherwise dispose of assets will be the same as if the suspension arose under the Bankruptcy Act or the Corporations Act.

8. FOREIGN MAIN PROCEEDING • If a foreign proceeding is recognised, the Australian court will determine whether it is a foreign main proceeding or a foreign non-main proceeding. • Where does the debtor have its centre of main interest or where does the debtor have a place of operation? • If a proceeding is a foreign main proceeding, insolvency is presumed and the Model Law allows for a stay in the same terms as an Australian stay in insolvency.

9. CONCURRENT PROCEEDINGS • After recognition of a foreign main proceeding, the commencement of an Australian proceeding against the debtor will be prevented unless the debtor has assets in Australia and provided the action is limited to the assets of the debtor in Australia. • The Australian court is to co-operate to the maximum extent possible with foreign courts or foreign representatives and is permitted to communicate directly with them. • The trustee in bankruptcy and a registered liquidator must co-operate to the maximum extent possible with foreign courts and foreign representatives, subject to the supervision of the Australian court.

10. VOLUNTARY ADMINISTRATION • The UNCITRAL Model Law applies to voluntary administrations under Part 5.3A of the Corporations Act.

11. JUDICIAL CONSIDERATION OF THE MODEL LAW • “Cross Border Insolvency - Co-operation or Conflict?” - address by Spigelman CJ, 16 September 2008. • Hur v Samsun Logics Corporation [2009] FCA 372 - Korean insolvency proceedings were recognised as a foreign proceeding and as a foreign main proceeding pursuant to the Model Law. • Tucker v Aero Inventory (UK) Ltd (No.2) [2009] FCA 1481 - proceedings in the High Court of Justice of England and Wales, in which the plaintiffs were appointed joint administrators of the defendant, were recognised as a foreign proceeding and a foreign main proceeding pursuant to the Model Law.