Учебный год 2023 / phd

attracted attention of many scholars as it demonstrates that there are still cases which will have to be decided on general principles of private international law’, and the significance of the ‘..wide-reaching powers of judicial assistance for foreign insolvency proceedings under common law… particularly ….in English law based offshore jurisdictions’,26 and if one were to add, other Anglophone countries, such as those of SSA, whose legal systems are still largely dependent on the English common law in certain respects.27 The decision, viewed as a whole, champions universalism theory as the basis of the common law approach to cross-border insolvency.28 In this case, the Privy Council, having emphasised the centrality of universality of insolvency, expressed the significance of various measures and principles, as signified by recognition of foreign proceedings and judicial assistance, in attaining universality. While citing Re African Farms29 as per Innes CJ, Lord Hoffmann on behalf of the Privy Council stated:

The English common law has traditionally taken the view that fairness between creditors requires that, ideally, bankruptcy proceedings should have universal application. There should be a single bankruptcy in which all creditors are entitled and required to prove…

[U]niversality of bankruptcy has long been an aspiration, if not always fully achieved, of United Kingdom law…[T]he underlying principle of universality is … given effect by recognising the person who is empowered under the foreign bankruptcy law to act on behalf of the insolvent company as entitled to do so in England. In addition, as Innes CJ said in the Transvaal case of Re African Farms 1906 TS 373, 377, in which an English company with assets in the Transvaal had been voluntarily wound up in England, “recognition carries with it the active

26G Moss (n 22) 1

27Indeed, as observed by MN Wabwile (n 11) 69, in most of these jurisdictions ‘the sphere of administrative, commercial and many aspects of procedural law lack comprehensive local legislation. They are governed by scattered pieces of legislation which….also provides for reception of English common law to supply that which seems to be lacking in the local legislation.’

28A similar trend was later maintained and reflected in Re HIH (n 22) as per the opinion of Lord Hoffmann which relied on the common law to turnover assets from an English ancillary liquidation to an Australian ‘main’ liquidation. This was arguably notwithstanding that the rules of distribution in Australia differed from those in an English liquidation. More importantly, it is not clear whether Lord Hoffmann’s opinion can be regarded as the majority opinion. Equally important to note is the most recent English Court of Appeal decision in Rubin v Eurofinance [2010] EWCA Civ 895 ( in which resort was had to Cambridge Gas) to recognise and enforce in England and Wales default judgments obtained in the US Bankruptcy court under the US Bankruptcy Code. It has so far been argued that the decision would not otherwise be enforceable under ordinary conflict of laws rules. Being controversial as it is, the decision is on appeal to the English Supreme Court. See LC Ho, ‘Recognition Born of Fiction- Rubin v Eurofinance’ (2010) J Int’l Banking L & Reg 579

291906 TS 373

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assistance of the court”. He went on to say that active assistance could include: “A declaration, in effect, that the liquidator is entitled to deal with the Transvaal assets in the same way as if they were within the jurisdiction of the English courts, subject only to such conditions as the courts may impose for the protection of local creditors, or in recognition of the requirements of our local laws.”30

The common law approach to cross-border insolvency has traditionally provided jurisdiction for the English Court to subject a foreign company in insolvency proceedings, commencing ancillary proceedings, granting recognition of foreign insolvency proceedings, and provision of judicial assistance and co-operation. However, consideration of local interests has always been at the centre of judicial discretion that involves realisation and implementation of the common law in cross-border insolvency aspects. The other point worth noting at the outset is the fact that the development of these principles have much been associated with winding up procedures as by then such procedures were the only avenue through which an insolvent company could be dealt with. The Cambridge Gas case marks a very significant development in the common law as it concerned reorganisation and thus explicitly provided for cross-border insolvency at common law in relation to reorganisation.

It is also worth noting at the outset that the principles available at common law with regard to cross-border insolvency are interlinked and reinforce each other in such a way that it is hardly possible to talk of one principle without touching the other principles.31 While the cross-border insolvency approach at common law has been praised for its inherent flexibility, it has been argued that such flexibility ‘can...lead to unpredictability of results and is neither well-suited to

30[2006] UKPC 26; [2007]1 AC 508(PC(IoM)), para16, 17, & 20

31It is perhaps this reason why in analysing the decision in Cambridge Gas, G Moss (n 22) 125 – 126, found that ‘The judgment itself is a tremendous achievement which is only slightly diminished by some confusion of analytical terms,…… in failing to differentiate between “recognition”, i.e. giving effect directly to the foreign law, and “judicial assistance”, using local law to assist the foreign insolvency proceedings without giving direct effect to the provisions of the foreign law. …[D]espite this, the great advance in the scope of common-law judicial assistance is greatly to be welcomed.

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the code oriented nature of civil law jurisdiction nor does it provide a basis on which to anticipate recovery risk.’32

5.2.2.1Jurisdiction for Initiating Insolvency Proceedings Regarding a Foreign Company

The first principle that characterises the English common law approach to crossborder insolvency is that the common law vests jurisdiction to an English court to subject a foreign company to insolvency proceedings.33 This however is dependent on existence of some preconditions that have historically evolved over time at common law.34 The historical basis for the development of such preconditions shows how the English court has been exercising its jurisdiction to wind up foreign companies.35One such criterion that has over time been employed is the existence of a sufficient connection between the foreign company and the English jurisdiction.36 Historically, existence of the foreign company’s assets in England was one factor that the court would consider when ruling that it had jurisdiction to commence proceedings against the foreign company.37

However, it must be pointed out that with further evolution and development it was no longer necessary at common law that there should be assets in England to establish sufficient connection for the purpose of gaining jurisdiction.38 It would accordingly be sufficient for the court to exercise its discretionary power to subject a foreign company to insolvency proceedings if, notwithstanding an absence of assets known to exist in England, there were persons in England

32HS Burman, ‘Harmonisation of International Bankruptcy Law: A United States Perspective’ (1995-1996) 64 Fordham L Rev 2543, 2552

33For a discussion of this principle see, L Hoffmann (n 4)2509-2510.

34R Parry, Corporate Rescue (Sweet & Maxwell, London 2008) 285-286; IF Fletcher, Insolvency in Private International Law (2nd edn OUP, Oxford 2005). See also Re Eloc Electro Optiek and Communicatie BV [1982] Ch. 43; and Re A Company (No.00359 of 1987); and International Westminster Bank v Okeanos [1988] 1 Ch. 210

35L Hoffmann (n ) 2510, 2511; PJ Omar (n 22) 349, 357-362. See also cases that arose as a result of the Russian revolution. For example, Russian and English Bank v Baring Bros &Co [1936] AC 405; Re Russian Bank for Foreign Trade [1933] 1 Ch 647; and Banque des Marchands de Moscou (Koupetschesky) v Kindersley [1951] Ch 112

36Stocznia Gdanska SA v Latreefers Inc, Re Latreefers Inc [2001] 2 B.C.L.C. 116, 140, CA

37Re Matheson Bros Ltd (1884) 27 Ch D 225; and Re Real Estate Development Co [1991] BCLC 210

38Re Real Estate Development Co [1991] BCLC 210

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concerned or interested in the proceedings, or creditors who hoped to benefit from the proceedings and to uncover the company’s assets through the use of the court’s inquiry procedure.39 One view is that the court has generally tended to take a more liberal approach in exercising its discretion as to whether or not it has jurisdiction.40 Describing the approach, Lord Hoffmann is of the view that:

[s]uch wide power [is] useful when the company is incorporated in a foreign tax haven like Liberia or British Virgin Islands and there are no known assets in England, but the creditors hope that some may be unearthed by using the inquiry procedures of the court against officers or directors or bringing proceedings to set aside pre-bankruptcy preferences or fraudulent disposals.41

5.2.2.2Recognition of Foreign Proceedings

The second principle is that of recognition of foreign insolvency proceedings commenced in a home country of a company. This is regarded as one of the oldest principles at common law tracing its origin from personal bankruptcy.42 The principle calls for recognition by the English court of the order of the foreign insolvency proceedings granted by the foreign court in the home jurisdiction, or domicile of the company (i.e the country of incorporation). 43 It is implicit that recognition of the foreign order would mandate recognition of all that is inherent in the order such as the representatives of the foreign proceedings and their

39See for instance, Re A Company (No 00359 of 1987) [1988] 1 Ch 210 involving a company incorporated in Liberia but mainly operated from London. The holding of the court was that it was not necessary to show that the company had assets within a jurisdiction but that there was a close link with the jurisdiction; Banques des Marchands de Moscou (Koupetchesky) v Kindersley

[1951] Ch 112, 125-126 where apart from the English Court of Appeal emphasising on criteria to be considered by the court, concluded that the exercise of the jurisdiction remains discretionary notwithstanding presence of the criteria; and Stocznia Gdanska SA (n 36)

40See n 24 above. See also for instance in the old case of Re Matheson Bros Ltd (1884) 27 Ch D 225, where inter alia, it was contended that even though a foreign company had already been placed in liquidation, such process in itself does not take away the right of the English court to make a winding up order in England. It was also contended that commencement of foreign proceedings may however exercise an influence upon the jurisdiction.

41L Hoffmann (n 4) 2509

42Solomons v Ross (1764) 1 H BI 131 where English creditor had to surrender to the Dutch bankruptcy assets realised out of the garnishee proceedings and prove in such proceedings, following recognition by the English court of such proceedings. See also K Nadelmann, ‘Solomons v Ross and International Bankruptcy Law’ (1947) 9 MLR 154

43IF Fletcher, The Law of Insolvency (2nd ed Sweet & Maxwell, London1996) 760-761; PJ Omar, ‘Cross-Border Jurisdiction and Assistance in Insolvency: The Position in Malaysia and Singapore’ (2008) 1 PER 2/55, 8/55; PJ Omar (n 22)349. See also Lazard Bros & Co v Midland Bank Ltd (1933) AC 283

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authority in the foreign jurisdiction to manage or administer the insolvency proceedings.44 This should entail not only granting recognition, but also granting the foreign office holder appointed by the foreign corporation’s home country ( place of domicile) the remedies to which they would have been entitled if the equivalent proceedings had taken place in the domestic forum.45 In view of the Cambridge Gas case, it seems that it is now possible at common law for the recognition to be achieved even though the proceedings did not emanate from the home country of the foreign company.

As with the previous principle, implementation of this principle underpins the exercise of judicial discretion on whether or not to grant recognition or adopt the foreign orders as those of the local court.46 Criteria that are said to have long emerged as exceptions to determine whether or not to grant recognition are, according to Wood,47 and as cited in support by Omar, firstly, whether the foreign proceedings are final in nature; secondly, whether they conform with prevailing conceptions of natural justice; thirdly, whether the jurisdiction has validly been exercised; and lastly, whether recognition will be contrary to public policy.48 In Cambridge Gas case,49 the Privy Council noted that although it may be that the criteria for recognition should be wider, that question did not arise in the case.50 It seems therefore that to gain recognition through this principle that creates obligation on the part of the English court to recognise, there should be instituted proceedings for the foreign representative to gain consent of the local court and capacity to act and enforce the foreign order. Moss, Bayfield and Peters note that recognition mainly involves giving direct effect to foreign proceedings, orders and appointments.51 However, it is to be noted that, although at common law the court is entitled to recognise foreign insolvency proceedings

44 PJ Omar (n 43); PJ Omar (22) ; and Macaulay v Guaranty Trust Company of New York

(1927) 40 TLR 99

45See Cambridge Gas Transport Corp v Official Committee of Unsecured Creditors of Navigator Holdings Plc [2006] UKPC 26; [2007]1 AC 508(PC(IoM)); LC Ho (n 22) 217-; and G Moss, IF Fletcher and S Isaacs (n 22) 83

46See for instance Re HIH case (n 22); LC Ho (n 22)

47PR Wood, Principles of International Insolvency Law (Sweet & Maxwell, London 1995) 250

48PJ Omar (n 43) 8/55; and PJ Omar (n 22) 349

49[2006] UKPC 26; [2007]1 AC 508(PC(IoM)), para 19

50For commentaries on this case, see LC Ho (n 22) 217

51See n 63 below

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and allow a foreign representative to act, it still has wide discretionary powers to make an order for insolvency proceeding under its broad jurisdiction.52 Such proceedings, if so made would be designated as ancillary as discussed below.

5.2.2.3Ancillary Proceedings

Ancillary insolvency proceedings are employed at common law to govern proceedings commenced in a jurisdiction other than one which is the home country or domicile of the insolvent company. This is due to the fact that at common law a foreign company may be placed under insolvency proceedings locally even though it is or it is not a subject of foreign insolvency proceedings elsewhere. Ancillary proceedings refer to proceedings that are secondary to the main proceedings. The general principle at common law is for ancillary proceedings to arise from jurisdiction which is not the home country or domicile of the insolvent company. Its primary function is essentially to assist the main proceeding in collection and protection of local assets for the benefits of the company’s creditors wherever they are located.53 Of significance is that despite the proceeding being ancillary to the main proceedings, the proceedings including the administration of the assets are undertaken by the local laws.54 Among the most cited early English cases which envisaged the concept of ancillary proceedings at common law are Re Matheson Brothers55 and Re English Scottish & Australian Chartered Bank.56 In the latter case Vaughan William J has been quoted, by different scholars,57 as saying:

52Re Matheson Brothers (1884) 27 Ch D 225, 230 where the court (as per Mr Justice Kay ) has been quoted as saying that a foreign order ‘does not take away the rights of a court of this country to make a winding-up order here, though it would no doubt exercise an influence upon this court.’ See PJ Omar (n 43) 10/55; and PJ Omar (n 35) 351

53See Re Bank of Credit and Commerce International SA (No 10) [1997] Ch 213, 246 where Scott VC among other things pronounced that: ‘Nonetheless, the ancillary character of a local winding up does not relieve the court of the obligation to apply local law, including local insolvency law, to the resolution of any issue arising in the winding up which is brought before the court. It may be, of course that local conflicts of law rules will lead to the application of some foreign law principles in order to resolve a particular issue.’

54See Re Suidair International Airways Ltd [1951] Ch 165, which was favourably cited in Re Bank of Credit & Commerce International SA (N 10) [1997] Ch 213, 241

55(1884) 27 Ch D 225, 230

56[1893] 3 Ch 385, 394

57See A Keay (ed), McPherson: The Law of Company Liquidation (4th edition Lawbook Co., Australia 2000) 689-690; and PJ Omar (n 22) 352

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One must bear in mind the principles upon which liquidations are conducted, in different countries and in different courts, of one concern. One knows that where there is a liquidation of one concern the general principle is-ascertain what is the domicil of the company in liquidation; let the Court of the country of domicil act as the principal court to govern the liquidation, and let other Courts act as ancillary, as far as they can, to the principal liquidation.58

Seemingly, the effect of ancillary proceedings is neither to render issues in the proceedings to be determined by rules of the main proceedings nor is it to bind the ancillary jurisdiction by the effects of the main proceedings.59

The application of this approach would, subject to the wide discretion of the court, permit representatives in a foreign proceeding to operate in the ancillary jurisdiction following recognition of the foreign proceedings. However, this would depend on existence of such factors as the connection between the company and the jurisdiction in which the representative is appointed,60 the just merits of creditors’ claims and fairness of their position61 and whether or not there is an appropriate jurisdiction before which the claim might be heard. It is thought that the costs of ancillary proceedings, in terms of the opening of ancillary proceedings and the pursuit of claims within the proceedings, are also a factor that influences courts in deciding whether to permit further litigation in ancillary proceedings.62

5.2.2.4Judicial Assistance and Cooperation

Judicial assistance and cooperation is another measure that characterises the common law approaches to cross-border insolvencies.63 It involves the use of local laws to assist a foreign insolvency proceeding without giving direct effect to the provision of the foreign law.64 Notably, this principle seems to be implicit

58Ibid

59Ibid

60Schemmer and Others v Property Resources Ltd and Others [1975] 1 Ch 273

61See Re Suidair International Airways Ltd [1951] Ch 165

62PJ Omar (n 22) 353

63G Moss, IF Fletcher and S Isaacs (n 22) 81, note that judicial assistance is technically not recognition which involves giving direct effect to a foreign office holder. The latter is however loosely used to cover such matters as the former.

64See n 31 above quoting G Moss (n 22) 125 – 126

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within the other principles discussed above and its operations reinforce the other principles. Given its significance in so far as cross-border insolvency is concerned, as well as the recent developments in cross-border insolvency at common law, it deserves a separate treatment in its own rights.

This principle is based on the wide common law court discretion to act in aid of a foreign court that has jurisdiction in insolvency.65 When acting in aid of the foreign court, the common law court has discretion to exercise such powers with respect to the matter as it could exercise if the matter had occurred within its own jurisdiction. In the words of the Privy Council in the Cambridge Gas case, ‘the domestic court must at least be able to provide assistance by doing whatever it could have done in the case of a domestic insolvency’ in order to avoid the need for parallel proceedings. In this case, the Privy Council ‘agreed to assist the US court by giving effect to the US Chapter 11 plan, reasoning that as a matter of common law the court has power to declare that the chapter 11 plan should be carried into effect.’ While the same results could have been achieved by parallel proceedings under the Isle of Man law on schemes of arrangement, the Privy Council found it unnecessary as the confirmed Chapter 11 plan could be given direct effect and by so doing it would save the creditors the trouble of parallel proceedings.66 Indeed, this principle reflects ‘a long tradition in the common law of courts extending aid for the collection of assets located in the jurisdiction of the courts and that belong to foreign debtors.’67

It is now clear from the Cambridge Gas case that as far as the common law is concerned the grant of assistance is not solely dependent on the foreign insolvency proceedings taking place in the insolvent company’s home country.68

65 In the Cambridge Gas case (n 22) for example, the Privy Council held inter alia that at common law the Isle of Man court has a broad discretion to assist in the implementation of that Chapter 11 plan, notwithstanding that it involved the transfer of shares in an Isle of Man company.

66G Moss (n 22) 126

67PJ Omar (n 43) 32/55. See also Solomons v Ross (1764) 1 Hy BI 131n; 126 ER 79

68A Walters (n 22) 74; G Moss, IF Fletcher and S Isaacs (n 22) 82 noting that ‘[t]he domicile of a corporation has traditionally been regarded as the place of incorporation but it may be time to adopt the approach of the [EC Regulation on Insolvency Proceedings] and regard “domicile” as the “centre of main interests” subject to the assumption in favour of the place of incorporation.’

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Indeed, in Re Phoenix Kapital Dienst GmbH,69 the English court having mentioned various aspects that establish the connection between a company that is a subject of insolvency proceedings and the jurisdiction where the foreign representative was appointed, stated that there may exist other grounds for jurisdiction such as, for example, where the office holder was appointed by the courts of the country where the company in question carried on business.70

Furthermore, in Re HIH Casuality and General Insurance Ltd 71 which came to the House of Lords shortly after the Cambridge Gas case, Lord Hoffmann, in the midst of the divergent opinions as to the position of common law on remission of English assets to Australian liquidators, noted that the home country of the company may not be the most appropriate jurisdiction and referred to the COMI test applied under the UNCITRAL Model Law on cross-border insolvency.72

5.2.2.5Fair and Equitable Treatment of Local and Foreign Creditors

At common law foreign creditors are treated the same way as local creditors in insolvency proceedings. Indeed, this is consistent with the fact that traditionally the common law has recognised the universality of insolvency proceedings.73 With regard to proof of debts and claims, it is generally accepted that in a local winding up for instance, foreign creditors are admitted to proof in the winding up along with local creditors. The proof of debts in a local winding up is regulated by the local winding up laws of the place in which the claim is submitted.74 That is to say, the general principle applies to the treatment of foreign creditors. They

69[2008] BPIR 1082. This case is significant to English law based offshore jurisdictions’, and Anglophone countries, such as those of SSA, whose legal systems are still largely dependant on English common law in certain respects. As in the Cambridge Gas case, in the Phoenix case, it was only common law principles on cross-border insolvencies that were applicable. It was found that neither the EC Regulation on Insolvency No 1346/2000 nor the UNICITRAL Model Law on Cross-Border Insolvency as reflected in the Cross-border Insolvency Regulations 2006(SI 2006/1030) was applicable.

70See E Sjostrand (n 22) 105, 107

71[2008] 1 WLR 852

72Cambridge Gas case (n 22); and P Hayden (n 22) 109. See also n 28 above as to the controversy surrounding Lord Hoffmann’s opinion.

73See Cambridge Gas Case (n 22) citing in support Solomons v Ross (1764) 1 H BI 131 where English creditor had to surrender to the Dutch bankruptcy assets realised out of the garnishee proceedings and prove in such proceedings, following recognition by the English court of such proceedings. See also K Nadelmann (n 42) 154

74Re Vocalion (Foreign) Ltd [1932] 2 Ch 196, 206; Re Trepca Mines Ltd [1960] 1 WLR 1273

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are given equal status to local creditors in their ability to lodge proofs of debts notwithstanding their home country or location. 75

Mason argues that this principle is largely inspired by the long standing principle of insolvency law that all creditors are prima facia treated equally.76 Perhaps the Cambridge Gas case has significantly served to clarify the position of the common law in this area. In this decision, the Privy Council stated that ‘the English common law has traditionally taken the view that fairness between creditors requires that, ideally, bankruptcy proceedings should have universal application. There should be single bankruptcy in which all creditors are entitled and required to prove. No one should have advantage because he happens to live in a jurisdiction where more of the assets or fewer of the creditors are situated.’77

5.3Considering the Common Law Approach in Light of Cross-Border Insolvency Theories and the International Insolvency Benchmarks

The common law offers an important framework for dealing with cross-border insolvency especially for countries that lack comprehensive legislation capable of addressing current challenges of cross-border insolvencies. However, the common law approach is not as certain and predictable as required by the international insolvency standards. As such, its position over a particular issue would not be clear if the court has never before had an opportunity to deal with and address it. It is, for instance, in this regard that it has been doubted as to ‘whether assistance could take the form of applying provisions of the foreign insolvency law which form no part of the domestic system.’78 Despite such

75R Mason, ‘Globalisation of Bankruptcy Practice-An Australian Perspective’ (1997) 5 Insolv LJ 12, 22, and R Mason ‘Hotchpot and Other Tasty Morsels in International Insolvency’ (1995) 3 Insolv LJ 149, 150, citing in support Azoff-Don Commercial Bank [1954] Ch 315 at 333; and

Sedgwick Collins & Co. v. Rossia Insurance Co. [1926] 1 KB 1 at 13 per Scrutton L.J, and Re Kloebe (1884) 28 Ch D 175

76R Mason (n 75) 21, and R Mason (n 75)150, citing in support Phillips v. Hunter (1795) 2 H BI 402, 405; (1795) 126 ER 6 18, 620 where it was stated that ‘the great principle of bankrupt laws is justice founded on equality.’

77[2006] UKPC 26; [2007] 1 AC 508 (PC(IoM)), para 16

78See Lord Hoffmann’s dicta in this regard in para 22 of Judgement in Cambridge Gas Case (n 22); LC Ho, ‘Applying Foreign Law under the UNCITRAL Model Law on Cross-Border Insolvency’ (2009) 24 J Int’l Banking and Financial L 655, Ho’s view is that judicial assistance can take the form of applying foreign insolvency law. In his view in Cambridge Gas case the Privy Council did actually apply foreign law, i.e the US Bankruptcy Law.

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