Crossing the border: Model insolvency Law takes flight

It is now four years since the Cross-Border Insolvency Act 2008 (Cth) commenced in Australia, bringing into force the UNCITRAL Model Law on Cross-Border Insolvency. The Act has been put to good use in various foreign proceeding recognition and asset protection applications brought in Australian courts by both local and foreign insolvency practitioners.

There is a resounding view that the Model Law as adopted in Australia has proven to be a powerful extra tool for foreign and domestic insolvency practitioners to access Australian assets of international debtors and to otherwise take action in the interests of creditors. We now have a number of decisions from Australian courts which apply the Model Law. These decisions are welcome developments as our courts implement and further develop cross-border insolvency law in Australia.

There is a striking diversity in the range of foreign insolvencies - “foreign proceedings” - which have been recognised in Australia since adoption of the Model Law. They have included:

  • Korean rehabilitation proceedings;
  • UK administration;
  • New Zealand liquidation;
  • Japanese bankruptcy proceedings;
  • Republic of Nauru liquidation proceedings;
  • Icelandic winding up proceedings;
  • Cayman Islands liquidation; and
  • English special purpose administration.

To date, there has been no application in Australia for recognition of a foreign proceeding originating from the US - such as a Chapter 11 reorganization under its Bankruptcy Code. However, there is a stable flow of outbound traffic to the US, resulting in applications in that country for recognition of Australian administrations and liquidations. This is likely to be a growing area for practitioners. We have already seen in the decisions of ABC Learning, Betcorp and Cedenco that the US bankruptcy courts have already grappled with various forms of Australian insolvency proceedings under Chapter 15 of the Bankruptcy Code. In those decisions - to date, a liquidation, a creditors’ voluntary liquidation (following administration) and a members’ voluntary winding up - all were recognised in the US as foreign main proceedings.

Two key trends emerging from the Australian judgments as we see them are:

  • Appointment of local representatives in aid of foreign proceedings. Where an application is made for recognition of a foreign proceeding, the Australian courts have been willing to appoint a local representative, in addition to the foreign representative, to be entrusted with the Australian assets of the insolvent debtor. This provides a level of local control for the Australian court and also an efficient means through which further applications may be made concerning the insolvent debtor.
  • Co-operation with foreign courts. The encouragement and facilitation of co-operation between courts is a fundamental principle of the Model Law. Australian courts have fully embraced that philosophy in their approach to determining applications brought to date. There is a clear sense within the judgments that our courts are encouraging of co-operation to the maximum extent possible with foreign courts and foreign representatives.

Unsurprisingly, there are limitations upon the extent to which an Australian court will be prepared to traverse matters pending before other courts. The Federal Court of Australia declined a request from a local liquidator to put in place a mechanism to resolve conflicting orders of the courts in England and the US. Instead, the Federal Court was only prepared to inform the US court of the request which had been made to it and to invite that court to consider whether it would be prepared to establish a protocol for future communications.

As to future trends, we are yet to see a real dispute between secured and unsecured creditors in Australia and the application of the Model Law in those circumstances. It is interesting to note that some of the first decisions specifically contained orders preventing secured creditors from enforcing their rights - at least on an interim basis. It remains to be seen how Australian courts will address such circumstances when contested.

We are also yet to see the development of the rights of holders in rem (for example – ship owners). Traditionally, there has been an uneasy co-existence between rights under maritime law and rights under insolvency law.

Scott Atkins

I'm unapologetically determined and fearless. I pursue excellence. Always.

Scott Atkins Partner

Scott is the Chair of our Board and an internationally renowned insolvency and restructuring lawyer. He is an inaugural Fellow and a member of the Board of INSOL International. Scott is also Vice President of the Australian Restructuring Insolvency and Turnaround Association (ARITA).

Scott is a trusted adviser to Australia's leading banks and insolvency and restructuring practitioners and has acted on some of the industry's most complex and sensitive banking and insolvency advisory and dispute resolution matters.

Prior to joining HDY, Scott practiced for 7 years as in-house counsel with Commonwealth Bank Group. He is now our Client Relationship Partner for the CBA Group. He is also the co-leader of our cross-border insolvency practice and our regulatory enforcement practice. Scott is recognised by his peers for his leading expertise in cross-border insolvency, acting on both inbound engagements in Australia and advising Australian clients on outbound engagements in the USA, UK, Cayman Islands, Hong Kong and The Netherlands, among other jurisdictions.

Scott was the Australian delegate on the Advisory Committee on Comparative Law established by the American Bankruptcy Institute as part of its Commission to Study the Reform of Chapter 11 of the US Bankruptcy Code. This resulted in a landmark report for the reform of Chapter 11.

He is a published author on insolvency and cross-border insolvency. Most recently, Scott was one of the Australian contributors to the 2015 publication 'International Contributions to the reform of Chapter 11 U.S. bankruptcy code' which is volume 2 of the European and International Insolvency Law Studies series. He also authored the Australian chapter of Avoidance of Antecedent Transactions and Cross-Border Insolvency (INSOL International). Among other publications, he is the co-author, together with Professor Rosalind Mason, of the Australian chapter of Look Chan Ho's leading text: Cross-Border Insolvency: Cases and Materials (Kluwer International).

Scott is a visiting lecturer on cross-border insolvency at the University of Sydney in its undergraduate and postgraduate law programs lead by Professor John Stumbles.

">
see my profile