The English High Court were persuaded to lift the automatic stay imposed under the Cross-Border Insolvency Regulations (SI 2006/1030) in relation to Korean proceedings, to allow English litigation proceedings to be continued by an unsecured creditor.

STX Offshore & Shipbuilding Co Ltd ("STX"), a Korean shipbuilding company, entered into contracts with the claimants to build five ships through its Chinese subsidiary. STX had guaranteed the performance of the shipbuilding contracts and the guarantee was subject to English law and jurisdiction. The Chinese subsidiary entered into Chinese insolvency proceedings and the ships were not built.

The claimants issued proceedings in England under the guarantee and STX defended this application. STX argued that the contracts were unenforceable on the grounds of illegality due to a sideletter between the parties which reduced the price of the ships by $6m each. As such they argued that the contracts were illegal and unenforceable, and there could be no claim under the guarantee.

14 months into the English litigation, the Korean court commenced rehabilitation proceedings in respect of STX under the Korean Debtor Rehabilitation and Bankruptcy Act. Those proceedings were recognised by the English court as foreign main proceedings under the Cross-Border Insolvency Regulations 2006, resulting in an automatic stay of the English proceedings. The Korean office holders rejected the claimants' claim under the guarantee.

The claimants applied to lift the stay to continue their proceedings in England, in order that they could obtain an English judgment in their favour to put before the Korean court to reverse the rejection of their claim.

The court found it significant that the issue of the illegality of the shipbuilding contracts under English law was complex as it is an area of law that is constantly changing. As such, it was held that the issues would be better decided by an English court than by summary review in the Korean insolvency court.

The court considered whether this case was exceptional. The court stated that the mere existence of proceedings was not itself sufficient to lift the stay, however they would consider proceedings and in particular where they were well advanced, as in this case. It was further noted that significant amounts had been spent on the litigation preparing for trial, and the proceedings could take several years if litigated in Korea.

The court decided that pursuing the English proceedings would not intervene with the Korean rehabilitation plan, and could in fact assist in providing a judgment by resolving a genuinely difficult issue of foreign law. Any judgment obtained could not alter the priorities within the Korean insolvency, but it could be put before the Korean Rehabilitation Court to adopt or reject any order made by the English court.

The court found there was no risk of undermining the equal treatment of creditors, and as such lifting the stay would not impede the Administration. Permission was therefore granted to the claimants to continue with their claim in the English Commercial Court against STX.