The Irish High Court(1) has, for the first time in the modern era, exercised its common law discretion to assist a foreign trustee in bankruptcy and allow it to deal with immovable real property in Ireland of a person declared bankrupt in another jurisdiction.
The case concerned David Drumm, the former chief executive of Anglo Irish Bank, who resides in the United States. Drumm filed a voluntary bankruptcy petition in Massachusetts under Chapter 7 of the US Bankruptcy Code.
The US trustee in bankruptcy submitted an affidavit to the Irish High Court confirming that the effect of the US voluntary filing was immediately to render Drumm a bankrupt according to US law, with the Bankruptcy Court for the District of Massachussets having exclusive jurisdiction over the bankruptcy proceedings as a matter of US law. It was confirmed that the bankrupt had submitted to that exclusive jurisdiction, and that as a matter of US law all the assets of the bankrupt, both real and personal, were vested in the US trustee in bankruptcy.
The affidavit as to US law, which was filed in the High Court, enabled the court to conclude that there was a degree of equivalence of jurisdiction between the bankruptcy code applicable in the US and that applicable in Ireland.
The US trustee sought an order in aid from the Irish court declaring that all property of the bankrupt, both real and personal, in Ireland, including a valuable unencumbered house, would vest in the US trustee.
Section 142 of the existing Irish Bankruptcy Act(2) provides that the Irish court may act in aid at the request of any court in the Isle of Man or the Channel Islands in a bankruptcy matter so that their courts and officers have jurisdiction and authority equivalent to that which it has in bankruptcy cases originating in Ireland.
As originally enacted, this provision also applied to Northern Ireland, England, Wales and Scotland but reference to those countries was deleted following the introduction of the EU Insolvency Regulation (1346/2000/EC).(3)
There is also an enabling provision in Section 142(2) of the Bankruptcy Act, which has not been implemented, permitting the extension of the aid provisions to other jurisdictions where the Irish government is satisfied that reciprocal facilities will be afforded.
The EU regulation is of assistance in the case of bankruptcies within EU member states except Denmark (subject to Article 5 reservation for third party rights in rem in respect of immovable property in another member state, and Article 8 which provides that the right to acquire or make use of immovable property is governed solely by the law of the member state where it is situated; Article 26, which allows a member state to refuse recognition and enforcement where such would be manifestly contrary to its public policy, has also to be considered).
The High Court quoted from Lord Hoffman in the UK Cambridge Gas and Navigator Holdings case(4) that:
"universality of bankruptcy has long been an aspiration, if not always fully achieved... for example the rule that English moveables vest automatically in a foreign trustee or assignee has so far been limited to cases in which he was appointed by the court of the country in which the bankrupt was domiciled …or in which he submitted to the jurisdiction... in the case of immovable property belonging to a foreign bankrupt, there is no automatic vesting but the English court has a discretion to assist the foreign trustee by enabling him to obtain title to or otherwise deal with the property."
The Irish High Court held it was satisfied that it had a common law discretion having regard to the principles of the comity of nations and having regard to the fact that it was undesirable in the case before it to have a multiplicity of proceedings in different jurisdictions.
The judge stated:
" I can see no reason of public policy for refusing to assist the trustee in bankruptcy in this case in the manner sought. On the contrary it seems to me that it is to the benefit of the creditors of the bankrupt to facilitate the trustee in this case. One of the principal creditors of the bankrupt is Anglo Irish Bank Corporation Plc which is participating in the bankruptcy proceedings in the United States of America. There is no obvious disadvantage to the creditors in refusing to make an order in aid of the trustee in bankruptcy and on a practical basis, it would appear more appropriate to make such an order so that the property in this jurisdiction can be dealt with by the trustee in bankruptcy for the benefit of all of the creditors of the bankrupt. I am satisfied that the court has the inherent jurisdiction."
For further information on this topic please contact Frank O'Reilly at WhitneyMoore by telephone (+353 1 611 0000), fax (+353 1 611 0090) or email ([email protected]).
(1) High Court judgment of Ms Justice Dunne, December 13 2010.
(2) Bankruptcy Act 1988, as amended.
(3) See also Regulation 3(d) of Irish SI 334, 2002.
(4) Cambridge Gas Transportation Corporation v Official Committee of Unsecured Creditors of Navigator Holdings Plc, 2006, 3 WLR 689.