In brief

A body corporate that is an agent or instrumentality of a foreign State1 (a Separate Entity) is entitled to maintain foreign State (also known as sovereign) immunity in Australia to avoid the consequences of a winding up application against it under the Corporations Act 2001 (Cth).

Key takeaways

P.T. Garuda Indonesia Limited (Garuda), the national airline of Indonesia, successfully argued that it retained the right to assert that immunity under the Foreign States Immunities Act 1985 (Cth) (the FSIA) applied to prevent a winding up application against it proceeding.2

The decision is a world first on the interface between winding up (where the Separate Entity is the target of the winding up application) and foreign state immunity.

In depth

Greylag Goose Leasing 1410 Designated Activity Company and Greylag Goose Leasing 1446 Designated Activity Company (together Greylag) applied to the Supreme Court of New South Wales for the winding up of Garuda. In line with previous Australian cases involving Garuda, it was not contested that Garuda was a Separate Entity of the Indonesian Government. Garuda therefore applied for orders seeking to set aside Greylag's winding up proceedings relying on foreign state immunity.

The FSIA provides a general immunity for a foreign State from proceedings in which the State or its Separate Entity is sought to be made a party before Australian courts, but then qualifies that immunity with a number of specific exceptions.

The Court's reasoning involved interpretating of one of those exceptions, that in s14(3)(a) of the FSIA, which provides that

"A foreign State is not immune in a proceeding insofar as the proceeding concerns …..the bankruptcy, insolvency or the winding up of a body corporate".3

The Court considered the body corporate referred to at the end of the exception was not the same entity as the foreign State referenced at the beginning of the provision. On the Court's interpretation, this provision was not directed at stripping the foreign State or its Separate Entity of the immunity to which it was otherwise entitled where the proceedings made it the target of a winding up application.

Whilst not raised in this application, where the property or rights of the foreign State are raised in a proceeding about the winding up of another body corporate, (such as the recovery of the property of the company in liquidation, a voidable transaction claim, or a public examination) that immunity may not shield the foreign State or the Separate Entity in that proceeding.

Given the first in the world status of this decision, and the use of similar language in other jurisdictions, the case may have wider relevance beyond preserving boundaries between national insolvency laws of Australia and the property and rights of foreign States carrying on activities here.