Result

In a recent Federal Court case in Australia (Global Tradewaves Ltd ("GTL") [2013] FCA 1127), liquidators appointed by the British Virgin Islands (BVI) court to GTL, successfully obtained leave to examine a former director of GTL in relation to the company's affairs and to compel him to produce certain company records.

UNCITRAL Model Law on Cross-Border Insolvency

The Australian Federal Court's decision was an example of the application of the UNCITRAL Model Law on Cross-Border Insolvency (the "Model Law").  Legislation based on the Model Law has been enacted in over twenty jurisdictions and was given force under Australian law by the Cross-Border Insolvency Act 2008.  The aim of the Model Law is to make liquidation proceedings for multi-national companies smoother and more efficient, thereby increasing legal certainty for international trade and investment.  The law focuses on encouraging cooperation and coordination between jurisdictions.  Two of the key elements of the Model Law are:

  1. the courts of an enacting state (in this case, Australia) recognising a foreign set of liquidation proceedings (in this case, BVI); and
  2. having so recognised the foreign proceedings, the local courts (in this case, Australia) granting relief to the foreign liquidators.  Such relief can include staying execution on the debtor's assets, suspending the right to transfer any of the debtor's assets and examining witnesses and requiring delivery of information concerning the debtor's affairs.

Under the Model Law, certain relief can only be granted where the foreign liquidation is recognised by the relevant court as the "foreign main proceeding". While the position differs slightly between the countries who have adopted the Model Law, generally recognition as the "foreign main proceeding" will result in the recognising court automatically staying all dealings with the foreign debtor's assets within the recognising court's jurisdiction.  The "foreign main proceeding" is defined in the Model Law as a proceeding taking place where the debtor has the centre of its main interests ("COMI").

Previous Cases

Accordingly, a debtor's COMI is an important factor for a liquidator seeking relief from a foreign court pursuant to an enactment of the Model Law. Pursuant to the Model Law, the COMI is presumed, in the absence of proofto the contrary, to be the jurisdiction where the debtor has its registered office (the "Presumption"). There has been a number of cases in relation to the COMI of companies incorporated in offshore jurisdictions (including BVI, Cayman and Antigua). However, significantly, the US courts and the English courts have differed in their approach to determining the COMI.

US Approach

The US approach has essentially been:

  1. in its legislation adopting the Model Law (Chapter 15 of the Federal Bankruptcy Code), the US changed the wording of the presumption to in the absence of evidence (as opposed to proof) to the contrary, the debtor's COMI will be presumed to be the jurisdiction of the debtor's registered office;
  2.  further to point (a), in the US, the burden of proving the debtor's COMI falls on the party seeking recognition; and
  3.  the US Courts have interpreted COMI to be the jurisdiction where the debtor has most "material contacts".  "Material contacts" include the location of the debtor's headquarters, management, primary assets, the majority of its creditors and the jurisdiction whose laws would apply to most disputes relating to the debtor.

The US approach has seen cases where the Court has refused to recognise an offshore jurisdiction as the COMI, despite the absence of any objection to the offshore liquidator's application.  An example was Bear Stearns High Grade Structured Strategies Master Fund Ltd (2008) 389 B.R. 325.  That case was criticised in some circles as an example of the Court acting in "national interest" (by retaining control of the liquidators and debtor's assets within the US).

English Approach

The English approach has essentially been:

  1. to adopt the Presumption wording as per the Model Law;
  2. the burden of rebutting the Presumption is with any party trying to disprove it (i.e. essentially the opposite of the US approach); and
  3. the Presumption can only be rebutted by factors that are both objective and ascertainable by third parties (i.e. essentially matters in the public domain).

While each case is, of course, decided on its facts, the English approach has more often resulted in offshore jurisdictions being found by the Courts to be the debtor's COMI.  An example is the decision of In the Matter of Stanford  International Bank Limited and Others [2009] EWHC 1441 (CH) where the court found that Antigua, rather than US, was the COMI of the debtor and granted the Antiguan liquidators control of the debtor's assets in England.

This Case

While the application of the BVI liquidators in the Australian case was not contested, the decision tends to show that the Australian approach will be similar to that taken in England notably:

  1.  the Presumption used in Australia is the same as in the Model Law; and
  2.  the burden is on the party attempting to disprove the Presumption.

In the present case, as there was no contrary evidence, there was no need for the Court to determine whether the Presumption can only be rebutted by evidence which is objective and ascertainable by third parties.  The Australian position on this point does not seem to have been clearly decided although the Australian Federal Court has said:  "For individuals, and, in the final analysis for corporations, the inquiry as to COMI must remain a broad, factual one." - Gainsford v Tannenbaum (2012) 293 ACR 699, at para 46.

Why case is significant

The Australian case indicates that the approach to be taken in Courts, outside of England and the US, to determining a debtor's COMI is likely to be closer to the approach taken in England.  As a result, the case gives offshore liquidators increased confidence that overseas courts will more readily recognise offshore jurisdictions as the debtor's COMI and, as a result, grant helpful relief to the liquidators.  This in turn is likely to increase creditors' confidence in such jurisdictions, which are generally seen as creditor friendly jurisdictions where companies can be wound up in a quick and efficient manner.