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Welcome to the sixth edition of the INSOL International News Update. Lots have been happening in the past few weeks, and many more interesting events are scheduled to take place in the coming months. The European Court of Justice has given some further guidance as to the interpretation of the Centre of Main Interests (COMI) in the Staubitz-Schreiber case of 17 January 2006 which I have further discussed in the highlight section. You may recall that in the 4th issue of our newsletter we reported the case decision of Re T&N Ltd., & Others and in this issue we have provided an article with a very good analysis of this case by a leading insolvency expert in the UK. On a less technical front, on February 26 -27, 2006, Mr Wolfowitz, President of the World Bank, visited The Hague (the Netherlands) at the invitation of the Dutch government. For a transcript of Mr Wolfowitz’ press briefing in The Hague please click here. INSOL’s Annual Regional Conference 2006, to be held in Scottsdale, Arizona on 21-24 May, is getting closer with a high number of delegates registered so far. This year’s topic “Cross-border Insolvency: Co-operation or conflict?” combined with a number of renowned professionals as speakers and the beautiful surroundings of Scottsdale, will definitely guarantee a great conference! For registration details please click here. The fifth Forum for Asian Insolvency Reform (FAIR) will be held in Beijing on 27-28 April 2006 and is organised by the Organisation for Economic Co-operation and Development. I hope you find the information we have covered in this issue useful. Ilan Spinath, Partner, Corporate Recovery & Restructuring
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| Highlight of this issue | |||||||||
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Staubitz-Schreiber Case - Further Guidance on the Question of Centre of Main Interest (COMI) The Insolvency Proceedings Regulation (IPR) has resulted in a flow of case law and continues to do so. Since the IPR entered into force on 31 May 2002, some fifty or so decisions were published in ten different jurisdictions. The greater part of these decisions deals with the question where the Centre of Main Interest (COMI) of the debtor is situated. The European Court of Justice (ECJ) in its decision of 17 January 2006 in the Staubitz-Schreiber case, has now ruled on the question whether the court originally seised retains jurisdiction if the debtor moves the COMI after submitting the request to open proceedings but before the judgment is delivered. The ECJ ruled that a transfer of jurisdiction from the court originally seised to a court of another Member State on that basis would be contrary to the objectives pursued by the IPR. On that basis the ECJ ruled: “Article 3(1) of Council Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings must be interpreted as meaning that the court of the Member State within the territory of which the centre of the debtor’s main interests is situated at the time when the debtor lodges the request to open insolvency proceedings retains jurisdiction to open those proceedings if the debtor moves the centre of his main interests to the territory of another Member State after lodging the request but before the proceedings are opened.” This decision slowly but surely provides for some guidance as to the interpretation of the COMI. Most likely further guidance will follow in the near future, as the ECJ decision in the Eurofood IFSC Ltd (see also the first News Update) case is soon to be expected. For more details please click on the following Link: Ilan Spinath, Partner, Corporate Recovery & Restructuring
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| Case Decisions | |||||||||
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AMERICAS United States In Re Betty I. French - Case No. 05 - 1054 - Court of Appeals, 4th Circuit This appeal presents the question of whether a United States bankruptcy court can avoid a constructively fraudulent transfer of foreign real property between United States residents. The transferees of foreign property argued that the presumption against extraterritoriality and the doctrine of international comity preclude application of the US Bankruptcy Code. Both the bankruptcy court and the district court rejected these arguments and allowed avoidance and the transferees of the foreign property appealed. The Court of Appeals for the 4th Circuit affirmed the decisions of the lower courts and held that: i. The presumption against extraterritoriality is important to “protect against unintended clashes between US laws and those of other nations which could result in international discord” but it must give way when Congress exercises its undeniable authority to enforce its laws beyond territorial boundaries of the United States. In the circumstances of the case, the fraudulent transfer provisions of the Bankruptcy Code were held to apply to this transaction (having regard, in particular, to the fact that the perpetrator and most of the victims of the fraudulent transfer were long located, and the conduct constituting the constructive fraud occurred, in the United States). ii . The argument submitted by the appellants that even if the presumption against extraterritoriality does not prevent the application of the Bankruptcy Code, the court should nevertheless refrain from applying the statute under the doctrine of international comity was not accepted by court. For the order of the Court of Appeals for the 4th Circuit please click here. ASIA & PACIFIC RIM Australia Insolvency and Futures Contracts David Kidd Grain Trading entered into contracts to deliver grains to various parties (including Box Valley Pty Ltd) at a future date and at a fixed price. It subsequently went into winding up and Box Valley began an insolvent trading action against the company's directors. The issue for the NSW Court of Appeal was whether the company had been insolvent at the time it entered into the contract with Box Valley. At that point, the company had various delivery contracts on foot, which it would probably not be able to honour when they fell due. The central issue was whether the losses which would arise when the contracts fell due in the future were to be taken into account when determining insolvency at the date the contract was entered into with Box Valley. The Court of Appeal in New South Wales held that the future losses were not relevant to determining insolvency:
For more details please click here. EUROPE, AFRICA & MIDDLE EAST The Netherlands Appell v Essent Collins & Aikman Automotive Trim B.V., a Dutch entity, was put in English administration under the Insolvency Proceedings Regulation (IPR). Essent was the network manager, responsible for C&A Trim’s connection to the mains network managed by Essent and the transport of gas and electricity along this mains network from the suppliers to the point where C&A Trim is connected to that network. Essent had a pre-administration claim and required payment, announcing that in event of non-payment it would disconnect C&A Trim without further notice. The administrator of C&A Trim instituted interlocutory proceedings against such disconnection on the basis that both UK insolvency law and Dutch insolvency prohibits disconnection in this fashion. The court concluded that pursuant to the conflict clause in Article 4 of the IPR, the consequences of the administration of C&A Trim are governed wholly by UK law. Based on this factor the court ruled that, although the question of whether Essent is in a general sense entitled to disconnect C&A Trim from its network for non-payment pursuant to its agreement with C&A Trim must be answered based on laws of the Netherlands, being the laws governing that agreement, the question of whether Essent still has that right once C&A Trim was placed under administration must be judged in accordance with UK law. For further details please click here.
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ASIA & PACIFIC RIM China An Overview of China's Proposed Bankruptcy Law The People's Republic of China (PRC) is proposing to introduce a new insolvency regime which is set out in the new PRC Draft Enterprise Bankruptcy Law. The potential value of this proposed law is considerable - as well as creating a more effective framework for the conduct of insolvency cases, the proposed law will play a major role in the acceleration of China's transition to a modern, market-orientated economy. In this article, China's exiting bankruptcy regime and the changes proposed by the draft law are discussed. A second part to this article is to follow. For this article please see White & Case Insolvency Notes February 2006, Page 6.
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| Articles | |||||||||
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AMERICAS United States Second Lien Financings: Bankruptcy court decisions made in the early days of chapter 11 cases, when many of the intercreditor agreement provisions have their applicability, seldom resulted in written opinions. Further, the impact of the uncertainty regarding enforcement of the bankruptcy provisions in intercreditor agreements often results in a negotiated resolution between the first and second lien holders entered into prior to the bankruptcy case. Part I of this article discusses the “disconnect” that currently exists between those negotiating the provisions concerning bankruptcy in the intercreditor agreement and any understanding as to how those provisions will play out should a bankruptcy filing take place. Rather than provide practice points or clear answers, the article highlights some of the questions or possible “mine fields” in this area that are subject to interpretation and future adjudication. Part II of this article identifies a sampling of those cases and describes the ways that the bankruptcy provisions in the intercreditor agreement applicable to each case had an impact (if at all) on the ultimate outcome. These articles were included in this newsletter with the permission of the American Bankruptcy Institute. For part I of the article please click here. EUROPE, AFRICA & MIDDLE EAST United Kingdom Legal Update: Gordon Stewart Analyses the Challenges of the T&N Case In the T&N case, the issues for decision were (and are) of fundamental importance to English insolvency law: whether certain future contingent claims in tort were provable in a liquidation and whether the holders of such claims were 'creditors' for the purpose of a scheme of arrangement under section 425 of the Companies Act 1985 and a company voluntary arrangement (CVA) under the Insolvency Act 1986. As the judge in this case pointed out, the scale of the liabilities to which the companies were exposed was “massive” and there were serious problems in getting a handle on the quantum of future liabilities for asbestos which gives rise to many of the legal complexities. Mr Stewart, analyses some of these complex issues David Richards J had to deal with. See Recovery, Spring 2006, P. 7 The T&N case was covered in the 4th issue of out Electronic Newsletter.
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| Publications | |||||||||
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EUROPE, AFRICA & MIDDLE EAST United Kingdom Leading Corporate Turnaround: How Leaders Fix Troubled Companies This book explores the role of leadership of leaders in corporate turnarounds based on interviews with over 80 turnaround practitioners. The book does not set out to develop any new theories of leadership but seeks to describe how leadership is provided by turnaround practitioners throughout the turnaround process. Written from the practitioner's perspective, in an easy to read style, this book provides a framework for understanding the turnaround process as well as clearly demonstrating how experienced turnaround lenders make things happen.
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If you would like to introduce a new member to INSOL International please contact our Communications Manager, Penny Robertson at pennyr@insol.ision.co.uk |
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This issue was kindly sponsored by:
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