Issue 1

Deryck Palmer Esq. Weil, Gotshal & Manges LLP, New York

Links:
 
ECF Decision
http://curia.eu.int/jurisp/cgi-bin/form.pl?lang=en&Submit=Submit&docj=docj&docop=docop&numaff=&datefs=&datefe=&nomusuel= Eurofood&domaine=&mots=&resmax=100 

Irish Supreme Court Judgment:
http://www.courts.ie/judgments.nsf/0/67ffcc7957a48e2380256edf0056443c?OpenDocument

“The Evolution of the UNCITRAL Model Law on Security Interests”
 
By Deryck Palmer, Weil, Gotshal & Manges LLP, New York
 
In May 2002, a working group of the United Nations Commission on International Trade Law (“UNCITRAL”) commenced development of a legislative guide on security interests involved in commercials transactions. The guide highlights prevalent issues that governments should consider when developing secured transaction laws in their respective countries, as well as recommendations or “model laws” that countries can fashion their laws upon. The global adoption of secured transaction model laws by countries would reduce the legal obstacles to secured credit, thereby increasing the availability of, and lowering the costs of obtaining, such credit.
 
The UNCITRAL working group on security interests devoted the last three years to formulating and refining the legislative
guide. Recently, the eighth session of the working group was held in Vienna, Austria from September 5, 2005 through
September 9, 2005.
 
During this session, the working group focused on the model laws of the secured transactions legislative guide, rather than the commentary to accompany the recommendations. The deliberations primarily revolved around fine-tuning the language of the model laws developed over the last seven sessions. In particular, the working group revised the model laws with respect to remedies for secured creditors, particularly extra-judicial remedies and the disposition of encumbered assets, pre-default rights and obligations of parties to secured transactions, default and enforcement of security interests, the treatment of acquisition financing devices and independent undertakings (i.e. letters of credit), security interests in intellectual property, conflict of laws, and insolvency issues.
 
For further details on “The Evolution of the UNCITRAL Model Law on Security Interests” please click here

Americas
 
United States
 
Re Owens Corning ruling on substantive consolidation overturned
In a decision given by the US District Court for the Eastern District of Pennsylvania, the Court approved the substantive consolidation of Owens Corning with its debtor and non-debtor affiliates. This decision raised several concerns at the time and the matter was appealed.
 
On August 15th 2005, the Third Circuit Court of Appeals unanimously overturned the lower court's decision. The Court of Appeal took the view that most appeal courts either followed the approach taken in the Union Savings Bank v Augie Restivo Banking Co., (860 F. 2d 515, 1988) or the approach taken in the Auto-Train Corp., Inc. In this case, the Court preferred to follow the standard applied in the first case which was whether:
 
• “creditors dealt with the entities as a single economic unit and “did not rely on their separate identity in extending credit or

• the affairs of the debtors are so entangled that consolidation will benefit all creditors.” (at p. 518)
 
This ruling provides guidance relating to the application of substantive consolidation and indicates to the lower courts that they should use such remedy sparingly and cautiously.
 
See Insolvency notes from White & Case September 2005
http://events.whitecase.com/Insolvency_Newsletters/Insolvency_Notes_Newsletter_September05.pdf 

Asia & Pacific Rim
 
Australia 
 
Independent Insurance Company Ltd, [2005] NSWSC 587, judgement 22 June 2005
A letter of request was directed by the English court to the NSWSC on the application by an English company and its provisional liquidators for orders in aid of the English court, invoking the NSWSC's auxiliary jurisdiction under s581 of the Corporations Act.
 
The main findings were based on the facts that the NSWSC will recognise, as a matter of private international law, an English order appointing provisional liquidators in the UK. However, declaratory relief will not be given in the absence of a lis inter partes (dispute between the parties) and, in effect, directed to the court, and injunctive relief will not be granted ex parte (in the absence of the other parties) as an indefinite order against unidentified persons.
 
Comity does not require that orders be made in NSW just because in generally reciprocal circumstances the English court would be prepared to make them. Similarly, the auxiliary jurisdiction does not extend to the replication of orders made by courts in the US and Ireland, since, irrespective of its being a satellite jurisdiction in the cross-border insolvency, the approach to ex parte injunctive relief in Australia is different.
 
See Allens Arthur Robinson : Focus on insolvency September issue 2005
http://www.aar.com.au/pubs/insol/foinsolsep05.htm?print=true#The_I
 
Shareholders v Creditors
Should shareholders be allowed to rank with ordinary unsecured creditors in a corporate insolvency? Australian Courts have recently said that, in certain circumstances, losses incurred by shareholders who claim to have been misled into paying too much for their shares may be treated as a contingent debt of the company. This would give shareholders access to the pool of assets available to unsecured creditors - and so could reduce the amount that unsecured creditors receive. Although these decisions immediately went on appeal, they have exposed some fundamental tensions in how company law attempts to balance the opposing -interests of creditors and shareholders.
 
David Cowling (Clayton Utz, Sydney) discusses the cases and the issues they raise at: http://www.claytonutz.com/areas_of_law/controller.asp?aolstring=3&na=1002

Trust beneficiary not a creditor - Phelan v Ambridge Corporation P/L [2005] NSWSC 875
A trust beneficiary was not a creditor of a corporate trustee and so had no standing to apply for the appointment of a provisional liquidator. The trustee had lent money to a third party.
 
The trustee agreed to pay the beneficiary the beneficiary's share of the loan out of any repayment received from the borrower. Brereton J held that the beneficiary was not a creditor of the trustee:
 
* “The relationship between a trustee and a beneficiary is not one of debt, not even of an equitable debt.”
* the beneficiary wasn't even a contingent creditor, because there was no existing obligation on the part of the trustee - an obligation to pay out to the beneficiary would only arise if the loan was repaid. (However, a receiver was appointed under the Supreme Court Act.)
 
Information provided by Clayton Utz, Australia. See the Judgement of the Supreme Court
http://www.lawlink.nsw.gov.au/scjudgments/2005nswsc.nsf/aef73009028d6777ca256
73900081e8d/d3e397e08e886703ca25706d007a3388?OpenDocument  

Europe, Africa & Middle East
 
United Kingdom
 
Fourie v Le Roux (No.2) [2005] EWHC 922 (CH), [2005] All ER (D) 263, judgement dated 18 May 2005
With a view to empowering the English court to entertain claims under South African law, the liquidators of a South African Company applied to the South African High Court to issue a letter of request to the English High Court for aid and assistance, under s426(5) of the UK Insolvency Act, by applying the relevant South African statutory insolvency law and by authorising the liquidators to institute proceedings for the recovery of any amounts due to the fourth claimant.
 
The court held that the English court will accept a letter of request to apply particular sections of the companies and insolvency legislation of foreign countries (such as South Africa or Australia), as long as inter alia the request is sufficiently specific.  Assistance will be given by the English court if, according to the law to be applied, the relief sought may properly be granted.
The fact of the request is a weighty, although not by itself a decisive, matter in the exercise of the discretion.
 
See : Allens Arthur Robinson : Focus on Insolvency, September 2005
http://www.aar.com.au/pubs/insol/foinsolsep05.htm#The_F
 
New case decisions on COMI (Centre of Main Interest) from the UK
 
• Collins & Aikman Europe SA Unreported, 15 July 2005
 
• Re Sendo Ltd [2005] All ER (D) 356 (Jun)
 
• Shierson v Vlieland-Boddy [2005] All ER (D) 391 (Jul)
 
For more details see Eurofenix, Autumn 2005, p. 15
http://www.insol-europe.org/Insol_International/
 
Luxembourg
 
Eurofood IFSC
Eurofood was a wholly owned subsidiary of Parmalat, which had been placed into extraordinary administration in Italy but its head office was in Ireland. An Irish Court made a winding up order in respect of Eurofoods in Ireland and refused to recognise the Italian insolvency proceedings and the Court's decision was appealed to the Supreme Court of Ireland.
 
The present case, referred to by the Supreme Court of Ireland, arises out of the question whether the Insolvency Proceedings Regulation requires that an Irish Subsidiary of an Italian holding company Parmalat SpA, should be wound up in Ireland or Italy. The Advocate General delivered his opinion on the 27th of September 2005 but the European Court of Justice ruling is not expected until December 2005.
 
See Globalturnaround October 2005 issue
http://www.globalturnaround.com/cases.php

Americas
 
Canada
 
New insolvency legislation to be introduced in Canada
The Canadian government has introduced legislation to amend Canada’s bankruptcy and insolvency regime. This legislation is the culmination of a lengthy process where the existing insolvency laws were reviewed and recommendations for change were made. For this legislation to become law, it must be passed before the next Canadian federal election. The timing of this election is uncertain and therefore, the timing and the future of this legislation is also uncertain. The government’s current plans are to fast track the legislation and have it passed as soon as possible.
 
Details of the legislation and CAIRP’s involvement with the process can be found at
www.cairp.ca

Europe, Africa & Middle East

France
 
Reform of French Reorganisation and Insolvency Proceedings
On September 20, 2005 the Paris and New York offices authored an Alert Memorandum entitled “Reform of French Reorganisation and Insolvency Proceedings”. This nine page memorandum discusses new French legislation (entitled the Loi de sauvegarde des entreprises) that substantially reforms French insolvency law. The principal objective of the law is to facilitate negotiated workout plans with creditors as an alternative to insolvency proceedings. The memorandum briefly summarises some of the key points of the bill that will take effect on January 1, 2006.
 
See an Alert memoranda from Cleary Gottlieb, 20th September
http://www.cgsh.com/files/tbl_s5096AlertMemoranda/FileUpload5741/293/62-2005.pdf
 
See also: Changes in French Law, Eurofenix, Autumn, 2005, p. 18
www.insol-europe.org/Insol%5FInternational/ <http://www.insol-europe.org/Insol%5FInternational/
 
FRANCE : The Company Rescue Proceedings Act, INSOL World Fourth Quarter Edition (Forthcoming November 2005)
http://www.insol.org/newinsolworld/insolw.htm
 
Legal update By Gordon Stewart, Allen & Overy LLP
It is perhaps not surprising that such a major piece of legislation as the EC Regulation on Insolvency Proceedings should have areas of controversy in interpretation. A debtor’s ‘centre of main interests’ (COMI) is of course an example of a topical problem issue. The author investigates the controversial issue of ‘forum shopping’ under the EC Regulation on Insolvency Proceedings.
 
See “Recovery”, Autumn 2005, p.6
http://www.r3.org.uk/uploaded_documents/Gordon%20Stewart%20-%20Legal%20update.pdf
 

Serbia
 
From sea to shining sea: How Serbia and South-Eastern Europe have taken the lead on insolvency law
Although many practitioners assume that the UNCITRAL Model Law is designed for advanced economies, The European Bank for Reconstruction and Development actively works to promote this Model Law, and other international standards in insolvency, in the developing economies it operates in. This article details one such country, Serbia and Montengro, that has made a determined effort to improve its insolvency legislation. The article highlights the strength of the new Serbian law but also notes the significant improvement required in the institutions that implement the law.
 
For full details see:
http://www.ebrd.com/country/sector/law/articles/sea.pdf

Americas
 
Mexico
 
The Durango Restructuring : A new beginning in Mexico restructurings?
The Business Reorganisation Act, which became effective on May 13, 2000, replaced the prior insolvency law, the Ley de Quiebras y Suspension de Pagos which has been in force since 1943. One important difference between the two regimes, which was a driving force behind the enactment of the new legislation is the length of time in which a debtor's reorganisation must be completed. A good example on how effective this was seen under the new legislation was seen in the Durango Restructuring”.
 
See Restructuring Newsletter September 2005, Cleary Gottlieb, USA
http://www.clearygottlieb.com/files/tbl_s47Details/FileUpload265/515/CGSH_65-2005.pdf
 
See Also: The Durango Restructuring: A New Beginning in Mexican Restructurings?, INSOL World Fourth Quarter Edition (Forthcoming November 2005) www.insol.org  http://www.insol.org

Americas
 
United States
 
Delphi Corporation files for Chapter 11
On 10th October 2005 Reuters reported that the largest U.S auto parts supplier in the USA has filed a petition under chapter II
in the Bankruptcy Court in New York.
 
There are many issues that are at stake in this case. Delphi would like to free it self from the pension obligations of the employees it inherited from General Motor Corporation. Another problem that needs to be resolved is who is responsible for retirement and healthcare benefits of employees that could cost up to $11 billion.
 
Another objective of the court filing is to get an order to re negotiate the labour contracts with the Unions to dramatically lower the wages of its employees. As GM Vice Chairman Bob Lutz has commented - “The choice is no longer between keeping the same job or keeping the same job at a lower wage”. “The choice is now keeping the same job at less compensation or having
no jobs at al in this country.”
 
Delta Airlines and Northwest file for Chapter 11 items
On 14th September 2005 the world's second largest passenger airline, Delta Air Lines and its subsidiaries filed voluntary petitions for reorganisation under Chapter 11 of the U.S. Bankruptcy Code.
 
On the same day, Northwest Airlines Corporation, the world's fourth largest airline as well as some of its subsidiaries, also filed voluntary petitions for reorganisation under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York to facilitate its financial and operational restructuring.
 
See also: INSOL World First Quarter 2006 edition (January 2006) www.insol.org
http://www.insol.org
 
 
Europe, Africa & Middle East
 
Dubai
 
Introduction to the Dubai International Financial Centre
The world’s newest capital market commenced operation on 26 September 2005, when trading opened on the Dubai International Financial Exchange (DIFX). It has been a relatively quiet beginning – only a handful of index-linked products are being traded on the DIFX at this stage (although there are reported to be a number of initial public offerings over the next few months) – but it is another stage in the development of the Dubai International Financial Centre (the DIFC), of which the DIFX is an important component. While it is early days, the DIFC may prove to be an important player in the global financial services industry in the future.
 
Dubai - DIFX.
 
See also: INSOL World First Quarter 2006 Edition (Forthcoming January 2006)
www.insol.org
 

Asia & Pacific Rim
 
Australia
 
Pearce announces integrated approach to insolvency law reform
In Australia, the Parliamentary Secretary to the Treasurer, the Hon Chris Pearce MP, has announced that the Government would address corporate law issues raised by the James Hardie Special Commission of Inquiry in the context of developing an integrated set of proposals to improve the operation of Australia’s insolvency laws.
 
The Government expects to release proposals for consultation by the end of 2005.
 
http://parlsec.treasurer.gov.au/cjp/content/pressreleases/2005/009.asp
 
See also: The Reform of Australia's Insolvency Laws and More mass than class? The Australian response to long tail liabilities in insolvency, INSOL World Fourth Quarter Edition (Forthcoming November 2005)
www.insol.org