Issue No. 3

Contents at a glance This issue covers a wide range of current information on   •   Case decisions •   Legislation •   Articles •   News For the purpose of easy reference, the information is then set out under a region covering Europe, Africa and Middle East, Asia & Pacific Rim, or the Americas.

This third issue of INSOL International News ends a very successful year for INSOL. The year opened with the intellectual and social delights of INSOL 2005 and now ends with International News having established itself as a regular forum for the dissemination and exchange of insolvency experience across the globe.

The months in between haven't been quiet, either. In April, President Bush signed into law the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. As well as being a significant change to US domestic insolvency law, the Act marked the US's adoption of the UNCITRAL Model Law on Cross-Border Insolvency. Towards the end of the year, the Australian Government announced that it would adopt UNCITRAL as part of a major insolvency law reform package next year.

In the UK (and in many of the common law jurisdictions), the most significant development of 2005 was clearly the House of Lords decision in the Spectrum Plus case. Viewed by some as a (rare) victory for unsecured creditors over secured creditors and by others as a triumph for legalism over commercial reality, the implications of this decision are still being worked out, not only by insolvency practitioners, but also by banks which lend into those jurisdictions.

Meanwhile, the courts - and corporate regulators - of many countries continue to process the fallout from the corporate mega-collapses of recent history. There can be little doubt that the next 12 months will not see any respite for insolvency practitioners! Accordingly, and in the spirit of the season, I would like to take this opportunity on behalf of the Editorial Board to wish all our readers the best for the new year.

Finally, again on behalf of the Editorial Board, I would like to thank Sonali Abeyratne for her excellent work on guiding International News into publication.

David Cowling, Partner, Litigation & Dispute Resolution
Clayton Utz, Australia

THE COMING WAR
 
What do shoeshine boys, barbers, lift operators and cab drivers all have in common?
Answer: they all feature in that classic stock market adage to the effect that it's time to get out of the market when the shoeshine boy, barber, etc starts giving you stock tips. This expression was a reaction to the bubble that preceded the 1929 Crash.
Governments around the world would nowadays probably take a different view. They're more likely to see the investing shoeshine boy as a triumph of government policy - an individual taking responsibility for his own financial future (and retirement). That is one key difference between 1929 and 2005: back then, there was no Government policy that encouraged ordinary wage-earners to become active investors, so when the market crashed there was no suggestion that the effect on punters was the result of a government policy.
Today things are quite different. Government policy is to encourage wage-earners to invest in income producing assets as a means of providing for their retirement. This is coupled with education campaigns designed to alert these part-time investors to the realities of the stock market and an increasing plethora of rules and regulations aimed at making the market a level playing field for small and large investors alike.

For the full article please click here.

David Cowling, Partner, Litigation & Dispute Resolution
Clayton Utz, Australia

Americas
 
Canada
 
Canadian Asbestos Class Actions Stayed by Canadian Court: Recognition of U.S Chapter 11 Injunction

W.R. Grace Group of Companies - (as yet unreported)

A Canadian Court has released an important decision that clearly shows its willingness to give effect to the principles of comity and international co-operation.

The W.R. Grace group of companies filed for protection under Chapter 11 in the USA as a result of massive asbestos related tort claims against it. In Canada, a subsidiary,Grace Canada Inc., was solvent at the time and had no pending claims against. The Canadian Court recognised the US proceedings as a "foreign proceeding" and granted a stay in favour of Grace Canada Inc. The Court however took no further steps to recognise the chapter 11 injunctions with respect to the U.S debtors.

Later, as a result of highly publicised allegations that attic insulation sold by the W.R. Grace companies may have caused cancer, a spate of class action suits were filed against the W.R Grace companies all across Canada. Consequently, an application was made to the Canadian Court to give effect to the Chapter 11 injunction in the USA thereby staying the multiple class proceedings in favour of processing all Canadian claims through the Chapter 11 case.

The Canadian Court agreed to support the US process and to give effect to the US injunctions in Canada.

For the full article please click here.

Mexico
 
THE XACUR CASE: The Mexican Experience

In 1997, a US Bankruptcy Court adjudicated three Mexican citizens (Xacur brothers) residing in the USA bankrupt and ordered all their assests in the USA as well as in Mexico to be seized. In response a Mexican Federal District Court issued an order under the new Mexican bankruptcy law and allowed US involvement in Mexico. This ruling by Federal Judge Alejandro Villagomez Gordillo is the first under Ley de Concursos Mercantiles (LCM), a new Mexican insolvency statute which includes the implementation of a cross-border insolvency law based on the UNCITRAL Model Law.

This bankrupts challenged the decision in the Supreme Court and argued that the Model Law limits the sovereignty and independence of the Mexico when recognising and enforcing foreign insolvency proceedings or bankruptcy adjudications. On 16 November 2005, Mexican Supreme Court of Justice, rendered a unanimous judgment ruling that the UNCITRAL Model Law on Cross Border Insolvency does not violate the Mexican Federal Constitution. As a result, debtors were unable to avoid the enforcement of their foreign bankruptcy orders in Mexico and it guaranteed the creditor`s rights, by allowing the judicial sale of their assets located in Mexico.

For the full article please click here.

United States
 
In Re Merrimac Paper Co., Inc v Ralph Harrison

Chapter 11 debtor Merrimac Paper Co., brought an adversary proceeding, seeking equitable subordination of claim of retired employee Ralph Harrison that arose from stock redemption note delivered in partial liquidation of employee's retirement benefits under employee stock ownership plan (ESOP) governed by Employee Retirement Income Security Act (ERISA). The Bankruptcy Court, granted the debtor's request for equitable subordination. The Employee appealed to the United States District Court for the District of Massachusetts and the Court affirmed the bankruptcy court decision. Employee appealed.

On 25th August 2005, a three judge panel of the Court of Appeals for the first Circuit reversed the District Court decision and held that:

1. bankruptcy court could not equitably subordinate employee's claim based solely on claim's classification as stock redemption claim;
2. claims founded on stock redemption notes cannot be automatically equitably subordinated under Bankruptcy Code solely on the basis of their intrinsic nature; abrogating Matthews Bros. v. Pullen, 268 F. 827, and Keith v. Kilmer (In re Nat'l Piano Co.), 261 F. 733; and
3. no basis existed to impose equitable subordination on employee's claim.

See White & Case Insolvency Notes, October 2005 P. 4

Americas
 
Canada
 
On June 3rd 2005 Bill C- 55 was introduced to enact the Wage Earner Protection Program Act and make modifications to the Bankruptcy and Insolvency Act.
 
CAIRP has launched a campaign with the objective of promoting further improvements to the personal and commercial insolvency provisions in this Bill. For a brief overview please see:
 
For further Comments on Bill C-55 click here. (link to be created from word document)

EUROPE, AFRICA & MIDDLE EAST
 
United Kingdom
 
Legal Update - By Gordon Stewart
In the Eurofoods case, the Irish Supreme Court referred five questions for the European Court of Justice to answer and the Advocate General gave his opinion on the issues that were raised. Mr Stewart focuses on the opinions expressed by the Advocate General in relation to these questions and gives his comments that are very interesting.
 
Please see Recovery, Winter 2005, Page 7 click here.

EUROPE, AFRICA & MIDDLE EAST
 
United States
 
UNCITRAL / INSOL International Insolvency Colloquium
The third UNCITRAL/ INSOL International Colloquium was held on 14 - 16 November 2005, in Vienna. Leading judges, insolvency practitioners and academics discussed and debated topics that are considered areas of insolvency law that may require further work at an international level. These subject areas are:

• Treatment of corporate groups in insolvency
• Post commencing financing
• Cross border insolvency - use of protocols and court - to - court communication guidelines
• Directors' and officers' responsibilities and liabilities in insolvency and pre-insolvency cases
• Insolvency and commercial fraud.

An initial report on the findings is expected in the New year.

Insolvency in Private International Law (2nd Edition) - By Ian F. Fletcher
Since the publication of the first edition of this book there have been major developments in the national, European and world wide levels and the need of a second edition was clear. This book is arranged in three parts. The first and second parts covers the various national approaches, regional initiatives that have been taken in the Latin American and NAFTA countries, Istanbul Convention, and the EC regulation. The third part covers global initiatives such as the UNCITRAL Model Law and has a chapter on beyond the Model Law, the quest for International Standards and Principles.

This issue was kindly sponsored by: