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2018-01-doc10 The rule in Gibbs

The 'rule in Gibbs' is not well known on the European continent. In the English insolvency world, however, it’s a rule that can not be overlooked, and receives severe criticism. It goes back to over a century, but recently has kept laywyers in several parts of the world busy. The rule of Gibbs refers to the case of Gibbs & Sons v La Société Industrielle et Commercial des Métuax ((1890) 25 QBD 399). In this case the defendant, a French company, had agreed to buy copper to be delivered in England by the plaintiff. The defendant refused to accept the copper and so was liable in damages to the plaintiff. The defendant was placed in judicial liquidation in France and it was assumed that as a matter of French law, the defendant was discharged from its liability in damages. However, the English court held that French law was irrelevant because it was ‘… not a law of the country to which the contract belongs, or one by which the contracting parties can be taken to have agreed to be bound; it is the law of another country by which they have not agreed to be bound.’ Fletcher (I reviewed the latest edition of his book at is extremely offended as English private international law in this respect ‘… is insular and xenophobic in the extreme, and plainly guilty of maintaining dual standards with regard to the principle of universality of bankruptcy’. Other parts of Fletcher’s opinions are cited, last week, by Hildyard J in Bakhshiyeva v Sberbank of Russia & Ors [2018] EWHC 59 (Ch). The High Court maintains to apply the Gibbs rule, however the judgment is an interesting read for its fundamental discussion, with references to quite some other cases and sources, ending with the conclusion that the introduction of a ‘new Model Law’ concerning the recognition and enforcement of insolvency related judgement may solve the problem. I would add, indeed, as the European Insolvency Regulation (Recast) applies to foreign discharges presented as separate judgments and to discharge judgments closely related to insolvency proceedings, see Article 1(1) and 32(1) EIR 2015 respectively.


2018-01-doc9 USA Shutdown. Also for US courts?

Two hours ago (Dutch time) in the USA, Congress did not pass an appropriations bill to continue funding the federal government beyond 19 January. The budget deadline has passed; there will be a government 'shutdown'. After Christmas 2017, again holidays for bankruptcy lawyers? Not in California: the Bankruptcy Court for the Central District of California announced that the federal judiciary will use other funds to allow federal courts to remain open. During that time, scheduled hearings will be held as usual, filings will be accepted, and hours of operation, availability of systems, and other services will continue as normal. The Court will remain open for approximately three weeks through 9 February 2018. In case of any change of circumstances, the Court will provide another public notice. So also judges have to worry about keeping up their pants, as we say in the Netherlands. See

2018-01-doc9 NIKI Luftfahrt Act 4

The NIKI Luftfahrt insolvency drama was close to a legal controversy, which would have had vast proportions, with a clash between two legal systems, from Germany and Austria, see Reuters reports, however, that both appointed IPs (in the German insolvency proceedings Lucas Flöther, in the Austrian proceedings Ulla Reisch) have settled the legal dispute: 'Airline Niki’s German and Austrian administrators agreed to cooperate to resolve the insolvent carrier’s future swiftly and guarantee legal certainty for its buyer.' My first reaction: I prefer cross-border cooperation over a legal fight, which in this case certainly would have taken considerable time, hassle and costs, probably to the detriment of creditors and the continuation of the business of NIKI. Both practitioners shoud be congratulated with the sensible view they took (although they are not there yet!). See the press release in German:
'15. Januar 2018 – Die Insolvenzverwalterin der „NIKI Luftfahrt GmbH“ in Österreich, Dr. Ulla Reisch, und der vorläufige Insolvenzverwalter des Unternehmens in Deutschland, Prof. Dr. Lucas F. Flöther, haben eine enge Kooperation beim Verkauf des Geschäftsbetriebs der insolventen Airline vereinbart.
Frau Dr. Reisch ist aufgrund der österreichischen insolvenzrechtlichen Bestimmungen und der Anordnung des Landesgerichtes Korneuburg verpflichtet, bis zum 19. Januar 2018 neue Angebote der Investoren einzuholen, die bereits an der vorherigen Bieterrunde teilgenommen haben. Außerdem können auch neue Bieter Angebote abgeben.
Anschließend werden der deutsche vorläufige Gläubigerausschuss sowie der österreichische Gläubigerausschuss binnen weniger Tage entscheiden, welcher der Bieter den endgültigen Zuschlag erhält. Die Unterschrift beider Insolvenzverwalter gewährleistet dabei dem Erwerber Rechtssicherheit für den Vollzug des Kaufvertrages. Damit werden trotz unterschiedlicher Rechtsauffassungen zur internationalen Zuständigkeit der weitere Fortbetrieb und die bestmögliche Verwertung der Vermögensgegenstände sichergestellt. Ausschlaggebend für den Zuschlag sollen unverändert der Kaufpreis, die Finanzierungsfähigkeit des Bieters sowie der Erhalt möglichst vieler Arbeitsplätze sein. Die interne Aufteilung des Kaufpreises zwischen den beiden Insolvenzmassen ist in Abstimmung, die rechtlichen Rahmenbedingungen sind beiderseits in Prüfung.
Bis zu dieser Entscheidung hat sich Prof. Flöther bereit erklärt, aus der deutschen Insolvenzmasse von NIKI die Finanzmittel zur Verfügung zu stellen, die erforderlich sind, den Basis-Geschäftsbetrieb von NIKI aufrecht zu erhalten. Dabei werden die Forderungen der österreichischen Arbeitnehmer von 1. bis 12. Januar 2018 vom österreichischen Insolvenzentgeltfonds bezahlt. Der Vollzug des Kaufvertrages („Closing“) soll nach wie vor in der zweiten Februar-Hälfte erfolgen, so dass NIKI – eine entsprechende Entscheidung des Erwerbers vorausgesetzt – spätestens im März 2018 den Flugbetrieb wieder aufnehmen kann.'

2018-01-doc8 Mediation in corporate restructuring proceedings?

After completion of submissions on the fourth day of the second court hearing, on 14 July 2017, the Australian Supreme Court New South Wales (In the matter of Boart Longyear Limited (No 2) [2017] NSWSC 1105) adjourned the hearing for 14 days to allow the opportunity for satisfaction of an important condition precedent relating to a party involved, which was at that time not satisfied. The Judge is open about its procedural strategy: 'I also then took the somewhat unusual step, at least in a scheme hearing, of ordering a mediation between the parties, in the unusual circumstances that the parties to the Secured Creditor Scheme and the Unsecured Creditor Scheme were highly sophisticated entities and had largely either been represented at the hearing or had advised the parties and the Court of their attitude to the schemes.' Why did the court do so? It discloses its intentions: 'I took that course because, as I noted in my ex tempore judgment as to that matter delivered on 14 July 2017, interests other than those of the entities before the Court, including employees of the Plaintiffs and the communities in which they operated, both in Australia and internationally, could be adversely affected if the schemes were ultimately not approved and the Plaintiffs were placed in external insolvency administration.' Third party interests therefore include also the community, even where they are located abroad! The court continues: 'I also noted that, if the parties were able to reach agreement as to a potential variation of the schemes, it may be open to the Court to amend the schemes by order made after the creditors’ meetings.' Given the fact that the court had power to approve the proposed alterations to the schemes in the particular circumstances and given the creditor support for them, the court appoved the schemes. For those who are sceptical about mediation in corporate restructuring matters the judgment serves as a sign that - under the conditions mentioned - it can work (I know, Australia is far away and one swallow doesn't make summer). See: In the matter of Boart Longyear Limited (No 2) [2017] NSWSC 1105, at

2018-01-doc7 COMI of NIKI Luftfahrt Act 3

The NIKI Luftfahrt saga unfolds itself rapidly. The Landesgericht of Korneuburg (in Austria) has announced on 12 January 2018 that it has opened main insolvency proceedings ('Hauptverfahren') for Austria's incorporated NIKI Luftfahrt GmbH. The decision is the third episode in this airline insolvency drama in Germany/Austria, after the 8 January 2018 decision of the Landgericht Berlin. In this decision a judgment of the District Court in Charlottenburg on 4 January 2018 (see, which decision confirmed the courts earlier decision of 13 December 2017) was overruled (see The Berlin court said, in my words (following the press release): that international jurisdiction is not in Germany, rather in Austria. Indeed, the Korneuburg court decides: 'The case concerns main proceedings ... The international jurisdiction is based on Article 3(1) EIR 2015'.
I make, in this phase, 2 short remarks:
1  It is still possible that the Berlin decision is overruled by the German Federal Court of Justice, therefore - the Berlin court said - the District Court Charlottenburg's decision still applies. As the Korneuburg court indicates, it is still possible to appeal its decision via the Austrian appeal system. If I see it correctly, now 2 main proceedings are pending, which will be particularly thrilling when both in Germany and in Austry the outcome is: COMI is in our jurisdiction so there are 2 main proceedings! As I explained in Wessels International Insolvency Law Part I 2017/10585 in Germany Article 102 § 3 InsO ('To prevent conflict of jurisdiction') applies. Article 102 § 3(1) provides that if a court in another Member State has opened main insolvency proceedings, a request to open such main proceedings in a German court must be disallowed for as long as the main proceedings in the other Member State are pending. The German legislator stresses that German courts must respect the judgment opening insolvency proceedings without materially testing such a judgment. However, in this case the German have been opened already. Two caveats here: (a) are the German proceeding opened, as I understand it is still a provisional one (vorläufig); it will depend on the interpretation of 'opening' in Article 2(7) EIR 2015, and (b) German rules to realise the smooth operation of the EIR 2015 (so also said Article 102) have been changed, see Madaus NZI 6/2017, 203, and another internal conflict rule may be applicable.
2 It makes me sad too read how courts operate regarding COMI of NIKI. The Berlin court says: as COMI is not in Berlin (wrong: COMI can only be in a Member State) or Germany respectively, international jurisdiction is rather (vielmehr) for the courts in Austria. The court goes beyond its authority or discretion, as only and solely Austrian courts can exclusively decide whether NIKI's COMI is in Austria. Or does the court hangs it head to its big brother in Berlin?

The court in Korneuburg dissappoints with its very short statement re COMI. Article 4 EIR 2015 ('Examination as to jurisdiction) says in paragraph 1: 'A court seised of a request to open insolvency proceedings shall of its own motion examine whether it has jurisdiction pursuant to Article 3. The judgment opening insolvency proceedings shall specify the grounds on which the jurisdiction of the court is based, and, in particular, whether jurisdiction is based on Article 3(1) or (2).' The court does not specify these grounds. Is Austrian insolvency law organised thus, that a specification to be expected later? Could, evidently within the short timeframe for rendering a decision, the court not have specified (remember the violent reactions in Germany after the court of Leeds' decision regarding 3 German Daisytek companies, having their COMI in the UK) that the place of the registered office shall be presumed COMI, having received no or at first sight unsufficient other indications? In view of the renewed system of the Insolvency Regulation, which can include certain out-of-court insolvency proceedings, it was necessary to introduce a careful examination of the COMI. In this respect, the court leaves the EIR 2015 in the cold.