Last week, the Hazelhoff Centre for Financial Law (Leiden Law School) issued its first edition of the Academic Forum for Financial Law newsletter. The Centre aim to support the establishment of a European Network for Academics in Financial Law. New participants are greatly welcomed to this network which starts as an information sharing via e-mail group. For a view online, see http://law.cmail2.com/t/ViewEmail/d/21980A450C783CAB/F9E5B5B8512681869A8E73400EDACAB4. To subscribe go to: email@example.com. See for its initiators http://law.leiden.edu/organisation/private-law/financial-law/hazelhoff-centre/hazelhoff-centre-for-financial-law.html. If you wish to share any invitations for conferences, calls for papers, vacancies for academic positions, or announcements of publications, please send your contributions to firstname.lastname@example.org. in the following way: limit your contributions to short (60 words) abstracts, preferably with a link to the full publication, conference website etc.
In American bankruptcy practice a ‘naked ancillary proceeding’ is the term for obtaining Chapter 15 U.S. Bankruptcy Code relief of an (in the US) asset-less foreign insolvency proceeding. Does an insolvent debtor have to have assets in the USA to have its insolvency proceeding recognised under Chapter 15 U.S. Bankruptcy Code? Under American bankruptcy law, in general, a person (including a corporation, see section 101(41) U.S. Bankruptcy Code) is eligible to file for Chapter 11 if it ‘… resides or has a domicile, a place of business, or property in the United States’ (section 109 of the Code). When an enterprise does not have its headquarters, significant assets, or employees in the U.S., but this entity is seeking Chapter 11 protection, it must have property in the US. In practice, a US bank account with a few hundred dollar suffices, see e.g. In re Global Ocean Carries Ltd., 251 B.R. 31 (Bankr. D. Del. 2000), holding that a few thousand dollars in a bank account and the unearned portions of the retainers provided to local counsel was sufficient ‘property’ to warrant filing in the US. The question whether a debtor indeed must have some assets in the US has raised a lot of attention, especially as a result of the case concerning Drawbridge Special Opp. Fund LP v. Barnet (In re Barnet), 737 F.3d 238 (2d Cir. 2013). The Second Circuit in the Barnet case held that a foreign debtor under Chapter 15 (so for purposes of recognition of its foreign insolvency proceeding) must be eligible to be a debtor under section 109(a) U.S. Bankruptcy Code before its foreign proceeding can be recognized under Chapter 15. Following the Second Circuit’s ruling in Barnet, the Australian liquidators of a company called Octaviar decided to file (in fact: refiled) for recognition under Chapter 15. Prior to filing the petition for recognition, and to further support the argument that Octaviar had property in the United States (i.e., in the form of claims or causes of action), the Australian liquidators transferred funds to US counsel to be held as a retainer. Against the objection that the debtor failed to satisfy section 109(a)’s eligibility requirements, the bankruptcy court concluded that because the liquidators had demonstrated that Octaviar had property in the US, Octaviar was eligible to be a debtor in the US and the Australian liquidation could be recognized under Chapter 15. More specifically, the court found that the debtor had property in the US consisting of (i) claims and causes of action and (ii) funds in the form of a retainer held by its US counsel. The court noted that the circumstances surrounding the transfer of the funds into the retainer account were irrelevant to the court’s determination. Any property, including minimal funds, in the US can satisfy the debtor-eligibility requirement, thus the bankruptcy court. See In re Octaviar Admin. Pty Ltd., 511 B.R. 361, 369-70 (Bankr. S.D.N.Y. 2014). In practice a ‘Barnet’ type of case is called a ‘naked ancillary proceeding’, i.e. Chapter 15 relief of an (in the US) asset-less foreign insolvency proceeding. Barnet, however, is a highly criticised judgment where the Second Circuit held that foreign entities seeking recognition under Chapter 15 must, in addition to satisfying the requirements for recognition provided for in Chapter 15, satisfy section 109(a) of the Bankruptcy Code by demonstrating that the debtor have a residence, domicile, place of business or assets in the United States. The decision was based on a ‘straightforward’ statutory interpretation of the Bankruptcy Code. In literature authors are not shy to use harsh words. In re Barnet is regarded as ‘an ostensibly stubborn adherence to literal statutory interpretation … when Congress instructed courts to look beyond the statute for guidance in harmonizing chapter 15 to the Model Law’, see Glosband and Westbrook, ABI Journal May 2015, 24ff. However In re Bemarmara Consulting A.S., No. 13-13037 (KG) (Bankr. D. Del. Dec. 17, 2013), the Bankruptcy Court for the District of Delaware considered – and explicitly rejected – the Second Circuit’s reasoning in Barnet. Bemarmara Consulting A.S. (‘BAEST’) was a Czech company involved in a Czech insolvency proceeding that petitioned for foreign recognition under Chapter 15. The Delaware Bankruptcy Court held that a foreign debtor is not required to have assets in the United States to obtain recognition under Chapter 15. The court noted that, in the absence of a finding that the motion for recognition is manifestly contrary to public policy, recognition is mandatory in aid of the foreign main proceeding, referring to In re ABC Learning Centers, Ltd., 728 F.3d 301 (3d. Cir. 2013). One of its arguments is that section 109(a) provides for ‘debtor[s] under this title’, whereas it is a foreign representative, not the debtor, who seeks recognition under Chapter 15. The court also observed that section 1502 defines ‘debtor’ as ‘an entity that is the subject of a foreign proceeding’, and that there is nothing in that definition requiring the debtor to have assets to qualify under Chapter 15. On 15 September 2015, Judge Kevin J. Carey of the U.S. Bankruptcy Court for the District of Delaware responded to the argument that the debtors (companies from Commonwealth of the Bahamas) failed to meet the threshold requirement of eligibility to be a debtor under the Code. However, from the facts in the case follow, that 7 of the Bahamian debtors (strategically) had opened depository accounts in June 2015 at a bank in Delaware, and deposited $10,000 into each account, while others owned trademarks registered in the US. It’s no surprise, given earlier case law, that the Court held that ownership of even a minimal amount of property in the United States is sufficient to satisfy Section 109(a) and denied the request for dismissal under this section. In re Northshore Mainland Services Inc. et al. (Baha Mar Resorts) Case No. 15-11402. However, the court dismissed the majority of the jointly administered Chapter 11 proceedings of the entities (10) responsible for the development of the Baha Mar Resort and Casino located in the Commonwealth of the Bahamas. In the case, because of the ‘… deep and important economic interest of the Government of the Bahamas in the Project’, the ‘truly international’ composition of the creditor base, where the debtors were all Bahamian corporations, the judge found that venue for an insolvency proceeding would be more appropriate in a jurisdiction which the creditors would have been fairly contemplated at the outset of the parties’ business relationship. See The Court: ‘… In business transactions, particularly in today’s global economy, the parties, as one goal, seek certainty. Expectations of various factors – including expectation surrounding the question of where (italics by the court; Wess.) ultimately disputes will be resolved – are important, should be respected, and not disrupted unless a greater good is to be accomplished’. The Court dismissed the proceedings in as far as relating to the Bahamian companies. For an extended overview of Chapter 15 U.S. Bankruptcy Code, see my forthcoming book (December 2015): Bob Wessels, International Insolvency Law Part I Global Perspectives on Cross-Border Insolvency Law. 4th ed. Deventer: Kluwer 2015.
As I reported, in September 2015 17 sub-Saharan states have concluded a new Uniform Act Organizing Collective Proceedings for Wiping Off Debts, which will enter into force on 24 December 2015. See http://bobwessels.nl/2015/10/2015-10-doc3-ohada-enacts-legislation-based-on-uncitral-model-law-on-cross-border-insolvency/. Notably, in addition to a new cross-border insolvency regime based on the UNCITRAL Model Law, the Uniform Act has also been modernised and simplified. For instance, it now also includes the implementation of simplified bankruptcy proceedings for small companies (Art. 1-2(2): ‘Par ailleurs, les petites entreprises, telles que définies à l'article 1-3 ci-dessous, peuvent demander à bénéficier d'une procédure simplifiée de règlement préventif, de redressement judiciaire ou de liquidation des biens’). A small business is defined as ‘... petite entreprise: toute entreprise individuelle, société ou autre personne morale de droit privé dont le nombre de travailleurs est inférieur ou égal à vingt (20), et dont le chiffre d'affaires n'excède pas cinquante millions (50.000.000) de francs CFA, hors taxes, au cours des douze (12) mois précédant la saisine de la juridiction compétente conformément au présent Acte uniforme’. Fifty million Central African Franks is around 76.000 euros. Other novelties are a robust legal framework for insolvency practitioners, a new privilege for fresh cash contributions granted to a companies in a period of facing difficulties and a conciliation procedure for companies which face difficulties but are not yet insolvent (Art. 5-1 et seq.). See http://www.ohada.com/actes-uniformes/1668/1679/chapitre-i-conciliation.html. Insolvency Law in Central Africa is on the move, as also follows from the adoption by Kenya of the Insolvency Act 2015 (published in the Kenya Gazette on 18 September 2015). Kenya has become the 40th State in the world to have enacted legislation based on the UNCITRAL Model Law. The Insolvency Act will come into operation (in whole or in part) on such date as the Cabinet Secretary may direct by way of notice in the Kenya Gazette, but in any event will enter into force no later than nine months after its 18 September 2015 publication. Whether sub-Sahara African Law is ahead of developments in Europe would be an excellent theme for a paper, written by someone that masters French, as I have not found an English version of the new Uniform Act.
For the second time this year the Court of Justice of the European Union (CJEU) has had to decide about the voidability of a cross-border payment (see http://bobwessels.nl/2015/04/2015-04-doc6-cjeu-16-april-2015-lutz-v-bauerle/). This time it is in the judgment CJEU 15 October 2015, Case C 310/14 (Nike BV v Sportland Oy). The Helsingin hovioikeus (Court of Appeal, Helsinki, Finland) referred several questions to the CJEU in a case between Nike European Operations Netherlands BV (‘Nike’, incorporated in the Netherlands) and Sportland Oy, in liquidation (‘Sportland’, incorporated in Finland), concerning an action to have certain transactions declared void by virtue of insolvency. Sportland was a retailer of goods supplied by Nike under a franchising agreement, which by a choice-of-law clause was governed by the laws of the Netherlands. Sportland paid Nike outstanding debts arising from the purchase of stock set out in the agreement in 10 separate instalments made between 10 February 2009 and 20 May 2009, totalling € 195,108.15. Two weeks prior to the last payment, with an application date 5 May, the District Court of Helsinki opened insolvency proceedings in respect of Sportland on 26 May 2009. Sportland brought an action before the court seeking an order that the payments be annulled and that Nike be required to make restitution of the amounts paid plus interest in accordance with Paragraph 10 of the Finish Law on the recovery of assets (takaisinsaannista konkurssipesään annettu laki). The provision states that the payment of a debt within three months of the prescribed date may be challenged if it is paid with an ‘unusual’ means of payment, is paid prematurely, or in an amount which, in view of the amount of the debtor’s estate, may be regarded as significant. Nike, on the contrary, sought an order that the action be dismissed. It relied, inter alia, on Article 13 of EU Insolvency Regulation No 1346/2000 (EIR), and claimed that the payments at issue were governed by Dutch law, and that Article 47 of the Bankruptcy Act (Faillissementswet) (providing that the payment of an outstanding debt, i.e. a claim which is due, may be challenged only if it is proven that when the recipient received the payment he was aware that the application for insolvency proceedings had already been lodged or that the payment was agreed between the creditor and the debtor in order to give priority to that creditor to the detriment of other creditors) does not apply. So, according to Nike, the payments in question could not be annulled. The legal context of the case is formed by the interplay between Articles 4 and 13 EIR. Article 4(1) EIR states that, save as otherwise provided, the law applicable to insolvency proceedings and their effects shall be that of the Member State within the territory of which such proceedings are opened (lex fori concursus). It provides in Article 4(2) that this law shall determine the conditions for the opening of those proceedings, their conduct and their closure: ‘It shall determine in particular: ... (m) the rules relating to the voidness, voidability or unenforceability of legal acts detrimental to all the creditors.’ Article 13 EIR provides: ‘Article 4(2)(m) shall not apply where the person who benefited from an act detrimental to all the creditors provides proof that: (first indent) the said act is subject to the law of a Member State other than that of the State of the opening of proceedings, and (second indent) that law does not allow any means of challenging that act in the relevant case.’ The key questions posed by the Finish Court relate to the interpretation to be given to the expression (in Article 13, second indent) ‘does not allow any means of challenging that act in the relevant case’, second to the scope of Nike’s obligation to adduce evidence regarding the content of Netherlands law and, third, to the question which party is to bear the burden of proof. In summary, the CJEU decided, that Article 13 EIR must be interpreted as meaning (i) that, after taking account of all the circumstances of the case, the article applies provided that the act at issue cannot be challenged on the basis of the law governing that act (lex causae), and (ii) that the expression ‘does not allow any means of challenging that act …’ applies, in addition to the insolvency rules of the law governing that act (lex causae), to the general provisions and principles of that law, taken as a whole. For the purposes of the application of Article 13 EIR and in the event that the defendant in an action relating to the voidness, voidability or unenforceability of an act relies on a provision of the law governing that act (lex causae) under which that act can be challenged only in the circumstances provided for in that provision, it is for the defendant to plead that those circumstances do not exist and to bear the burden of proof in that regard. Finally, the Court notes that the Regulation is silent on specific procedural aspects. If the defendant (here: Nike) in an action relating to the voidness, voidability or unenforceability of an act shows that the law governing that act (lex causae), taken as a whole, does not allow for that act to be challenged, then the national court before which such an action is brought may rule that it is for the other party (the applicant) to establish the existence of a provision or principle of the lex causae on the basis of which that act can be challenged only where that court considers that the defendant has first proven, in accordance with the rules generally applicable under its national rules of procedure, that the act at issue cannot be challenged on the basis of the lex causae. Other cases on Article 13 EIR are pending. Slowly, step by step the European Court is building a system to deal with payments, detrimental to an insolvent estate, in a balanced way. This short comment also was posted at http://leidenlawblog.nl/articles/dealing-with-a-fraudulent-cross-border-payment-in-an-insolvency-case.
Stakeholders are invited to express their views on several interwoven issues under the new EU Insolvency Regulation (2015/848). The Max Planck Institute Luxembourg for International, European and Regulatory Procedural Law (Professor Dr. Burkhard Hess), the University of Milan (Professor Dr. Stefania Bariatti) and the University of Vienna (Professor Dr. Paul Oberhammer) jointly conduct a project on the 'Implementation of the New European Insolvency Regulation 2015/848'. The research focuses, evidently, on the new European Insolvency Regulation 2015/848 (EIR (Recast)), which will considerably change the general framework of cross-border insolvencies in the EU. In order to address the interwoven issues of cross-border insolvency proceedings under the reformed EIR, the research project (funded by a research grant from the European Commission (JUST/2013/ACTION GRANTS)) specifically focuses on the following issues that are closely interrelated: (i) extension of the scope of application of the EIR to pre-insolvency and hybrid proceedings, (ii) coordination and cooperation between main and secondary insolvency proceedings and (iii) insolvencies of groups of companies. As the EIR Recast binds Member States directly 'implementation' has to be understood as 'realisation'. A major objective of the project is to involve stakeholders in the research process. For this purpose, a website has been set up by the MPI Luxembourg. The website aims at providing the latest news on the progress of the project. Also, and most importantly, a questionnaire, which will be analyzed and serve as the major basis for the project study, can be found on the website: www.insreg.mpi.lu. The project leaders will very much appreciate if you could take a couple of minutes to fill out the questionnaire. For any further questions, please contact: email@example.com.