The book shortly announced here was published for the first time in 2002. The second edition appeared in 2011, and now, 7 years later, the third edition is published: Transaction Avoidance in Insolvencies, mainly authored by Rebecca Parry, James Ayliffe QC, and Sharif Shivji, published by Oxford University Press (ISBN 978 0 19 879340 3). Significant developments have found their way into this publication, e.g. the Small Business, Enterprise and Employment Act of 2015 and the recent revision in the UK of the Insolvency Rules. Evidently case law is discussed related to the concept of insolvency and a debtor’s property, the anti-deprivation rule, matters with family homes or insolvent estates of deceased persons.
This third edition also considers possible ways in which a vulnerable transaction might be attacked, as well as practical issues that can arise in a typical transaction avoidance case, such as evidence gathering, other laws enabling transaction avoidance, limitation periods and (re corporate insolvency) the destination of proceeds. The in-depth analysis of the laws enabling the avoidance of transactions in insolvency includes references to Commonwealth cases including Australia, New Zealand and the USA as well as in offshore jurisdiction, namely Jersey, Guernsey, Bermuda, BVI, Cayman Island and, surprisingly, but welcome Dubai International Financial Centre (Chapter 22).
The chapter on cross-border transactions covers an issue of territorality, ie the jurisdictional reach of avoidance provisions of the Insolvency Act 1986, but also the revised EU Regulations on Insolvency Proceedings (EIR Recast) and the UNCITRAL Model based Cross-Border Insolvency Regulations 2006. The basic rule of the EIR Recast is that the law of the state of the opening of insolvency proceedings (lex concursus) governs the rules relating to the voidness, voidability or unenforceability of legal acts detrimental to the general body of creditors (Article 7(2)(m) EIR Recast). It also determines the conditions to be met, the manner in which the nullity and voidability function (e.g. automatically, by allocating retrospective effects to the proceedings or pursuant to an action taken by the liquidator) and the legal consequences of nullity and voidability.
The exception is Article 16 EIR Recast (which is similar as Article 13 of the 2000 Insolvency Regulation), which says that Article 7(2)(m) shall not apply where the person who benefited from an act detrimental to all the creditors provides proof that: (a) the act is subject to the law (lex causae) of a Member State other than that of the state of the opening of proceedings, and (b) the law of that Member State does not allow any means of challenging that act in the relevant case. The provision wishes to uphold legitimate expectations of creditors or third parties of the validity of the act in accordance to the normally applicable national law (lex causae), against the interference from a different and at times less predictable lex concursus. Transactions concluded after the opening of insolvency proceedings, in principle, do not merit the protection provided by Article 16.
In Chapter 21 (by Rebecca Parry) the system is discussed (and criticised) and important CJEU cases, which can be quite complex, are explained. In Lutz v Bäuerle, the CJEU clarified that the defense established by Article 13 EIR 2000 (now Article 16 EIR Recast) also applies to limitation periods or other time-bars (whether procedural or substantive) relating to actions to set aside transactions under the law governing the act challenged by the liquidator. As to the burden of proof the defendant, first, must object to the application of lex concursus. It shall also provide sufficient evidence of non-voidability under lex causae in accordance with the rules generally applicable under the court’s national rules of procedure. If such a court is satisfied with the proof so furnished, it may rule that it is now for the applicant to establish the existence of a provision or principle of lex causae on the basis of which that act can be challenged, see Nike v Sportland. The result is that the burden of proof may shift from the defendant to the claimant, wishing to avoid the transaction. The second test is that the lex causae must not allow any means of challenging the act at issue.
In this respect the CJEU held that the aim of protecting legitimate expectations and the need for all the circumstances of the case to be taken into account require Article 13 EIR 2000 (now Article 16 EIR Recast) to be interpreted as meaning that a person benefiting from a detrimental act must prove that the act at issue cannot be challenged both on the basis of the insolvency provisions of lex causae and on the basis of the general provisions and principles of that law, taken as a whole (thus Nike v Sportland). The chapter also explain other cases, such as Vinyls, in which the CJEU confirmed its approach to the detrimental acts, however added that this exception against the applicability of lex concursus shall not apply when the parties’ choice of law is dictated by abusive or fraudulent ends. What constitutes abusive or fraudulent behavior needs to be determined on a case-by-case basis.
The chapter concludes with a sort of introdution to safe havens (in Chapter 22). It then warns that if more debtors choose to shelter assets by using safe havens, the prospects for effective realization of assets worldwide will be seriously undermined. Parry submits that a solution against this tendency a court could make an order in personam requiring the debtor to transfer the property, in the footnote making a reference a Dutch case of Court of Appeal ‘s-Hertogenbosch from 1993. In this case, however, the facts are a bit different: the court gave a power of attorney not to the debtor, rather its former husband: this former husband of the insolvent debtor (whose insolvency was adjudicated prior to the date of divorce) was required to cooperate with the liquidator and provide a power of attorney allowing the liquidator to include in the bankruptcy estate, Spanish real estate belonging to the marital estate. There are one or two other Dutch cases providing the same. The issue that such a coerced power of attorney leading to (partial) loss of ownership might be a violation of the ECHR has not been addressed by Dutch courts.
Note: this book I received free of charge from the publisher with the request to announce it or to review it on my blog at www.bobwessels.nl.