Last month, an interesting desicion was published of the High Court of Justice (Judge Briggs) of England and Wales. The court presents a significant development in cross-border insolvency law. The case is In Re Sturgeon Central Asia Balanced Fund Ltd (in liquidation) [2019] EWHC 1215 (Ch). The court held (among many other things) that solvent proceedings cannot be recognised under the English Cross-Border Insolvency Regulations 2006 (‘CBIR’), implementing the well known UNCITRAL Model Law. Thus, the foreign procedure must relate to the resolution of insolvency or financial distress (which, according to the court, requires that the debtor should be either ‘… insolvent or in severe financial distress’).
Discussing the case with my Leiden colleague Ilya Kokorin, we noticed that the judgment also has some interesting considerations related to the relevance of the Guide to Enactment 2014 (not existent at the time the UK adopted its CBIR) and its relation to the original 1997 Guide (which is – obscure – removed from the UNCITRAL website). Briggs J notes that in the meantime the courts have had to consider either which Guide should take priority or how to utilise the Guide to Enactment 2014. He then refers to the conflict considered by the High Court in Singapore in the recent case of Re: Zetta Jet Pte Ltd and others (Asia Aviation Holdings Pte Ltd, intervener) [2019] SGHC 53, where Aedit Abdullah J was confronted with the possibility of a conflict between the 1997 Guide and the Guide to Enactment 2014, where the former has been expressly referenced in local legislation but not the latter. I commented on another matter in this case, see https://bobwessels.nl/blog/2019-05-doc4-singapore-zetta-jet-case-comi-as-an-elastic-ball/. In my book Wessels International Insolvency Part I (Wolters Kluwer) 2015/10201a, I have criticised this removal from the UNCITRAL webside, as well as the fact that the reasons for deleting it are just unknown. Another rather creeping change seems to be that the Guide 2014 is drifting away from being an objective, informative guiding statement for legislators to a text that includes suggested approaches for interpretations by courts.
Be that all that it is, Kokorin and I noticed that the approach in the Sturgeon seems to contrast with the US approach (In re Betcorp Limited 100 BR 266 (Bankr D Nev 2009). Brigg J notes: ‘In my view a wrong turn was made in Betcorp as it was not an insolvent liquidation but a solvent liquidation’.
In my International Insolvency Part I 2015/10236 I joined the criticism made by Look Chan Ho against the Betcorp decision, where the court refers to. With Ilya Kokorin I agree that again, there is a lack of consistent interpretation and application of the Model Law, especially between the UK and the US.
In the Sturgeon case itself, Briggs J refers to the Article 2(i) definition in the English ‘Model Law’ version, and cites it. Article 2(i) defines a ‘foreign proceeding’ as a ‘… collective judicial or administrative proceeding in a foreign State, including an interim proceeding, pursuant to a law relating to insolvency in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganisation or liquidation.’ The judge then observes that the purpose of the Model Law is to promote modern and fair legislation for cases where an insolvent debtor has assets in more than one State, and that it would be contrary to the stated purpose and object of the Model Law to interpret ‘foreign proceedings’ to include solvent debtors and more particularly include actions that are subject to a law relating to insolvency which have the purpose of producing a return to members not creditors. Then follows the court, like a bat out of hell, with ‘… Read in context and employing a purposive approach, the words ‘for the purpose’ in Article 2(i) it ‘… should be read as meaning the purpose of insolvency (liquidation) or severe financial distress (reorganisation)’. Kokorin and I tossed some concerns: what is ‘servere’, what is ‘financial’ and what is ‘distress’, and should the latter be read in conjunction with ‘(reorganisation)’. And why these brackets? Is it also open enough in future to cover a Dutch Whoa deal? In future, how would a UK court act when faced with a foreign group restructuring plan, involving both insolvent and solvent group members?
A sure thing: to be contunued!