PRACTICAL LESSONS FOR CROSS-BORDER INSOLVENCY
Upon the insolvency of a foreign counterparty, recent judgments of the Supreme Court and Privy Council require an English party to navigate a complex domestic legal landscape to determine whether or not it should make a claim against the insolvent counterparty’s estate, where there are mutual debts or claims between the party and the counterparty. In this article, we consider the effect of those recent judgments and the potential dangers revealed by them.
The principle of universalism would require one court to supervise an insolvent company’s distribution to creditors. According to that principle, orders of that court should therefore be enforced in England. The principle was applied by the Privy Council in Cambridge Gas Transport Corp vs. Official Committee of Unsecured Creditors of Navigator Holdings Plc where a New York order establishing a plan of reorganisation was held to be neither in rem nor in personam but instead a foreign order made in insolvency proceedings which should be universally enforced.
In Rubin vs. Eurofinance SA; In Re New Cap Reinsurance Corpn Ltd the Supreme Court departed from this highpoint of universalism. The Court confirmed that there are no special rules applying to foreign insolvency orders requiring their universal enforcement. Where foreign officeholders had brought claims in a foreign court on behalf of a foreign insolvent entity against an English defendant and obtained a default judgment, the English Court must consider whether to enforce that order in personam in accordance with the ordinary rules of private international law. The Supreme Court defined the common law principle of modified universalism – assistance should be given to a foreign court’s insolvency proceedings but only where necessary and consistent with English law (including private international law) and public policy.
Jul-Sep 2015 issue
Herbert Smith Freehills LLP