Isle of Man: Is Insolvency Different?

Last Updated: 15 January 2013
Article by Kevin O'Loughlin

Rubin v Eurofinance SA; New Cap v A E Grant and others as Members of Lloyd's Syndicate 991 for the 1997 Year of Account [2012] UKSC 46

Background

Although not on appeal from an Isle of Man court, the Supreme Court in these two cases dealt with principles very relevant to Manx lawyers.

The Rubin case is of interest in two practical respects and also academically. To reach the aspects of practical interest (which are expressed in the Conclusions section below), one must first explain the academic aspects. Rubin relates to the enforcement in England under common law of judgments of foreign courts which adjust or set aside prior transactions in relation to an insolvent person (for example preferences or transactions at an undervalue) ("avoidance proceedings"). Although a decision of the UK Supreme Court the judgments are distinctly Manx, Simcocks having acted in the two main authorities considered by the Supreme Court, and a third Manx decision having also been reviewed by the Court.

Summary of the decisions

In summary the Supreme Court decided that (i) the Privy Council decision (on appeal from the Manx courts) in Cambridge Gas, that foreign judgments in bankruptcy cases were not subject to the normal common law rules in relation to enforcement in the Isle of Man (potentially making it easier for such judgments to be enforced in the Isle of Man), was wrongly decided and that the normal common law rules applied and (ii) that proving in a foreign bankruptcy proceeding constitutes a submission to the jurisdiction of the court supervising such proceedings including for the purpose of avoidance proceedings.

Enforcement of foreign judgments at common law

The basic rules as to enforcement of foreign judgments at common law differentiate between a judgment "in personam" and a judgment "in rem". A judgment in personam is, briefly, a judgment against a person requiring him to do, or refrain from doing, a particular thing (e.g. the payment of money). A judgment in rem broadly determines property in a thing or the status of a person. It can be very difficult in some cases to distinguish between these two cases, but for present purposes little turns on the distinction.

In the case of a judgment in personam the common law rule is that the judgment will be enforced by the English (and Manx) courts if the foreign court had jurisdiction to give such judgment against the debtor, and the rule referred to in Rubin as "Dicey's Rule" is that the foreign court will have such jurisdiction if the judgment debtor was present in the foreign country when the proceedings were commenced, or if the judgment debtor submitted or had agreed to submit to the jurisdiction. In the case of a judgment in rem, the court of a foreign country will broadly only have jurisdiction if the subject matter of the proceedings was situate in that country when the proceedings were commenced.

Cambridge Gas

The Privy Council decision in Cambridge Gas Transport Corporation v. Official Committee of Unsecured Creditors (of Navigator Holdings plc) 2005 - 06 MLR 297 was an appeal from the Isle of Man courts, in which Simcocks acted for the appellants.

Navigator Holdings plc ("Navigator") was an Isle of Man incorporated company which had filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in New York, thereby submitting to the jurisdiction of that court. Cambridge Gas Transport Corporation ("CGTC") was a company incorporated in the Cayman Islands and was the majority shareholder in Navigator but had not submitted to the jurisdiction of the New York court. The New York court confirmed a Chapter 11 plan which essentially involved the assets of Navigator being taken over by the creditors. The mechanism which the plan used to vest the assets in the creditors was to vest the shares in Navigator (which were worthless) in the creditors' representatives. The committee of creditors petitioned the High Court for an order vesting the Navigator shares in their representative. CGTC opposed this on the grounds that it had never submitted to the jurisdiction of the New York court and therefore the order of that court should not be enforced against it.

The Privy Council decided that if bankruptcy proceedings fell into either category of judgments in rem or in personam, CGTC would have succeeded. However it decided that bankruptcy proceedings fell into neither category but existed to provide a collective mechanism of execution against the debtor's property by creditors whose rights had already been established or, if challenged, could be established summarily within the bankruptcy proceedings, and that these principles afforded the Manx court jurisdiction to assist the committee of creditors to give effect to the Chapter 11 plan and register the Navigator shares in the creditors' representative.

The decision in Cambridge Gas appeared to open the way to enforce at common law foreign in personam judgments which were outside Dicey's Rule, provided they were part of bankruptcy proceedings.

Rubin and New Cap

Rubin concerned whether judgments of a foreign court (here the New York bankruptcy court) in respect of avoidance proceedings will be recognised and enforced in England.

Briefly, the facts were that Eurofinance SA was a company incorporated in the BVI and had established The Consumers Trust ("TCT") in the UK to carry on a sales promotion scheme in the USA and Canada under which trust Eurofinance SA was the beneficiary in default and as such received payments from TCT. Eventually TCT became insolvent; Mr Rubin and Mr Lan were appointed as receivers of TCT by the English court and then caused TCT to present a voluntary petition to the US Bankruptcy Court for relief under Chapter 11 which was granted. Proceedings were commenced by Messrs Rubin and Lan in the US bankruptcy court against Eurofinance S.A. (among others) to recover pursuant to US State and Federal bankruptcy laws amounts transferred to Eurofinance SA within one year prior to the commencement of the TCT bankruptcy. Eurofinance SA did not defend, or participate, in these proceedings and default judgment was entered against it by the US Bankruptcy Court for about US$10mwhich Messrs Rubin and Lan sought to enforce at common law in England.

The Court of Appeal considered that Eurofinance SA not having been present when the avoidance proceedings were instituted, and not having submitted to the jurisdiction of the New York court, at first blush had an impregnable defence. However the Court of Appeal decided on the basis of the decision of the Privy Council in Cambridge Gas that the Dicey Rule did not apply to foreign judgments in avoidance proceedings because such proceedings were central to the collective enforcement regime in insolvency, that jurisdiction in insolvency cases was governed by special rules, and that the judgment was enforceable in England.

The Supreme Court disagreed. Lord Collins giving the majority judgment considered Cambridge Gas at length. He said that, since the judgments in Rubin were in personam, the principles in Dicey'sRule are applicable unless the court holds that there is, or should be, a separate rule for judgments in personam in insolvency proceedings, and that prior to Cambridge Gas there had been no suggestion that there might be a different rule for judgments in personam in insolvency proceedings and other proceedings. He considered that the dicta in Cambridge Gas did not justify the decision which the Court of Appeal had reached; that to develop the law in this way would not be an incremental development of existing principles but a radical departure from substantially settled lawwhich had all the hallmarks of legislation; and that this should be a matter for the legislature and not for judicial innovation. It followed he said that Cambridge Gas had been wrongly decided.

Lord Mance agreed with the decision, although not subscribing to Lord Collins' observation that Cambridge Gas was necessarily wrongly decided as this was not argued before the Supreme Court and Cambridge Gas was distinguishable. Lord Mance considered that as the shares in Navigator had had no value, CGTC had no interest of any value to protect, and therefore the transfer of such shares to the creditors was doing no more than giving effect to a transfer of Navigator's assets to the creditors, which had been the object of the Chapter 11 plan and which the New York court clearly had jurisdiction to do.

The Rubin case was heard by the Supreme Court with the New Cap case as both involved similar issues. In New Cap the foreign judgment in question related to avoidance proceedings in Australian insolvency proceedings, to recover (as unfair preferences) from the Lloyds Syndicate certain payments made under reinsurance contracts. The Syndicate had submitted proofs of debt in the insolvency proceedings in relation to unsettled claims and outstanding premiums (although not to the reinsurance contracts which were the subject of the avoidance proceedings) and attended and participated in creditors' meetings, although did not take any steps in the avoidance proceedings. The question was whether the steps taken by the Syndicate in the insolvency proceedings constituted a submission for the purposes of the avoidance proceedings and the rules relating to foreign judgments. Lord Collins said that in English law there is no doubt that orders may be made against a foreign creditor who proves in an English liquidation or bankruptcy on the footing that, by proving, the foreign creditor submits to the jurisdiction of the English court. Therefore the Supreme Court accepted that by having chosen to submit to the Australian insolvency proceedings, the Syndicate should be taken to have submitted to the jurisdiction of the Australian court responsible for the supervision of that proceeding, and should not be allowed to benefit from the insolvency proceeding without the burden of complying with the orders (including in avoidance proceedings) made in that proceeding.

Conclusions

There are academic and practical points to be extracted from the Rubin/New Cap cases. At an academic level, the legal position in relation to the enforceability in England at common law of judgments of foreign courts in insolvency proceedings is established to be that pre-Cambridge Gas and a change will it seems require legislation.

So far as Isle of Man law is concerned, Isle of Man courts below the Privy Council are bound by the decision in Cambridge Gas, but it may be some time (if ever) before the issue again reaches the Privy Council from the Isle of Man courts. It seems unlikely to us that the Privy Council would develop Manx law differently to English law in this respect. Our initial view therefore is that the Isle of Man courts will follow Lord Mance in distinguishing Rubin and Cambridge Gas and will follow the former, however judicial clarification must be awaited.

At a practical level, there are two points. First, a person in England or the Isle of Man served with proceedings in a foreign bankruptcy has a choice to make. Is it better protected by submitting to that jurisdiction so as to defend itself in those proceedings, or should it let judgment be entered in default and risk that default judgment being enforceable against it in England or the Isle of Man. After Cambridge Gas it appeared that since the default judgment may anyway be enforceable at common law in England or the Isle of Man, it would be better to submit because at least then the person could defend the proceedings. Following Rubin/New Cap however it appears that (unless other considerations apply, for example the person has assets vulnerable in other jurisdictions) it seems better not to submit at all because a judgment may not be enforceable in England or the Isle of Man.

Secondly, in such cases a creditor of the foreign insolvent should consider carefully before proving in the foreign insolvency, because by doing so it will render judgments given against it in the insolvency proceedings, including associated avoidance proceedings, enforceable at common law in the Isle of Man and England. Whether to prove will be a decision based on the amount due to the creditor as against the amount which might be recovered from it by avoidance proceedings in relation to past transactions.

Such complex decisions will require much thought and the legal position, at least in the Isle of Man, is not wholly clear. Lord Hoffman in the course of the Privy Council hearing in Cambridge Gas said that "insolvency is different"; in England it is now clear that insolvency is not very different after all, but in the Isle of Man exactly how different (if at all) remains to be worked out.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Simcocks
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Simcocks
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions