Isle of Man: Is Insolvency Different?

Last Updated: 18 March 2014
Article by Kevin O'Loughlin

This article considers the tension between the Privy Council decision in Cambridge Gas and the Supreme Court decision in Rubin both concerning the limits of the common law jurisdiction to assist foreign courts in insolvency proceedings.

Introduction

The Isle of Man courts are internationalist in outlook. This is inevitable given the global nature of commercial activity that operates in and through the Island, and the movement of individuals to and from the Island. The Isle of Man courts endeavour to assist the courts of foreign friendly nations, provided the Isle of Man court has jurisdiction to do so. This article concerns assistance in relation to foreign corporate insolvency proceedings, and considers the limits of that assistance in the light of the Cambridge Gas1 and Rubin2 cases. In the former the Privy Council (as the final Manx appeal court) appeared to widen the scope for such assistance; however the Supreme Court in Rubin disagreed. The Isle of Man courts will need to decide in future cases whether to continue on the wide path mapped by the Privy Council, or narrow the effect of that decision and follow the Supreme Court.

Background

The Isle of Man courts have a statutory jurisdiction to assist courts having bankruptcy jurisdiction in certain countries3, however this only applies to personal (not corporate) insolvencies. In re Impex Services Worldwide Limited 4 the Isle of Man High Court decided that at common law the court should recognise the appointment by foreign courts of insolvency officers in corporate insolvencies, that with such recognition comes a wide

and discretionary common law jurisdiction to assist other courts in relation to insolvency matters, though in exercising such discretion the Isle of Man court would in particular have regard to the rules of private international law.

This jurisdiction is linked to the general principle, endorsed by the Isle of Man courts, that bankruptcy (whether personal or corporate) should be unitary and universal; there should be a unitary bankruptcy proceeding in the court of the bankrupt's domicile which receives worldwide recognition and it should apply universally to all the bankrupt's assets5. A corollary of this principle is that the court with jurisdiction over the bankruptcy should be assisted by courts in other jurisdictions.

There are, however, well established rules of private international law in both the Isle of Man and England relating to the enforceability (or otherwise) of foreign judgments. A foreign judgment can be in personam or in rem and different enforceability rules apply to each; the question in the Cambridge Gas and Rubin cases is the extent to which these rules inhibit the domestic court from assisting the foreign insolvency court by enforcing judgments or orders made by the latter.

Cambridge Gas

Cambridge Gas concerned an Isle of Man company Navigator Holdings plc ("Navigator") which had filed 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 Isle of Man 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 on the basis of established private international law rules the order of that court was not enforceable against it in the Isle of Man.

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 assets. It considered that the principle of universality underlay the common law principles of judicial assistance in international insolvency, and those principles were sufficient to confer jurisdiction on the Manx court to assist, by doing whatever it could have done in the case of a domestic insolvency.

The decision appeared to indicate that insolvency proceedings were different, and the normal private international law enforceability rules did not apply. However, six years later, in Rubin, the Supreme Court was to have its say.

Rubin

Rubin concerned The Consumers Trust ("TCT") established in the UK by Eurofinance SA a BVI company. Eurofinance SA was the beneficiary in default under TCT and as such received payments from TCT. TCT became insolvent; its receivers caused it to apply to the US Bankruptcy Court for relief under Chapter 11; the receivers then obtained default judgment in the US Bankruptcy Court against Eurofinance SA for about US$10min relation to the avoidance of amounts paid by TCT to Eurofinance SA within one year prior to the commencement of the TCT bankruptcy.The receivers sought to enforce the default judgment at common law in England. Eurofinance SA opposed enforcement on the principle of private international law that a foreign judgment in personam is only enforceable in England 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 (the "Dicey Rule").

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 bankruptcy avoidance proceedings 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 the question was whether as a matter of policy, the court should, in the interests of universality of insolvency proceedings, devise a rule for the recognition and enforcement of judgments in foreign insolvency proceedings which is more expansive, and more favourable to liquidators and other office-holders, than the traditional common law rule embodied in the Diceyrule, or should it be left to legislation. He noted 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 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.

Discussion

The question, therefore, arises as to the limits, after Rubin, of the jurisdiction of the Isle of Man courts to assist in foreign insolvencies. In re Impex the High Court recognised that in deciding whether to provide assistance the court would in particular have regard to the rules of private international law. This is similar to the reference to the application of rules of private international law in section 426(5) of the UK Insolvency Act 1986, referred to by Lord Collins as difficult and obscure. The question is to what extent the rules of private international law will limit the assistance the court can give. In Cambridge Gas the Privy Council decided that judgments in bankruptcy proceedings fell into neither category of judgments in rem or in personam, and therefore the usual rules of private international law relating to their enforceability at common law did not apply. The Supreme Court decided that this was wrong, that judgments in bankruptcy proceedings are not sui generis, that the usual rules of private international law apply, and that the common law jurisdiction to assist foreign bankruptcy courts did not include enforcing judgements which are not enforceable under the applicable rules of private international law. There is therefore a real tension between Isle of Man and English law, a situation which does not often arise.

The Isle of Man courts up to the Privy Council are bound by the decision in Cambridge Gas and must therefore follow it. Courts in other common law jurisdictions (apart from England) will have a choice which to follow. Even in the Isle of Man, however, it remains unclear how Cambridge Gas will be applied. In a narrow sense Cambridge Gas could be regarded as only deciding that since the shares in Navigator were worthless CGTC had no interest of any value to protect and that registration of the shares in Navigator's creditors' name was no more than a mechanism for giving creditors access to Navigator's assets6, which the US court had jurisdiction to do. However, the Isle of Man courts have referred to Isle of Man law developing independently in accordance with the needs, requirements and interests of the inhabitants of the Isle of Man and the international community7. It would be open to them to apply Cambridge Gas in its widest sense, and give full rein to the Privy Council's view that bankruptcy proceedings fall into neither category of in rem or in personam and that insolvency is indeed different.

Footnotes

1. Cambridge Gas Transport Corporation v. Official Committee of Unsecured Creditors (of Navigator Holdings plc) unreported judgment October 14 2004 (High Court); 2003-05 MLR 459 (Staff of Government Division); 2005-06 MLR 297 (Privy Council). Simcocks acted for Cambridge Gas Transport Corporation in this case.

2. Rubin v Eurofinance SA; New Cap v A E Grant and others [2012] UKSC 46

3. Bankruptcy Act 1988. The countries are the United Kingdom, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Italy, Leichtenstein, Luxembourg, Malaysia, Netherlands, Norway, Portugal, South Africa, Spain and Sweden.

4. 2003-05 MLR 115.

5. For example, Interdevelco v Waste2Energy judgment of October 10 2012.

6. A view expressed by Lord Mance at paragraphs 186 and 187 of the Rubin judgement. Lord Mance at paragraph 26 of the opinion of the Privy Council (again on appeal from the Isle of Man courts) in Pattni v Ali 2005-06 MLR 586 (in which Simcocks acted) had previously seemed inclined to this view.

7. For example, Howell v DHSS judgment of October 6 2009.

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.

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