Isle of Man: Isle Of Man Court Clarifies International Insolvency Law

Last Updated: 7 November 2006
Article by Robert Long

The Island recently played its part in concluding a long running legal case in respect of an insolvent group of companies. In doing so the Manx Court (in the guise of the Privy Council) has rendered a landmark decision in clarifying the law of international cross border insolvency.

In its judgment of 16 May 2006, relating to an appeal by Cambridge Gas Transport Corporation, the Privy Council set out the boundaries by which courts in common law jurisdictions (for example on the Isle of Man, England and Wales and most Commonwealth countries) can give assistance in insolvency situations at the request of a foreign court.

The Privy Council judgment arose out of proceedings originally commenced in January 2004 in the US Bankruptcy Court Southern District of New York by the Navigator group of companies with combined debts of over US$300m. The Navigator Companies were incorporated on the Isle of Man but the majority of their creditors were located in the US. The US Bankruptcy Court ordered the implementation of a plan proposed by the creditors for the reorganisation of the group so as to place them in control of the creditors in satisfaction of the debts due to them (a "debt for equity swop").

Under the US re-organisation the shares in the immediate parent company, Navigator Holdings, were to be transferred to representatives of the creditors of the group. This would enable the creditors to control the subsidiaries of Navigator Holdings. To achieve this US Bankruptcy Court issued a Letter of Request seeking the assistance of the Manx Court in transferring the shares in question. Proceedings to pursue the request to transfer the shares on behalf of the creditors commenced on the Island in March 2004.

Cambridge Gas Transport Corporation, the owner of the majority of the shares in Navigator Holdings, objected to the share-transfer arguing that the US Bankruptcy Court had no jurisdiction to make orders relating to the ownerships of the shares.

The Manx Appeal Court (the Staff of Government Division) held that the Manx Court did have the ability to accede to the request from the US Bankruptcy Court to order the transfer of the shares and hence assist in the reorganisation of the Navigator Companies for the benefit of the creditors. It was this decision that was the subject of the appeal by Cambridge Gas Transport to the Privy Council.

In summary, the Privy Council considered that it would not be unfair for the US reorganisation to be carried into effect and that it would be right for the Isle of Man to assist in the transfer of the shares to the creditors.

In reaching its decision the Privy Council stated that bankruptcy or insolvency proceedings constituted a separate category of case to which the usual rules of private international law concerning the recognition and enforcement of judgments did not apply.

The Privy Council declared that bankruptcy and insolvency proceedings did not determine or establish the existence of rights, as would be the case of most judgments, rather they provided a mechanism for enforcement against the property of the debtor (whether an individual or a company) by creditors. The Privy Council held that by recognising the US Bankruptcy proceedings the Manx Court was empowered to give assistance in the implementation of the re-organisation. The Law Lords decided that as long as the Manx Court had the domestic ability to grant the relief sought in the Letter of Request, assistance could be provided. Shares in companies can be transferred or otherwise affected under Manx law pursuant to a scheme of arrangement, hence the Manx Court had the domestic power to transfer the shares. The Privy Council stated that recognition of the orders of the US Court was sufficient to allow the Manx Court to give assistance by ordering the transfer of the shares without the need of having to start separate parallel insolvency proceedings on the Island. The US Bankruptcy Courtís Letter of Request was sufficient cause to transfer the shares.

Accordingly, the Privy Council held it would be appropriate for the Manx Court to assist in transferring the shares in Navigator Holdings to the creditors so as to enable them to re-launch the Navigator group of companies but freed from debt.

In reaching its decision the Privy Council has clarified the common law position, not only in respect of the Isle of Man but all other common law countries, with regard to the circumstances in which Courtís can assist each other in the area of international insolvency. Already the judgment is being quoted and relied upon in other cases including in the English House of Lords recently. The decision will also dispel any uncertainty regarding the ability of the Island to play its part in international insolvency situations including, as in the Navigator case, to the benefit of creditors of hugely insolvent companies.

The successful creditors committee was represented by Dickinson Cruickshank (Isle of Man), Freshfields Bruckhaus Deringer (England) Paul Weiss Rifkind Wharton & Garrison (US) and by Ewan McQuater QC.

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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