On 16 April 2015, the Federal Court handed down its decision in the most recent judgment involving application for recognition in Australia of a foreign insolvency proceeding.
Application for recognition
The case, Wild (Foreign Representative) v Coin Co International PLC (Administrators Appointed); In the Matter of Coin Co International PLC (Administrators Appointed)  FCA 354, concerned an application by administrators appointed in the United Kingdom (UK), for recognition of the UK administration in Australia, and ancillary orders to facilitate the conduct of the administration in Australia. The application was brought by the administrators under the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency (Model Law) and Cross-Border Insolvency Act 2008 (Cth) (Cross-Border Insolvency Act).
Since the enactment of the Cross-Border Insolvency Act in Australia, there have been a number of successful applications by foreign liquidators, administrators and bankruptcy trustees, including one in which the author of this article acted for the foreign liquidator, for recognition in Australia of foreign insolvency proceedings. The purpose of bringing such an application is to obtain orders from the court that enable foreign liquidators, administrators and bankruptcy trustees to carry out necessary actions within Australia as part of the reorganisation, administration and liquidation of a foreign corporation's or individual debtor's assets. There are a broad range of orders the court can make for the benefit of a foreign liquidator, administrator or bankruptcy trustee following recognition of a foreign proceeding in Australia under the legislation.
In the Wild v Coin Co case the administrators were successful in obtaining from the Court orders that:
- the UK administration be recognised as a foreign main proceeding for the purposes of the Cross-Border Insolvency Act and Model Law;
- the administration and realisation of the defendant's assets in Australia be entrusted to Australian administrators who had been named as part of the application; and
- the foreign administrators' costs of the application be paid out of the proceeds of the sale of the property of the defendant located in Australia.
Section 513C issue
In the proceedings, the foreign administrators also sought an order that for the purposes of section 513C of the Corporations Act, the administration of the defendant's estate in Australia be taken to have begun on either:
- the date on which the foreign administrators were appointed over the defendant in the UK; or
- the date on which the Federal Court made orders in the present proceedings concerning the application for recognition under the Model Law.
Although the foreign administrators sought these two orders in the alternative, it was their contention that the administration should be taken to have begun on the date of their appointment as administrators in the UK proceedings. This order was opposed by one of the defendant company's Australian creditors who argued that the administration of the company's estate in Australia should be taken to have begun on the date on which the Federal Court made its orders in the present proceedings. Another Australian creditor had argued in correspondence prior to the hearing that the Court did not have the power to make an order on this issue and that such an order is unnecessary because the Corporations Act prescribes when an administration is deemed to have commenced. The creditor also argued that such an order should not be made in the present proceedings because it could unfairly prejudice the company's Australian secured creditors when compared with the positon of its foreign secured creditors.
The obvious significance of the date on which the administration is taken to have begun for the purposes of section 513C of the Corporations Act, is the connection between that day and the relation back day and date on which a winding up is taken to have begun, for the purposes of any voidable transaction claims subsequently brought under the Corporations Act. If a court were to determine that the administration should be taken to have begun as late as the date of the Court's orders in the Australian Federal Court proceedings, it would dramatically alter the applicable periods during which any potentially voidable transactions may have taken place.
The Federal Court declined to make a finding on the issue in the present proceedings on the basis that it would need to be determined in any proceedings brought regarding a specific voidable transaction claim, particularly given that any parties such claims were brought against would have an interest in being heard on the issue.
In respect of this issue, the Cross-Border Insolvency Act provides that the voidable transaction provisions in the Corporations Act and Bankruptcy Act 1966 (Cth) (Bankruptcy Act) apply, "with appropriate changes", in relation to an action for the purposes of a foreign proceeding in the same way as they would apply if the action was for the purposes of a proceeding under the Corporations Act or Bankruptcy Act.
It would be a strange result if a court were to find that the relation back day or day a winding up is taken to have begun should be altered in the way contended by the creditor in the Wild v Coin Co case. Nevertheless, this is an issue that could potentially be argued by a defendant to a voidable transaction claim in foreign proceedings recognised under the Model Law in due course. Significantly, the case does demonstrate that there will be little utility in seeking an order on this issue at the stage of seeking recognition of a foreign insolvency proceeding under the Model Law, even where a creditor has raised an argument about it prior to the proceedings.
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.
For further information contact:
|Georgina King, Principal|
|(02) 8226 8772|