Australia, the United States of America, Great Britain, the
Republic of Korea and Japan are some of the countries which have
adopted the UNCITRAL Model Law on cross border insolvency.
The application of that Model Law, and of the substantive
insolvency laws affecting the contracting parties, is an often
overlooked element in drafting and enforcing agreements. This seems
odd, when one remembers that the purpose of an agreement is often
to deal with what happens when things go very wrong.
Key aspects of the Model Law include giving foreign creditors a
right of access to the courts of an enacting state, recognition of
qualifying foreign proceedings, co-operation, and co-ordination
including seeking to provide the relief necessary for an orderly
and fair conduct of a cross border insolvency.
Some of these issues played out following the appointment under
the Australian national Corporations Act of administrators
to NewSat Limited and associated Australian companies including
Jabiru Satellite Limited (NewSat Companies). The
Australian administrators launched an application for a temporary
restraining order in the USA pursuant to sections 1519, 105(a), 362
and 365 of the US Bankruptcy Code.
On initial hearing the United States Bankruptcy Court for the
District of Delaware granted restraining orders effectively
restraining US corporations including Lockheed, against actions
including service of notice to terminate contracts.
In the hearing earlier this year, the US Court was persuaded
that as the Jabiru-1 satellite Lockheed Martin was constructing for
NewSat was believed to be four fifths complete, there would be a
disproportionate unfair effect on other creditors if the contract
was cancelled. A similar interim order was obtained against other
US creditors under the US Bankruptcy Code restraining termination
Whilst an Australian administration will normally prevent
parties governed by the Australian courts from seizing or enforcing
rights against property including resuming possession of leased
items (subject to some exceptions), a restraint on other
termination rights is not easily obtainable in Australia.
This demonstrates that whilst the Model Law facilitates access,
and a co-ordinated international approach to try and maximise value
for creditors, it does not change the underlying bankruptcy or
insolvency laws of the respective jurisdictions.
In a subsequent hearing the US Court allowed the restraining
orders to end, because the administrators could not provide
certainty that the NewSat Companies would succeed in a
Subsequently the affected Australian NewSat Companies went into
liquidation, after failure of attempts to sell the remainder of the
business as a going concern.
Other assets included a contract for a rocket launch slot
– which was of little value without a satellite!
The episode reinforces the need for commercial lawyers involved
in international trade to consider how issues would play out on a
default or insolvency, in their drafting and structuring of the
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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A recent NSW decision has implications for liquidators of trustee companies dealing with trust funds and priority debts.
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