Australia: What a Legend - Court rejects recognition of foreign proceeding and orders wind up in the face of Chapter 11 bankruptcy

Last Updated: 14 June 2016

This week's TGIF considers In the matter of Legend International Holdings Inc [2016] VSC 308 in which the Court declined to recognise a US Chapter 11 bankruptcy proceeding and made orders that the company be wound up.


In 2008, Indian Farmers Fertilizer Cooperative Limited ('IFFCO') and Kisan International Trading FZE ('Kisan') purchased shares in Legend International Holdings Inc ('Legend').

The parties later fell into dispute and the matter was arbitrated in Singapore with the Tribunal making orders that, inter alia, Legend pay IFFCO and Kisan the sum of $12,350,000.

IFFCO and Kisan applied to the Victorian Supreme Court for orders to enforce the Singapore arbitral award against Legend and on 21 December 2015, Croft J made orders to that effect. Legend's appeal with respect to Croft J's decision was dismissed and an application for special leave to appeal has yet to be heard. However, the interim stay of execution granted by the Court of Appeal expired on 12 February 2016.

On 18 February 2016, IFFCO and Kisan served a statutory demand on Legend and a winding up application was subsequently filed.

The day before the first return date of the winding up application, Legend filed an Originating Process seeking recognition of US Bankruptcy Code Chapter 11 proceedings commenced three days earlier.


The Court was required to consider two key questions:

  1. Whether the US Chapter 11 proceedings should be recognised as a foreign main or non-main proceeding under the UNCITRAL Model Law on Cross-Border Insolvency (Model Law)?
  2. The effect of such a recognition would be to stop the winding-up application in Australia, stay any proceedings against Legend's assets and leave the management of Legend in the hands of the directors.

  1. If the court were to decline to recognise the Chapter 11 proceedings, whether s 581 of the Corporations Act 2001 (Cth) (the 'Act') imposed a duty not to order the winding up of Legend and instead make ancillary orders in aid of the Chapter 11 proceedings.


The Court has a discretion under the Model Law to refuse recognition of a foreign proceeding if it would be manifestly contrary to public policy. For instance, if recognition were to undermine the protection given to creditors by Australian insolvency legislation.

However, the courts have been slow to invoke this overriding proviso as to do so in cases of mere difference of substantive law, would likely render the aspirational objectives of the Model Law otiose.

IFFCO and Kisan submitted that the Chapter 11 proceeding was effectively orchestrated by Legend to defeat the Australian proceeding.

His Honour rejected this argument on the basis that full and frank disclosure of the motive for the appointment had been made in the US court and that the wind-up application was brought before the Chapter 11 proceeding. His Honour also found that, in any event, the desire for protection under Chapter 11 was not of itself contrary to public policy.


The next question for his Honour's consideration was whether the US Chapter 11 proceedings was a foreign main-proceeding. This required detailed consideration of the location of Legend's centre of main interests or 'COMI'.

The Model Law provides that, in the absence of proof to the contrary, the debtor's registered office is presumed to be the COMI.

Legend's registered office on incorporation was located in Delaware. However, an ASIC extract with respect to Legend's registration as a foreign company in Australia set out, as required by the Act, a registered office in Australia.

His Honour concluded that it was possible to have two registered offices. However, even if this conclusion were incorrect, and the proper meaning of registered office under the Model Law is the place of incorporation (in this case, being Delaware), there was proof to the contrary that Legend's COMI was nonetheless in Australia.


His Honour reiterated the long-held principle that the registered office COMI presumption may be displaced if factors which are both objective and ascertainable by third parties enable it to be established that an actual situation exists which is different from that which locating it at the registered office is deemed to reflect.

In this instance, the following factors were determinative that Legend's COMI was in Australia:

  • the principal place of business was in Melbourne, Australia;
  • the Delaware address was nothing more than a 'post-box';
  • its primary investment assets were located in Australia; and
  • a majority of Legend's creditors by both number and value were based in Australia.

Accordingly, it was held that the overwhelming proof identified Legend's COMI as in Australia and therefore that the US Chapter 11 proceeding was not a foreign main-proceeding.


The US Chapter 11 proceeding would be recognised as a foreign non-main proceeding if Legend had an 'establishment' in the United States.

Under the Model Law, an establishment is defined as 'any place of operations where it [Legend] carried out a non-transitory economic activity with human means and good or services'. If the foreign proceeding is recognised as a foreign non-main proceeding, the Court may award relief to assist the foreign proceeding at its discretion.

His Honour held that the evidence led by IFFCO and Kisan could not support the contention that there was an 'establishment' in the United States and, therefore, the US Chapter 11 proceeding was not a foreign non-main proceeding.


Section 581 of the Act operates independently of the Model Law and obliges a court to 'act in aid of, and be auxiliary to' other courts in relation to an external administration matter.

Whilst his Honour accepted that the US Chapter 11 proceeding was an external administration matter within the meaning of s 580, no request for assistance had been made by the US court. The only progression of the Chapter 11 filing was a case conference in which the US trustee proposed there be another status conference so that the position in Australia could be ascertained. As such, the Court rejected IFFCO and Kisan's submission that the making of a winding up order would defeat the purpose of the Chapter 11 proceeding and ordered that Legend be wound up.


The purpose of the Model Law is to improve efficiencies in the administration of cross-border insolvencies. However, there are threshold requirements to be met before the Model Law takes effect.

If those requirements are not met, courts may be obliged to assist but only where a request has been made directly from the foreign court.

This decision adds to the growing body of case law in Australia dealing with cross-border insolvency issues and, in particular, serves as a reminder of the restrictive interpretation of the public policy exception to recognition of foreign 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.

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