This week's TGIF considers Legend International
Holdings Inc (In Liquidation) v Indian Farmers Fertiliser
Cooperative Ltd & Kisan International Trading FZE 
VSCA 151 in which it was held that s 581 does not prohibit a
winding up order where Chapter 11 proceedings are on
This case is an appeal from the decision of In the matter of
Legend International Holdings Inc  VSC 308 which was
recently considered by our
TGIF on 10 June 2016.
Decision at first instance
The trial judge was asked to determine whether a winding up
order could be made against a registered foreign company
(Company), in circumstances where it had filed for
bankruptcy under Chapter 11 in the United States. The Company also
sought recognition of the US proceedings under the Cross Border
Insolvency Act 2008 and the Model Law to which that act gives
force in Australia.
The Court found that the US proceeding was not a foreign main
proceeding under the Model Law because its centre of main interests
was in Australia, not in the US.
As a result, the winding up application was not automatically
stayed and an order was ultimately made to wind up the Company.
On appeal, the Company argued that section 581 of the
Corporations Act required the Court to 'act in aid of, and be
auxiliary to' the US Bankruptcy Court by refraining from making
the winding up order. The Company argued that the Court erred in
ordering that it be wound up in circumstances where:
The Company was a US registered corporation;
The Company was, at the date of the winding up order, subject
to extant Chapter 11 proceedings;
The US Bankruptcy Court has jurisdiction in an external
administration matter (as required by section 581(2) of the
Corporations Act); and
A winding up order would conflict with and impede the US
Bankruptcy Court's conduct of the Chapter 11 proceeding.
Central to the Company's argument was the contention that
there are inherent conflicting differences between a winding up in
Australia and a Chapter 11 proceeding. That is, winding up in
Australia is aimed at realisation and distribution of a
company's assets to creditors, while Chapter 11 is focussed on
the reorganisation and continued trading of the company.
Accordingly, the Company submitted that properly construed, s
581 of the Corporations Act means that a winding up order
cannot be made where there is a Chapter 11 proceeding pending
(except in limited circumstances).
COURT OF APPEAL'S FINDINGS
The Court did not accept the Company's arguments, holding
Section 581(2) of the Corporations Act does not
mandate that the Court should have refrained from making a winding
up order in the circumstances of this case. Rather, the Court was
required to consider whether in all the circumstances it would be
proper to provide aid and act in an auxiliary manner by not
exercising the discretion to wind the Company up.
Very clear words would be required by Parliament to support a
conclusion that an Australian court was obliged to refrain from
exercising a discretionary power to wind a company up simply
because the Company had filed for bankruptcy in the US. Such words
are not found in section 581 of the Corporations Act.
The Court at first instance did not make the decision based
upon a wrong legal principle or mistake as to the facts such that
the decision should be overturned. In fact, the Court noted that it
too would have made the winding up order.
A winding up order made in Australia is not the antithesis of,
and would not be incompatible with, a Chapter 11 proceeding, nor
would it defeat the purpose of the US proceeding. This was
particularly obvious in this case where the US proceeding had been
adjourned to a date after the hearing of the winding up application
in order to ascertain the status of the winding up
It is not uncommon for there to be dual insolvency
administrations where international companies are concerned –
in fact, the Model Law expressly contemplates it.
This decision illustrates the fact that in the absence of a very
clear intention from Parliament, Australian recovery proceedings
will not automatically be beholden to recovery proceedings in
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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