At the end of May the Supreme Court in England heard arguments
on one of the most important decisions it could be asked to make in
English insolvency law in recent years.
The background to this case arises out of the liquidation of a
The Consumers Trust (TCT) under Chapter 11 provisions in New York.
The liquidators of TCT subsequently initiated recovery proceedings
in New York against a number of respondents including Eurofinance
SA, and certain individuals (the Appellants).
The Appellants did not appear in the New York proceedings,
refusing to submit to the jurisdiction of the New York court, and
judgment was given against them in their absence.
However, a judgment is only as good as the assets available to
pay it - and the Appellants did not have sufficient assets in the
US to do so. Accordingly, it was necessary for the Liquidators to
try and enforce their New York judgment in England against the
Appellants' English assets. In doing so, they came up against a
longstanding principle under English law, to the effect that where
a defendant does not take part in proceedings in a foreign court
(and that foreign court does not otherwise have jurisdiction over
them) the English courts will not recognise a judgment obtained in
However, in a somewhat surprising win for the Liquidators, the
Court of Appeal held that due to the special nature of insolvency
proceedings (which are designed to maximise recovery for creditors
of the insolvent company) and the effect of the UNCITRAL Model Law
on Cross-Border Insolvency ( which is in force in England) the
English courts could in effect make an exception in judgments
arising out of insolvency proceedings to enable recognition and
enforcement of the foreign judgment in England. This would, in the
mind of the Court of Appeal, avoid costly 'satellite'
trials in other jurisdictions where defendants may have assets.
This decision has unsurprisingly been appeal by the appellants,
with the outcome expected later this year.
This decision has a clear impact on the decision for defendants
as to whether to appear in foreign insolvency proceedings or not.
Previously, in the belief that foreign court judgments would not be
recognised, defendants often took the informed decision not to
appear and let judgment be entered against them in default of
appearance. The effect of the Court of Appeal's judgment is to
almost certainly require defendants to appear in the court of
choice of a liquidator and engage in a process that they are likely
to be less familiar with and which they may have never intended to
do any substantive business in.
Whilst the UNCITRAL Model Law on Cross- Border Insolvency has
not been brought into force by any legislation in either Bailiwick
(and is not expected any time soon) the much anticipated decision
of the Supreme Court will be of undoubted interest to those located
on the island for a number of reasons, particularly if the Supreme
Court chooses to uphold the judgment of the Court of Appeal.
Firstly, the Islands Courts are mindful of the Bailiwicks
international reputations as financial centres and of the
international desire to enable on-shore liquidations to proceed so
as to maximise recovery for onshore creditors. Even in
circumstances where the Eurofinance decision is not followed by the
Islands' Courts, Channel Island structures with assets located
in England will have to consider participation in foreign
proceedings or risk having those assets enforced against.
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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The claim followed the conclusion of two years of litigation (ORD 12/0035 & ORD 12/0034) between the parties in respect of the Bank's contractual claim for amounts owed by TSEL to the Bank pursuant to certain business loans.
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