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 his absence.
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.