UK: Bankrupt's Attempt To Restrain Foreign Bankruptcy Proceedings Refused

Last Updated: 9 July 2013
Article by Negeen Arasteh

Key points

  • There is a strong presumption that the English Court will not interfere with the proceedings of a foreign court.
  • However, the conduct of the creditor(s) and the circumstances of the case might justify the grant of an injunction in favour of a debtor to restrain the commencement of proceedings in a foreign jurisdiction.
  • An English court can intervene to stop such foreign proceedings if they are deemed "oppressive or unfair or in any way improper".  If there is no injustice, the English court is unlikely to intervene.
  • If creditors act carefully and choose the right forum for proceedings, they could be allowed to pursue a debtor in foreign jurisdictions and as such, claim assets acquired by the debtor after the debtor's discharge from bankruptcy.

The facts

In 2009, Mr Kemsley had moved to Florida. However, at this time, he was indebted personally to creditors, including Barclays Bank ("Barclays") in respect of a loan made to him in 2008.

Mr Kemsley, was made bankrupt in England on his own petition on 26 March 2012 on the basis that he was present in England on the day the petition was presented and he had a place of residence in England within the last three years (pursuant to section 265 of the Insolvency Act 1986). He was due to be discharged from bankruptcy on 26 March 2013.

Barclays commenced proceedings against Mr Kemsley in both New York and Florida (the "New York Proceedings" and the "Florida Proceedings"). The New York Proceedings were commenced in March 2012 (prior to Mr Kemsley being made bankrupt in England) and the Florida Proceedings were commenced in November 2012.

Mr Kemsley's trustees in bankruptcy (the "Trustees") had applied to the US Bankruptcy Court for the Southern District of New York (the "US Bankruptcy Court") for recognition of the English bankruptcy proceedings (the "English Proceedings") as foreign main proceedings.

The UNCITRAL Model Law on Cross Border Insolvency (the "Model Law") provides a framework to facilitate the harmonious disposition of cases where an insolvent debtor has assets or debts in more than one jurisdiction.  The Model Law has been adopted by the United States.  The main concept is that proceedings commenced in one state should be recognised in another.  Foreign proceedings will be recognised as:

  • Foreign main proceedings if they take place in the country where the debtor has his "centre of main interests" ("COMI"); or
  • Foreign non-main proceedings if the debtor does not have his COMI in that state but does have an establishment there.

The effect of recognition of foreign main insolvency proceedings is a mandatory stay on other proceedings in the courts of that jurisdiction.  The stay is available for foreign non-main proceedings but on a discretionary basis.

It was therefore accepted that if the US Bankruptcy Court recognised the Trustees' application for recognition of the English Proceedings as foreign main proceedings then the Supreme Court of the State of New York would stay the New York Proceedings (the likely consequence being that Barclays would therefore not be able to pursue the Florida Proceedings either).

The application

This was an application by Mr Kemsley to restrain Barclays from pursuing the New York Proceedings and the Florida Proceedings.  Mr Kemsley's grounds for such an application were:

  • that Barclays would obtain an advantage, as a creditor, over Mr Kemsley's other creditors better than the equitable distribution regime in English bankruptcy; and
  • that if Barclays was able to obtain a judgment in the New York Proceedings and the Florida Proceedings, that judgment would be enforceable against Mr Kemsley for 20 years in the United States and other jurisdictions would recognise it.  This would avoid the operation of the English bankruptcy regime which would release him (and his assets) from creditor claims once he was discharged.

Anti-suit injunctions in insolvency proceedings as a remedy applied with caution. The following factors are relevant:

  • the connection of the creditor with the relevant jurisdiction in which the proceedings are being taken or proposed;
  • the principles of comity; and
  • the conduct of the creditor concerned.

Barclays undertook to transfer any assets recovered in the United States that formed part of Mr Kemsley's estate in bankruptcy to the Trustees (who could then distribute it equally amongst remaining creditors) subject to deduction of its costs and expenses.

Decision

The court refused Mr Kemsley's application to restrain Barclays from pursuing the New York Proceedings and the Florida Proceedings.

The court made no finding on COMI but did consider the issue. If Mr Kemsley's COMI was in England, an anti-suit injunction was unnecessary as pursuant to the Model Law, the New York Proceedings would be stayed (and therefore, the Florida Proceedings were also likely to be stayed).  If Mr Kemsley's COMI was not in England, it must in the circumstances of the case be in the United States.  If so, then the court decided that an injunction would be "wholly inappropriate" for the following reasons:

  • Barclays had offered to provide an undertaking to pay assets back into Mr Kemsley's bankruptcy for the benefit of his creditors generally; and
  • Barclays' willingness to co-operate with the Trustees and keep them informed of the steps it was taking in the New York Proceedings and the Florida Proceedings set it aside from the creditors in the case of Harms Offshore.

The court therefore held that it would not be "oppressive or unfair or in any way improper" for Barclays' right to pursue proceedings in the New York Court to be determined by the New York Court and as such, the English court should not intervene.

Shortly after the hearing of this application, the US Bankruptcy Court issued its judgment on the Trustees' application for recognition of the English bankruptcy (the "US Recognition Proceedings").  The judgment for the UK application carries a postscript as to the outcome of the US Recognition Proceedings.  It reports that the Trustees' application was refused.  The US Bankruptcy court held that at the time when Mr Kemsley filed his bankruptcy petition (or alternatively, when the bankruptcy order was made), his COMI was in the United States.  The US Bankruptcy court also found that Mr Kemsley did not have an establishment in England at the material time so the English bankruptcy did not qualify as foreign non-main 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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