UK: Court Of Appeal Refuses To Grant Indefinite Stay On The Enforcement Of English Law Debts

Last Updated: 25 January 2019
Article by Ian McDonald, Alexandra Wood and Lauren Theodoulou

Introduction

For more than a century, a creditor holding English law governed debt relied on the principle (known as the "rule in Gibbs1") that a debt governed by English law cannot be discharged by a foreign insolvency proceeding, provided that the creditor does not submit to that proceeding.

Despite criticism that the rule undermines co-operation between jurisdictions in cross-border insolvency proceedings, in Re OJSC International Bank of Azerbaijan2 the Court of Appeal confirmed that the rule continues to apply and that the Cross- Border Insolvency Regulations 2006 (the "CBIR") (which implement the UNCITRAL Model Law on Cross-Border Insolvency Proceedings (the "Model Law")) cannot be used to subvert it. Thus, creditors holding debt governed by English law can take comfort that the protections afforded by the rule remain intact, at least for the time being.

Background

In early 2017, International Bank of Azerbaijan (the "Bank") fell into financial difficulties and entered into a voluntary restructuring process under Azeri law. Following the commencement of this process, the Azeri officeholder, Ms Gunel Bakhshiyeva (as the foreign representative), applied to the English court for an order recognising the restructuring under the CBIR. The English court granted recognition to the Azeri restructuring process. This recognition gave rise to a moratorium pursuant to the CBIR which, among other things, protected the Bank from English court proceedings.

 In Azerbaijan, the Bank proposed a restructuring plan pursuant to which interests of certain creditors (which included the Respondents in this case) would be discharged in full and replaced with various other "entitlements". The plan was approved overwhelmingly by the creditors who voted on it and was sanctioned by the Azeri Court. As a matter of Azeri law, all dissenting creditors were bound by the plan, including the Respondents (whose lending to the Bank is governed by English law and who did not vote or otherwise participate in the restructuring process or submit to the jurisdiction of the Azeri Court).

The Respondents indicated that once the restructuring process came to an end and the CBIR moratorium was lifted, they would seek to enforce their English law claims against the Bank in the English courts (contrary to the terms of the restructuring plan). This led to the Azeri officeholder making an application under Article 21 CBIR for an indefinite extension of the CBIR moratorium so that it would continue even after the Azeri restructuring came to an end and the Bank had resumed operation as a going concern. Article 21 provides that the English court can, where necessary to protect the interests of creditors, grant "any appropriate relief".

The Respondents, relying on the rule in Gibbs, objected to the application and sought permission from the English court to bring proceedings against the Bank. The Bank accepted that the Court of Appeal was bound by the rule in Gibbs. Accordingly, it did not directly challenge the rule, though it reserved the right to do so if the case were to proceed to the Supreme Court. Instead it argued that the Court had the power to grant an indefinite moratorium pursuant to Article 21 CBIR and therefore, the rule was limited by the CBIR.

At first instance3, Mr. Justice Hildyard refused the Bank's application but granted the Bank permission to appeal to the Court of Appeal.

Decision of the Court of Appeal

The Court of Appeal, with Lord Justice Henderson giving the lead judgment, unanimously upheld the High Court's decision. The Court considered whether, pursuant to Article 21: it was appropriate to grant an indefinite moratorium which would prevent the Respondents from enforcing their English law rights pursuant to the rule in Gibbs; or prolong the moratorium after the end of the Azeri reconstruction.

The Court held that it could only extend the moratorium (thus preventing the Respondents from enforcing their English law rights indefinitely) if this was necessary to protect the interests of the Bank's creditors; and was an appropriate way of achieving such protection4. The Court found that neither condition was satisfied.

The creditors bound by the Azeri restructuring plan had received everything to which they were entitled, the Bank had resumed trading and the reconstruction was at an end. No further protection was required for the Azeri restructuring to achieve its purpose. It was material that the Bank could, in principle, have promoted a parallel scheme of arrangement in England in order to deal with the issue presented by the rule in Gibbs, but chose not to do so. Lord Justice Henderson surmised that the Bank likely did not adopt that approach because it would have had to treat the English creditors as a separate class and to offer them terms which they would be prepared to accept.

Lord Justice Henderson noted that it could seldom, if ever, be appropriate to grant relief under the Model Law which would have the substantive effect of overriding the Respondents' English law rights as protected by the rule in Gibbs. The Court was bound by the Supreme Court's decision in Rubin v Eurofinance5 in which Lord Collins held that Article.

21 was concerned with procedural matters and, although it should be given a purposive interpretation and widely construed, there was nothing to suggest that it applied to the recognition and enforcement of foreign judgments against third parties. Lord Justice Henderson could find nothing in Article 21 to suggest that the procedural power to grant a moratorium could properly be used to circumvent Gibbs and held that it would be wrong to use such powers, or any other provisions of the Model Law as incorporated in the CBIR, to circumvent the English law rights of the Respondents under the rule in Gibbs.

Finally, the Court considered whether a stay could, in principle, prolong the moratorium after the end of the Azeri reconstruction. It held that it could not. Article 18 CBIR requires the foreign representative to promptly inform the English court of any substantial change in the status of the recognised foreign insolvency proceeding, or the status of the foreign representative's own appointment. This strongly implied that once the foreign proceeding has come to an end, and the foreign representative no longer holds office, there is no scope for further orders under the CBIR to be made, and any relief previously granted should terminate. Against that background, the Court it would be "anomalous" and inconsistent with the "procedural and supportive" role of the CBIR to allow a moratoruim to remain in place indefinitely.

Comment

Critics of Gibbs suggest that the rule is outdated and is inconsistent with the principles underlying the Model Law (on which the CBIR is based), which is intended to promote co-operation in cross-border insolvencies. The criticisms to which Gibbs has been subject were acknowledged by the Court of Appeal, however, the Court declined to discuss them in any detail given that all parties accepted that only the Supreme Court (or indeed the legislature) could overturn the rule. Notwithstanding any potential issues posed by the rule in Gibbs, the Court confirmed that the rule continues to apply in this jurisdiction and that the CBIR cannot be used to by-pass the protections it provides to creditors.

In a speech6 given by Lord Neuberger in 2017 when he was President of the Supreme Court, he commented that there are "powerful arguments" for revisiting the Gibbs principle. Therefore, if this case does proceed to the Supreme Court, it may be that it will take the opportunity to re-consider the rule.

One final point to note is that the case serves as an important reminder that creditors with English law governed rights will need to balance carefully the possible benefits of participating in a foreign insolvency proceeding as against what they might recover if they do not participate and instead seek to enforce their English law rights before the English court.

Footnotes

1 Antony Gibbs & Sons v La Société Industrielle et Commerciale des Métaux (1890) LR 25 QBD 399

2 [2018] EWCA Civ 2802

3 [2018] EWHC 59 (Ch)

4 Emphasis added.

5 [2012] UKSC 46

6 International Insolvency Institute Annual Conference in London on 19 June 2017

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2019. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions