Foreign State-controlled enterprise immune from insolvency proceedings - Insolvency/Bankruptcy

In Greylag Goose Leasing 1410 Designated Activity Company v P T Garuda Indonesia Ltd [2022] NSWSC 1623, the Foreign States Immunities Act 1985 (Cth) provided immunity from insolvency proceedings in relation to a foreign corporation that is State-controlled.

Key takeaways

A foreign State or separate entity of a foreign State, including a State-owned or controlled enterprise, is immune from proceedings concerning its bankruptcy, insolvency and winding up.
This immunity does not extend to immunity from involvement in proceedings concerning a non-immune person's bankruptcy, insolvency or winding up.
Creditors of a foreign person should consider whether the person is a foreign State or separate entity of a foreign State and be aware that bankruptcy, insolvency and winding up proceedings may be unavailable.

In Greylag Goose Leasing 1410 Designated Activity Company v P T Garuda Indonesia Ltd [2022] NSWSC 1623, Hammerschlag CJ in Eq held that the Foreign States Immunities Act 1985 (Cth) (Immunities Act) provided immunity from insolvency proceedings to a foreign corporation that is State-controlled. Chief Judge in Equity Hammerschlag recognised the defendant's immunity under section 9 of the Immunities Act after construing section 14(3)(a) to not apply to the defendant.

Background and parties

The plaintiffs Greylag Goose Leasing 1410 Designated Activity Company and Greylag Goose Leasing 1446 Designated Activity Company (Greylag Goose) are companies incorporated in Ireland. The defendant P.T. Garuda Indonesia Ltd (Garuda) is an Indonesian corporation and is Indonesia's State-controlled national airline. Greylag Goose filed an Originating Process seeking an order that Garuda be wound up in insolvency (the Proceeding) under Corporations Act 2001 (Cth) section 583(c)(i) or section 583(c)(ii) (Corporations Act).

In response, Garuda filed a motion seeking an order setting aside the Proceeding and a declaration that the Court had no jurisdiction over it in respect of the Proceeding's subject matter.

Relevant legislation

Section 9 of the Immunities Act provides that a foreign State is immune from the jurisdiction of Australian courts except where the Immunities Act stipulates otherwise. Section 22 extends the immunity to apply equally to a separate entity of a foreign State, save for limited exceptions.

Section 3(1) relevantly defines 'separate entity' to mean a natural person (other than an Australian citizen) or a corporation (other than one established under Australian law) who or that "is an agency or instrumentality of the foreign State" and "is not a department or organ of the executive government of the foreign State". Section 3(3) specifies that the term 'foreign State' as used in the Immunities Act does not include a separate entity of a foreign State.

Section 14(3)(a) relevantly excludes a foreign State's immunity from applying to a proceeding in so far as the proceeding concerns bankruptcy, insolvency or the winding up of a body corporate.

Agreed facts and the parties' arguments

The parties agreed that Garuda is a separate entity of a foreign State because it is an agency or instrumentality of the Republic of Indonesia. The parties also agreed Garuda is a foreign company registered under Corporations Act division 2 part 5B.2 which may be wound up under Corporations Act part 5.7.

The key issue for Hammerschlag CJ in Eq was interpreting section 14(3)(a) of the Immunities Act.

Greylag Goose argued that Immunities Act section 14(3)(a) applied to exclude Garuda's immunity because the Proceeding concerns the winding up of a body corporate. Greylag Goose argued that the words 'a body corporate' in section 14(3)(a) indicate that the body corporate could be anyone including a foreign State and its separate entity (in this case, Garuda).

Garuda's primary response to this argument was that the correct construction of the term 'body corporate' only captures corporations which are not the foreign State or separate entity that section 14(3) refers to. As Garuda is the immune separate entity that section 14(3) refers to, it could not also be a body corporate under section 14(3)(a). Garuda's proposed construction would mean section 14(3)(a) does not apply and Garuda would be immune to the Proceeding.

Decision and reasons

Chief Judge in Equity Hammerschlag noted that while Greylag Goose's proposed section 14(3)(a) construction was open when literally reading the words, his Honour agreed with Garuda's primary response and held that Immunities Act section 14(3)(a) did not apply. His Honour set aside the Proceeding under Immunities Act section 38 as Garuda had section 9 immunity. His Honour deemed a declaration of no jurisdiction unnecessary.

In his Honour's reasoning, Hammerschlag CJ in Eq identified that the section 14(3) introduction refers to the foreign State or separate entity as the object of the immunity. His Honour noted that the body corporate referred to in subsection (a) is not the object of the immunity that the section 14(3) introduction refers to.

Adopting Greylag Goose's literal construction would require the term 'body corporate' in section 14(3)(a) to refer to the same person that 'foreign State' in the section 14(3) introduction refers to. His Honour concluded it is unlikely that the legislature intended such a construction and that each term referred to a different person. His Honour noted that if the legislature had "intended to suscept the foreign State or separate entity to a winding up by this Court, where no other exception to the immunity provided by the Immunities Act applies, it would clearly have said so."

Chief Judge in Equity Hammerschlag declined to define the boundaries of section 14(3). However, his Honour did observe that the section would at least operate in respect to recovering property of a company being wound up, to judicial determination of alleged voidable transactions which the foreign State or separate entity is party to, and to subject the foreign State or separate entity to compulsory examination.

Comment

The case clarifies that certain foreign persons are immune from proceedings concerning their bankruptcy, insolvency or winding up. Importantly, the immunity applies to foreign companies which are State-owned or controlled enterprises.

This immunity does not extend to immunity from involvement in proceedings concerning a non-immune person's bankruptcy, insolvency or winding up. This means a foreign State or separate entity is not immune from involvement in, for example, an Australian corporation's insolvency proceedings.

Creditors of a person that is a foreign State or separate entity should be aware that bankruptcy, insolvency and winding up proceedings may be unavailable to help recover debts from that person.

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.