Recognition of cross-border insolvencies in Australia
Swaab lawyers Georgina King and Michelle Harpur discuss applications for recognition of foreign insolvency proceedings in Australia under the UNCITRAL Model Law on Cross-Border Insolvency.
Since 2008, the United Nations Commission on International Trade Law Model Law on Cross-Border Insolvency (Model Law) has been in force in Australia pursuant to the Cross-Border Insolvency Act 2008 (Cth).
The purpose of the Model Law is to provide mechanisms to ensure that objectives such as cooperation between foreign courts, increased legal certainty for trade and investment and fair and efficient administration of cross-border insolvencies, are achieved in the conduct of cross-border insolvencies.
An important aspect of the Model Law is the provisions enabling a foreign representative such as an overseas liquidator, to apply to a court in a country such as Australia where the Model Law has been enacted, to obtain recognition by that court of a foreign insolvency law proceeding in which the foreign representative has been appointed or authorised to act. By obtaining recognition under the Model Law, a foreign representative can seek from the court a range of orders available under the Model Law to assist the representative in carrying out a cross-border reorganisation or liquidation of a corporation or individual debtor’s assets.
Requirements for the application
To bring an application for recognition of a foreign proceeding, a party must be a foreign representative as defined in the Model Law. The Model Law sets out the following definition of a foreign representative:
“a person or body, including one appointed on an interim basis, authorised in a foreign proceeding to administer the reorganisation or the liquidation of the debtor’s assets or affairs or to act as a representative of the foreign proceeding.”
The above definition is self-explanatory, apart from the definition of foreign proceeding for the purposes of the Model Law. Foreign proceeding is defined in Article 2 of the Model Law as:
“a collective judicial or administrative proceeding in a foreign State, including an interim proceeding, pursuant to a law relating to insolvency in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganisation or liquidation.”
To establish whether an insolvency proceeding is a foreign proceeding for the purposes of the Model Law, it is necessary to look closely at the nature of the foreign proceeding that is sought to be recognised, to determine whether the proceeding fits within the definition outlined above.
In Australia, applications for recognition under the Model Law have been successful in respect of foreign proceedings involving:
- court ordered administration of a foreign company
- court ordered liquidation of a foreign company
- and recently, in a case in which the authors of this article acted for the foreign representative, a creditors voluntary liquidation of a foreign company.
Orders available upon recognition
Under the Model Law if a foreign proceeding is found to be a “foreign main proceeding” then upon recognition of the foreign proceeding, there will automatically be a stay of individual creditor actions and executions concerning the debtor’s assets, and a freeze on the debtor’s assets.
A proceeding will be recognised as a foreign main proceeding if the proceeding is “taking place in the State where the debtor has the centre of its main interests.” Unless there is proof to the contrary, the debtor’s registered office, or in the case of an individual debtor, the debtor’s “habitual residence” is presumed to be the centre of the debtor’s main interests.
A proceeding that is not a foreign main proceeding, will be recognised as a “foreign non-main proceeding” if the debtor has in the place where the foreign proceeding is taking place, “any place of operations where the debtor carries out a non-transitory economic activity with human means and goods or services.”
The Model Law does not provide for recognition of foreign proceedings that do not fit within the definition of either a foreign main proceeding or foreign non-main proceeding.
Upon recognition of a proceeding as either a foreign main or foreign non-main proceeding, the court may grant any appropriate relief “necessary to protect the assets of the debtor or the interests of the creditors”. The Model Law does not limit the types of relief that may be granted but does list some of the orders that the court may grant. This includes orders to:
- entrust the administration, realisation and distribution of all or some of the debtor’s assets located in Australia to the foreign representative, or another person designated by the court
- grant a stay and/or freeze on assets of the type referred to above which apply automatically in relation to foreign main proceedings
- provide for examination of witnesses, taking of evidence or delivery of information concerning the debtor’s assets, affairs, rights, obligation or liabilities
- grant any additional relief that is available under any Australian law to a person or body administering a reorganisation or liquidation in Australia
- extend any provisional relief granted by the court upon the filing of the application for recognition. The provisional relief available under the Model Law includes, on a temporary interim basis, many of the types of the orders that are also available upon the granting of final recognition of the foreign proceeding under the Model Law
In granting relief sought by a foreign representative under the Model Law, the court must be satisfied that the interests of creditors and other interested persons including the debtor are adequately protected.
Applications for recognition involve further requirements which are not discussed in this article. If you would like any further information or require assistance, please do not hesitate to contact: