Recog­ni­tion of cross-bor­der insol­ven­cies in Australia 

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In brief

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. 

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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: