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Applications to Modify Recognition Orders under Art. 20(6) of Sch. 1 to the Cross-Border Insolvency Regulations 2006
Christopher Jay, Barrister, Quadrant Chambers, London, UKIntroduction
Section 130(2) Insolvency Act 1986 provides that '[w]hen a winding-up order has been made or a provisional liquidator has been appointed, no action or proceeding shall be proceeded with or commenced against the company or its property, except by leave of the court and subject to such terms as the court may impose.'
However, section 130(2) did not apply to foreign insolvency proceedings, and, prior to the Cross-Border Insolvency Regulations 2006, SI 2006/1030 ('the CBIR') coming into force, there was no equivalent to section 130(2) that applied in the cross-border context, save to the extent that the English Courts have an inherent discretion, reinforced by s. 49(3) Supreme Court Act 1981, to stay proceedings whenever necessary to prevent injustice. See Mazur Media Limited v Mazur Media GmbH [2004] EWHC 1566 (Ch), [2005] 1 Lloyd’s Rep 41, in which Lawrence Collins J. (as he then was) held that it would require 'exceptionally strong grounds' (at 54 rhc) for an English Court to stay English proceedings in favour of insolvency proceedings in a Council Regulation (EC) 44/2001 state, particularly where an exclusive jurisdiction clause had conferred jurisdiction on the English Courts.
The landscape of this area of the law has changed dramatically since 4 April 2006, when the CBIR ushered in a new order under which the UNCITRAL Model Law acquired the force of law in Great Britain to the extent that it was adopted and modified in Sch. 1 to the CBIR. A foreign representative may now apply to the Court for recognition of a foreign (insolvency) proceeding in which he has been appointed pursuant to Art. 15 of Sch. 1, and the exercise of recognition is treated by the Court as 'something of a "tick-box" exercise' (Transfield ER Cape Limited [2010] EWHC 2851 (Ch), para. 1, per Warren J.). If that foreign proceeding be a foreign 'main' proceeding (being a proceeding taking place in the state where the debtor has the centre of its main interests (Art. 17.2 of Sch. 1)), then an automatic stay on the ‘commencement or continuation of individual actions or individual proceedings concerning the debtor’s assets, rights, obligations or liabilities’ obtains (Art. 20.1 of Sch. 1).
The result is that practitioners in England now regularly encounter instances where parties are precluded by recognition orders from litigating or arbitrating disputes in the forum that, but for the recognition order, would have jurisdiction over the dispute. The object of this article is to review some of the more recent cases that demonstrate how such a recognition order may be modified to enable the efficient determination of a dispute before an appropriate Court or tribunal.
Art. 20(6) of Sch. 1 to the CBIR
Art. 20(6) of Sch. 1 provides (inter alia) that 'the court may, on the application of the foreign representative or a person affected by the stay and suspension…, or of its own motion, modify or terminate such stay and suspension or any part of it, either altogether or for a limited time, on such terms and conditions as the court thinks fit.'
The correct approach is that the Court has a 'free hand to do what is right and fair according to the circumstances of each case' (Re Aro Co Limited [1980] Ch 196 at 209, per Brightman L.J. (in relation to a domestic case); applied by analogy to the CBIR in Cosco Bulk Carrier Co. Limited v Armada Shipping SA [2011] 2 All ER (Comm) 481).
A discussion of how this test applies to foreign insolvency proceedings that are analogous to administrations (as distinct from windings-up) is outwith the scope of this article, and on that point readers are referred to VTB Bank (Austria) AG v Kombinat Aluminijuma Podgorica AD [2015] EWHC 750 (Ch) and Seawolf Tankers Inc. v Pan Ocean Co. Limited [2015] EWHC 1500 (Ch) and Stephen Cogley QC, 'Stay of Proceedings under the Cross-Border Insolvency Regulations 2006: Seawolf Tanks Inc. v Pan Ocean Co. Limited', International Corporate Rescue, 2015, p. 295. Broadly: the test is sufficiently wide to take into account the interests of the debtor company where the interests of justice require this.
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