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Recognition Applications under the Cross-Border Insolvency Regulations 2006: The Importance of Being Full and Frank
Jeremy Richmond, Barrister, Quadrant Chambers, London, UK1. Introduction
In the recent case of Nordic Trustee A.S.A. et. al. v. OGX Petróleo E Gás S.A. et. al. the English court considered the question of whether an applicant for recognition of a foreign insolvency proceeding under the UNCITRAL Model Law on Cross-Border Insolvency ('the Model Law') as incorporated under the GB Cross Border Insolvency Regulations 2006 ('CBIR') must make full and frank disclosure to the Court in relation to the effect such recognition might have on third parties.
2. Background facts
OSX 3 Leasing BV ('Leasing') was a company incorporated in the Netherlands. In July 2011, Leasing contracted with a Japanese shipyard for a floating production, storage and off-loading vessel, known as the OSX 3. Construction was in part financed by a USD 500M secured bond issue in favour of the First Claimant, a Norwegian company ('Nordic'). On 6 March 2013, Leasing concluded a bareboat charter agreement in relation to the OSX 3 with the First Respondent ('OGX'), an oil and gas company incorporated in Brazil, for a period of 20 years. On 26 March 2013, Leasing assigned its rights under the bareboat charter to Nordic. On 30 October 2013 OGX and its parent company petitioned for judicial reorganisation under Chapter III (Articles 47 et seq.) of the Brazilian bankruptcy law. Pursuant to this insolvency proceeding, OGX prepared a reorganisation plan for submission to the Brazilian courts. While the plan was being prepared, OGX and Leasing entered into negotiations for a reduction in the daily charter rates payable under the bareboat charter. Eventually, OGX’s reorganisation plan was approved by creditors on 3 June 2014 and by the Brazilian Bankruptcy Court on 13 June 2014. The plan provided that 'all claims existing on the date of the petition are subject to the judicial reorganisation, even if not yet due.' However, OGX’s claims under the bareboat charter were carved out of the reorganisation plan to reflect the fact that the parties were still in negotiation as to rates payable under the bareboat charter. On 12 September 2014 the parties successfully concluded the re-negotiation of the bareboat charter. The old bareboat charter was expressly substituted by the new bareboat charter. The new bareboat charter incorporated LCIA arbitration provisions. Importantly, OGX provided warranties to Leasing relating to the enforceability of the obligations assumed by OGX under the new bareboat charter, notwithstanding the bankruptcy proceedings in Brazil. The obvious purpose of those warranties was that claims under the new bareboat charter would not be subject to restructuring of debts under the Brazilian reorganisation plan. OGX subsequently fell into arrears under the new bareboat charter.
On 18 December 2014, without notice, OGX sought and obtained a provisional injunction from the Bankruptcy Court in Rio de Janeiro unilaterally reducing the daily charter rate under the new bareboat charter by USD 120,000 under the provisions of the Brazilian Civil Code, which, OGX contended, empowered the Bankruptcy Court to revise the new bareboat charter on the basis that there had been an 'alteration in the objective basis of the business deal.' The Court of Appeal in Rio de Janeiro overturned the provisional injunction on the basis that the Bankruptcy Court only had jurisdiction over claims subject to the effect of the reorganisation plan by reason of Article 49 of the Brazilian bankruptcy law. Claims under the new bareboat charter were not subject to the reorganisation plan since they arose after the approval of the reorganisation plan. In those circumstances, the Brazilian Bankruptcy Court had no power to vary unilaterally the terms of the new bareboat charter. The Rio de Janeiro Court of Appeal remitted the matter back to a different civil court for determination, subject to (among other things) OGX ‘s application for permission to appeal. On 22 June 2015 Nordic and Leasing submitted a request for LCIA arbitration under the new bareboat charter seeking (among other things) to restrain OGX from pursuing its claim for relief in Brazil.
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