Vol 11 (2014) - Issue 5

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First Appellate Decision in Australia on UNCITRAL Model Law on Cross-Border Insolvency: A Warning to Foreign Investors and Liquidators

In the first appellate decision of its kind in Australia, the Full Federal Court of Australia has allowed a 'territorialist' outcome when dealing with local creditors under the UNCITRAL Model Law on Cross-Border Insolvency, limiting its 'universalist' operation.
In the decision of Akers as joint foreign representative v Deputy Commissioner of Taxation [2014] FCAFC 57 Chief Justice Allsop (with whom Justices Robertson and Griffiths agreed) dismissed an appeal from an earlier decision of Justice Rares.
The decision reduces certainty about the operation of the Model Law by favouring a local creditor who complains in its local forum about the treatment it will receive in the forum of the main liquidation.
Liquidators and other insolvency administrators from non-Australian jurisdictions, who are considering what steps to take in Australia about local assets, will now need to carefully consider whether to seek recognition under the Model Law in Australia or consider alternative options such as those available under s 601CL and s 583 of the Corporations Act 2001 (Cth) ('Corporations Act'). These options might now be preferable to proceeding under the Model Law.
Reduced certainty about rights and outcomes in insolvency under the Model Law will also increase the inherent risk in foreign companies’ investment decisions in Australia. For example, financiers of foreign companies investing in Australia will have less certainty about potential recoveries in an insolvency context.
The decision might also have negative knock-on effects in other jurisdictions considering how they might treat their local creditors with respect to a liquidation being conducted in Australia.
This article gives a brief overview of the case and its potential implications.

Background to the case
Saad Investments Company Limited was incorporated in the Cayman Islands in 1990.
Prior to its liquidation, Saad operated as an offshore arm of the Saad Group of Companies controlled by Saudi billionaire Maan Al-Sanea as a complex international investment vehicle involved worldwide in equities and securities, hedge funds, private equity, cash and property.
Although having significant shareholdings in publicly listed Australian companies, Saad was never registered in Australia as a foreign company and did not carry on business in Australia.
In May 2009, the Saudi Arabian Monetary Authority froze certain assets of the Saad Group of Companies following allegations of fraud and breach of duty by Mr Al-Sanea. This led to the withdrawal of Moody’s credit rating and an event of default under its $2.85bn bank syndicated facility.
In September 2009, on the application of Saad’s bank creditors, the Grand Court of Cayman Islands ordered that Saad be wound up and appointed Stephen Akers, Hugh Dickson and Mark Byers, partners of Grant Thornton International as joint official liquidators of Saad.
In November 2009, the Australian Deputy Commissioner of Taxation (commonly referred to as the Australian Taxation Office or 'ATO') issued a default assessment in respect of tax said to be payable by Saad. The basis of the assessment was Saad’s alleged capital gain from the acquisition of Saad’s shares in Sunshine Gas Limited by Queensland Gas Company as part of the takeover transaction in October 2008. The assessment, including penalties, was for $83 million. In December 2009, the ATO lodged a proof of debt for that amount with Saad’s liquidators in the Cayman Islands.

Recognition of Saad’s liquidation under the UNCITRAL Model Law on Cross-Border Insolvency
In September 2010, Saad’s liquidators made an application to the Federal Court of Australia pursuant to the Model Law on Cross-Border Insolvency in Schedule 1 to the Cross-Border Insolvency Act 2008 (Cth) (‘Model Law’) for recognition of Saad’s liquidation in the Cayman Islands.