Vol 12 (2015) - Issue 5

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Stay of Proceedings under the Cross-Border Insolvency Regulations 2006: Seawolf Tankers Inc v Pan Ocean Co. Limited

The Cross-Border Insolvency Regulations 2006 ('the Regulations') manifest the extent to which Great Britain has adopted the UNCITRAL Model Law on cross-border insolvency. Since its enactment there have been relatively few reported cases concerning the automatic consequences that arise upon recognition of foreign proceedings. Applying for recognition in the United Kingdom is meant to be (and usually is) speedy and efficient, being described by Warren J. as a 'tickbox' exercise. This formulaic tick-box process belies the far-reaching consequences that arise upon recognition. One question concerns the extent of the automatic stay that arises under Article 20.1(a) which provides that upon recognition '... commencement or continuation of individual actions or individual proceedings concerning the debtor’s assets, rights, obligations or liabilities is stayed; ...'. This issue was raised directly in Cosco Bulk Carrier Company Ltd. v Armada Shipping SA [2011] EWHC 216(Ch). That case concerned arbitration agreements. It was argued before Briggs J. that the mandatory stay under Article 20.1(a) did not extend to arbitrations. The Judge declined to determine this issue, because he held that even if that was the case, he would lift the stay so as to permit the arbitration to proceed utilising Article 20.6 which empowers the Court '...on the application of the foreign representative or a person affected by the stay ... [to] modify or terminate such stay ... or any part of it, either altogether or for a limited time, on such terms and conditions as the Court thinks fit'. Notwithstanding whether arbitration proceedings are caught by the automatic stay under Article 20.1, CBIR is clear as to the effect of the stay: in the case of an individual, the effect is the same as if the individual had been adjudged bankrupt under the Insolvency Act 1986 or in the case of a debtor other than an individual, the scope and effect is the same as if the debtor had been the subject of a Winding-up Order made under the Insolvency Act 1986 (Article 20.2). This is reinforced by Article 20.3 which carves out of the automatic stay and suspension certain rights, one of which is the right to take steps to enforce security over the debtor’s property. In those instances, the extent to which the parties seeking to exercise that right may do so notwithstanding the stay is again to be determined by reference to the equivalent position under the Insolvency Act 1986. When deciding to lift the stay in Cosco v Armada, the Judge did so by reference to Section 130(2) of the Insolvency Act 1986 which gives the Court a relatively wide discretion permitting it to achieve 'what is right and fair according to the circumstances of each individual case'.
However, the Court’s response to the concerns of foreign representatives in relation to the exceptions to the automatic stay, has led to an almost invariable practice of granting what has been become known as an 'extended order'. This Order extends the automatic stay by imposing a moratorium to the same extent as that which arises under an administration under Schedule B (1) to the Insolvency Act 1986. In Great Britain, almost inevitably the foreign representative will apply for, and the Court grant, an extended order as a matter of course when seeking recognition. This sidesteps the issue as to whether arbitrations are caught by the automatic stay, because there is no doubt as a matter of English domestic law that not only is an arbitration so caught, but most of the steps under Article 20.3 which are otherwise unaffected by the automatic stay, are similarly prohibited. The Court is empowered to make an extended order under Article 21.1(g) upon the request of the foreign representative and may grant any additional relief that may be available to a British insolvency office-holder under Paragraph 43 of Schedule B (1) to the Insolvency Act 1986, '... where necessary to protect the assets of the debtor or the interests of the creditors ...'.
Prior to June 2014, the Courts had been prepared to use Article 21.1 to override not only procedural but also, arguably, substantive rights. In Larsen v Navios [2011] EWHC 878, the Court prohibited a creditor’s exercise of its rights of set-off, notwithstanding Article 20.3, which expressly provides that the creditor’s rights of set-off are not affected by the automatic stay, by nevertheless doing precisely that but under Article 21. It is questionable as to the extent to which this result would arise again, post the judgment of Morgan J. in Re Pan Ocean Ltd [2014] EWHC 2124, which establishes that the powers given to the Courts under Article 21 are confined to procedural and not substantive rights.