Vol 14 (2017) - Issue 2

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To Aid, or Not To Aid – That’s Not the Question; in the Case of Legend, No Aid Was Good Aid

On 30 June 2016, the Victorian Court of Appeal handed down its decision in Legend International Holdings Inc (in liq) v Indian Farmers Fertiliser Co-op Ltd [2016] VSCA 151, dismissing the appeal by Legend International Holdings Inc. (in liquidation) ('Legend') of an order which placed the US company into liquidation under Australian law. Before the winding up order was made (but after the application for it had been filed), Legend had filed a voluntary bankruptcy petition in the US.
This decision is significant in that it clarifies, first, the parameters of the Australian Courts’ duty under section 581(2) of the Corporations Act 2001 (Cth) (‘Corporations Act’) to act in aid of foreign courts in relation to insolvency matters and, second, how that duty interacts with the UNCITRAL Model Law on CrossBorder Insolvency (‘Model Law’). The decision also highlights the tension between the liquidation process in Australia and the Chapter 11 bankruptcy proceedings in the US, whilst demonstrating the Australian Courts’ willingness to seize and exercise jurisdiction, in circumstances where dual insolvency proceedings are pending in Australia and in the US, but where Australia is clearly the more appropriate forum.

Factual background
Legend is a company incorporated in Delaware, with its principal place of business in Melbourne and its principal assets in Queensland. It is also a registered foreign company under the Corporations Act.
Indian Farmers Fertilisers Cooperative Limited and Kisan International Trading FZE, the respondents to the proceedings ('Respondents'), owned shares in Legend and, after having obtained an arbitral award against the company for USD 12.35 million, applied for its winding up pursuant to section 583 of the Corporations Act. Section 583 provides that a Part 5.7 body may be wound up under Chapter 5 of the Corporations Act. ‘Part 5.7 body’ is, in turn, defined to include any foreign company that is either registered under the Corporations Act or carries on business in Australia.
The winding up application was filed on 11 April 2016. On 8 May 2016, Legend filed a bankruptcy petition in the US and so commenced bankruptcy proceedings under Chapter 11 of the US Bankruptcy Code ('US Proceedings'). Two days later, on 10 May 2016, Legend sought recognition of the US Proceedings in Australia pursuant to the Cross-Border Insolvency Act 2008 (Cth) ('Cross-Border Insolvency Act'), which gives force to the Model Law in Australia. The Supreme Court of Victoria declined to recognise the US Proceedings either as a foreign main proceeding or a foreign nonmain proceeding. This was because Legend’s centre of main interests was found to be located in Australia (not in the US) and it did not have an 'establishment' in the US (as that word is defined in the Model Law).
In defending the winding up application, Legend contended that the Supreme Court of Victoria was obliged to refrain from making the winding up order because section 581(2) of the Corporations Act required the Court to 'act in aid of, and be auxiliary to' the US Bankruptcy Court ('US Court'). Notwithstanding that contention, on 2 June 2016, the Supreme Court of Victoria granted the winding up application against Legend.