Vol 6 (2009) - Issue 1

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Cross-Border Restructurings and English Debts

‘Those creditors whose claims are governed by English law will not, as a matter of English law, be bound by a compromise contained in a Plan confirmed under Chapter 11 [of the United States Bankruptcy Code].’ (Per David Richards J in Re T & N Ltd (2004).)

It is self-evident that in most restructurings, in which the continuation of the corporation as a going concern is envisaged, it will be crucial for interested parties to be able to predict with certainty whether the corporation will be able, once it has emerged from the restructuring process, to carry on trading free from its old debts. An old debt which, unbeknown to the corporation and its advisers, has not been compromised or discharged by the restructuring plan may be likened to a submerged rock upon which the newly refloated corporation may subsequently founder. Perhaps more importantly, at the negotiation stage of a cross-border restructuring, the possibility that there may be liabilities which are not regarded in some countries as compromised or discharged may be a serious obstacle to putting together an effective re-financing package in the first place.

In this area English law has, at least until recently, been confounded by two inconsistent rules. First, an English scheme of arrangement or other statutory rescue plan would, as far as the English court was concerned, discharge all debts regardless of whether they arose under a contract governed by a foreign proper law. Secondly, however, in relation to an in-bound cross-border restructuring, no foreign discharge would be given effect in England in respect of contractual debts governed by English law: such debts might only be discharged by a concurrent English scheme, with the trouble and expense that would inevitably be involved. Fortunately, this old proper law approach to in-bound restructurings has been obliterated when it comes to European cases. Thus a discharge in main proceedings in Germany will be given due effect in England. Nevertheless, the old approach, it is submitted, still represents the common law, despite arguments to the contrary arising out of Cambridge Gas Transportation Corpn v Official Committee of the Unsecured Creditors of Navigator Holdings plc (‘Cambridge Gas’). Moreover, the old approach may yet cast its shadow over the application of the Cross-Border Insolvency Regulations 2006 (the ‘Regulations’) which implemented the UNCITRAL Model Law on Cross-Border Insolvency in Great Britain. For, perhaps surprisingly, the question of a foreign discharge is not expressly addressed in the Model Law or the Regulations. The purpose of this article, after reviewing the current state of the common law, is to propose solutions as to how cases brought under the Regulations ought to be tackled.