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Federal Court clarifies the scope of stays under the Model Law on Cross-Border Insolvency

This article was written by Stewart Maiden at The Victorian Bar and first appeared on the Commercial Bar Association of Victoria website.

In Suk v Hanjin Shipping Co Ltd [2016] FCA 1404, the Federal Court (a) provided guidance on how courts are to determine what stay arises upon recognition of foreign main proceedings under the Cross-Border Insolvency Act 2008; and (2) demonstrated that such recognition can cause maritime lien actions to be stayed.

The Cross-border Insolvency Act 2008 (Cth) (the CBIA) gives the force of law in Australia to the UNCITRAL Model Law on Cross-border Insolvency (Model Law). Under the Model Law, a ‘foreign representative’ can apply to the Federal Court of Australia or the Supreme Court of a state or territory to have a foreign insolvency proceeding recognised in Australia as a ‘foreign main proceeding’. Several consequences flow from recognition, perhaps the most important of which is an automatic stay of actions or proceedings in Australia concerning the debtor’s assets, rights, obligations or liabilities: Model Law, art 20.

Section 16 of the CBIA provides that for the purpose of article 20:

“the scope and the modification or termination of the stay or suspension … are the same as would apply if the stay or suspension arose under: (a) the Bankruptcy Act 1966; or (b) Chapter 5 (other than Parts 5.2 and 5.4A) of the Corporations Act 2001; as the case requires.”

Suk v Hanjin Shipping Co Ltd [2016] FCA 1404 was the first occasion on which an Australian court was called on to deliver reasons concerning the interaction between s 16 and article 20.

Hanjin Shipping Co Ltd was the world’s ninth-largest shipping company. It entered a rehabilitation proceeding under the Debtor Rehabilitation and Bankruptcy Act 2005 of the Republic of Korea. The plaintiff was appointed the ‘custodian’ of the rehabilitation by the Korean Court. He applied to the Federal Court for recognition of the Korean proceeding under the CBIA. Jagot J found that the criteria for recognition were present, and that Hanjin’s ‘centre of main interests’ was in the Republic of Korea, and so recognised the rehabilitation proceeding as a foreign main proceeding.

Such an order was uncontroversial: Hanjin is the sixth case in which Korean rehabilitation proceedings have been recognised as foreign proceedings under the CBIA. The unusual features of Hanjin were:

  1. the plaintiff’s application for a declaration in the following terms:

… for the purpose of section 16 of the Cross-Border Insolvency Act 2008 (Cth) and article 20(2) of the Model Law, the scope and modification or termination of the stay referred to in article 20(1) of the Model Law are the same as would apply if the stay arose under Part 5.3A of the Corporations Act 2001 (Cth); and

  1. the plaintiff’s application for orders under article 21 to the effect that maritime liens could not be enforced without the written consent of the plaintiff or further order of the Court.

In respect of the declaration sought, the Court accepted the plaintiff’s submission that:

  1. section 16 and article 20 required the Court to identify the type of proceeding under the relevant provisions of Ch 5 of the Corporations Act 2001 (Cth) (the Corporations Act) which the foreign proceeding most closely resembled, with the effect that the stay imposed by article 20 would be that which was provided for that type of proceeding in the Corporations Act; and
  2. there is no discretion involved in the determination of which stay operates under those provisions.

Jagot J observed that the task required was “not straightforward”, echoing the observation of Rares J in Hur v Samsun Logix Corporation (2015) 238 FCR 483, [21] that the operation of the relevant provisions was “beguilingly ambiguous, since the Corporations Act has a variety of different stay provisions that differentially affect the position of secured creditors, sometimes at different points in the same overall process”.

In Hanjin, having regard to expert evidence given by a Korean lawyer called on behalf of the plaintiff as to the operation of the Korean statute, Jagot J accepted that while the Korean rehabilitation proceeding was similar in some respects to a scheme of arrangement under Part 5.1 of the Corporations Act, it most closely resembled a voluntary administration under Pt 5.3A. As a result, her Honour declared that the scope of the stay which applied was the same as that which applied to voluntary administrations.

The effect of that declaration was that no proceeding against Hanjin, including a proceeding to enforce a maritime lien, could be begun or proceeded with save with the foreign representative’s written consent or with the leave of the Court.

That effect was a consequence of recognition of the foreign main proceeding and the operation of article 20. Thus it applied notwithstanding reservations, expressed in numerous earlier cases and in the extra-curial observations of several judges, about allowing recognition of a foreign proceeding against a shipping company to interfere with the exercise of rights under maritime liens.

Jagot J also went on to grant discretionary relief to the plaintiff under article 21, further restraining the enforcement of charges, liens or pledges and the exercise of the power of arrest against any of Hanjin’s property. The exercise of the discretion to make those orders appears to have been informed by her Honour’s implicit observation that:

  1. as the restraints were subject to consent of the plaintiff or further orders of the Court; and
  2. arrest proceedings required an application to court in any event –

the rights of maritime lien holders were adequately protected by the orders made.

Hanjin demonstrates the importance of having the scope of the Article 20 stay determined by the Court at the time that Model Law recognition orders are made. If such a determination is sought, the applicant may have to adduce expert evidence as to the nature of the foreign proceeding, in order to equip the court to determine its closest local analogue. The case also illustrates the flexibility of the discretionary relief available under article 21, even in the special case where maritime creditors’ interests are involved.

International Insolvency Law in the New Hungarian PIL Code – A Window of Opportunity to Enact the UNCITRAL Model Law on Cross-Border Insolvency?

The preprint version by Zoltan Fabok is only available on the SSRN website to download.

The present Hungarian PIL framework is unfit to adequately address the relevant questions of the international insolvency law. In cross-border situations, the existing regime does not function properly and this may result in legal uncertainty, improper protection of the foreign debtor’s assets located in Hungary and neglect of the principle of collective proceedings. The Principles of the new Hungarian PIL Code appears to make some progress regarding the jurisdiction of Hungarian courts and the law applicable for insolvency proceedings. However, the recognition of the effects of foreign insolvency proceedings – the extension of the effects of the lex concursus – would be conditional upon reciprocity meaning that the system would be functional vis-à-vis a very few, if any, foreign states. In most cases, no foreign insolvency proceedings would be recognised in Hungary. This may cause that the foreign debtor’s assets located in Hungary would be exposed to individual enforcement actions meaning the violation of the principle of the collective proceedings. This paper argues that the enactment of the Model Law by Hungary would adequately fill the regulatory gap left open by the Principles. Rather than extending the legal effects of foreign insolvency proceedings to Hungary, the Model Law attaches limited sui generis legal consequences to the foreign insolvency proceedings. The Model Law would allow Hungary to keep under control the infiltration of the effects of foreign insolvency proceedings from states in relation to which it has no full confidence while maintaining the idea of collective insolvency proceedings by protecting the assets of the foreign debtor located in Hungary and preventing individual actions. In other words, the Model Law represents a flexible approach looking for a balance between the universal effects of the insolvency as provided for by the lex concursus on the one hand and the rigid territorial principle on the other.

Widening the Net: BVI Court expands post judgment Norwich Pharmacal jurisdiction

In UVW v XYZ (27 October 2016), the BVI Court gave an important judgment in relation to the obligations of a registered agent to provide third party disclosure to assist a foreign judgment creditor trace assets. This judgment is a broadening of the Norwich Pharmacal jurisdiction. It will enable a judgment creditor who has no evidence of misuse of a specific corporate structure but who can evidence a general pattern of wilfully evasive conduct by the judgment debtor, as opposed to a mere failure to pay, to obtain third party disclosure in support of asset tracing or execution. This is a powerful new weapon in the BVI Court’s armory and is a sign of the jurisdiction’s determination to assist foreign judgment creditors in appropriate cases.


The applicant was a foreign judgment creditor seeking general information as to the assets of the judgment debtor. The judgment debtor had been subject to an overseas freezing injunction with which he had failed to comply and had been held in contempt of court for failing to provide disclosure of his assets. The applicant believed that the BVI registered agent had information regarding the beneficial owner’s assets and, in the light of the non-compliance with the freezing injunction, that the beneficial owner was using BVI companies to conceal his assets. The applicant therefore sought disclosure from the registered agent in order to police the freezing injunction, to discover assets the judgment debtor may have concealed with BVI corporate vehicles registered with the same corporate service provider, and to discover possible leads for asset tracing or execution efforts. While the respondent registered agent remained neutral – caught between its duty of confidentiality and its duty of disclosure under any Court Order – it properly sought to test the application and raised a number of important arguments for the Court’s consideration.


Mr Justice Gerhard Wallbank held that Norwich Pharmacal relief post judgment in aid of enforcement was in principle available (a) where there is reasonable suspicion for believing that a disclosure defendant is mixed up in the wilful evasion of another’s judgment debt and (b) to assist in securing compliance with freezing orders, domestic and foreign.

The English Court of Appeal in NML Capital Ltd v Chapman Freeborn Holdings et al [2013] 1 CLC 968 had doubted whether jurisdiction existed post judgment, in relation to assisting a judgment creditor, save in very particular and restricted circumstances. In essence, the English Court expressed the view that, in the case of a judgment creditor, a Norwich Pharmacal could only be obtained against an innocent third party if there was cogent evidence of wilful evasion by the judgment debtor.

Mr Justice Wallbank, in holding that there was jurisdiction post judgment, decided that it was not necessary to identify a specific transaction where the alleged wrongdoer had transferred assets to the BVI corporate vehicle for no reason other than to avoid execution. It was sufficient if the applicant could show there was evidence of a deliberate effort to obstruct or frustrate enforcement such that it would support a reasonable suspicion of willful evasion.

He held that there was no distinction between a company which was created for the purpose of concealing assets wrongfully, and a company which was created for a legitimate purpose and which then evolved into something used wholly or partially illegitimately. The mere fact of being a registered agent for a corporate was sufficient to make a finding that a registered agent was involved (or “mixed up”) in the company’s affairs even if the registered agent does not know what the company is being used for.