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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.

Background

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.

Judgment

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.

Improving Australian bankruptcy + insolvency laws: responses to government proposals

This article was written by Scott Atkins, Partner & Board Chair at Henry Davis York. It first appeared posted on LinkedIn on May 29, 2016.

As part of the National Innovation and Science Agenda, the Government committed to releasing a proposals paper on measures to improve Australia’s bankruptcy and insolvency laws by making changes to the default bankruptcy period, introducing a safe harbour for directors, and changing the operation of ‘ipso facto’ clauses.

The proposals paper was released on 29 April 2016.  The proposals papersought views from the public on how best to implement these measures in order to encourage Australians to embrace risk, learn from mistakes, be ambitious and experiment to find solutions.

Henry Davis York has one of Australia’s leading insolvency and restructuring practices and has expressed the firm’s views on the matters set out in the proposals paper. In many respects, HDY is supportive of the submission of the peak Australian insolvency and restructuring association, ARITA on the issues raised in the proposals paper.

There are three key measures identified in the proposals paper aimed at improving bankruptcy and insolvency laws:

1. reducing the current default bankruptcy period from three years to one year

2. introducing a ‘safe harbour’ for directors from personal liability for insolvent trading if they appoint a restructuring adviser to develop a turnaround plan for the company, and

3. making ‘ipso facto’ clauses, which have the purpose of allowing contracts to be terminated solely due to an insolvency event, unenforceable if a company is undertaking a restructure.

For a copy of the submission lodged by Henry Davis York, please click here.

To read more, here are some other links:

ARITA’s “A Platform for Recovery” can be found at:http://www.arita.com.au/about-us/public-policy-advocacy

The Innovation Statement on insolvency law reform: http://www.innovation.gov.au/page/insolvency-laws-reform

The Productivity Commission Report: http://www.pc.gov.au/inquiries/completed/business/report