Rubin & Lan v Eurofinance led us to say in August 2010 that the Court of Appeal had taken a novel approach founded on the principles of modified universalism, developing the common law and allowing enforcement of a foreign insolvency judgement when an ordinary foreign judgement could not have been enforced.

Permission to appeal the decision is currently being sought from the Supreme Court. In anticipation of that appeal a critical commentary on the Court of Appeal decision concludes that:

"The Supreme Court must not allow the basis for enforcing foreign insolvency judgments to be floated on a magic carpet of fiction."

The commentary's author opines that:

"The Court of Appeal's reasoning relies on pure legal fiction that bankruptcy proceedings are neither in rem nor in personam. The decision is in the final analysis a most unhelpful development of the common law."

 For more details, see L C Ho, 'Recognition Born of Fiction – Rubin v Eurofinance' [2010] J.I.B.L.R. 579.

It will be for the Supreme Court to determine whether the common law should have undergone such development.

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Rubin & Lan v Eurofinance involved a "novel, though we believe inevitable and desirable, development of the common law" (according to Lord Justice Ward). Founded on the principles of modified universalism (insolvency proceedings are collective, dealing with all assets for all stakeholders, but jurisdictional differences cannot be ignored), it builds on the relatively recent House of Lords cases of Cambridge Gas and HIH Insurance.

In essence a foreign insolvency representative can have the English courts enforce a foreign insolvency judgement (such as recovery of a transaction at an undervalue or a preference) in circumstances where they would not be able to enforce an ordinary foreign judgement.

What the Court of Appeal has said, in simple terms, is that there are some special features of insolvency law that are universal and should be recognised and assisted by the English courts, wherever the insolvency proceedings originated.

More foreign insolvency representatives can be expected to seek the assistance of English (and other Commonwealth) courts.
 

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The UNCITRAL Model Law on Cross-Border Insolvency should enhance cross-border assistance for non-EU officeholders and creditors in British insolvency proceedings.

Introduced in England and Wales, and Scotland, on 4 April 2006 it was first applied in the English High Court on 23 November 2006 in Re Rajapakse (unreported) when a US Chapter 7 Trustee sought the court's assistance to recover assets in England.

Cooperation in cross-border insolvency proceedings within the EU is governed by the European Insolvency Regulation.

Chapter 15 of the US Bankruptcy Code similarly introduces the UNCITRAL Model Law into US law.

Richard Howard's post Global Bankruptcy Mutual Assistance addresses the question in relation to Great Britain by outlining the core provisions of The Cross-Border Insolvency Regulations 2006.

We address foreign creditors' rights in the UK in a previous post here, and you can find out more about the UNCITRAL Model law here.

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A secondary liquidator has to tell all the debtor's creditors about the secondary proceedings and must pass to the main liquidator details of any creditors the main liquidator may not know about, so that the main liquidator can notify them of the main proceedings.

For example, a Hungarian liquidator (appointed in territorial proceedings) learns that a German liquidator has previously been appointed in main proceedings. The Hungarian liquidator must inform all creditors in Hungary and elsewhere of the secondary Hungarian proceedings and moreover he or she must provide all creditorsí details to the main German liquidator pursuant to Article 31(1) European Insolvency Regulation

. . . shall immediately communicate any information which may be relevant to the other proceedings. . .î.

In fact, I see risk to both liquidators from aggrieved creditors if this is not done properly. Since creditors are entitled to claim in either or both proceedings, any creditor who received notice of neither could pursue the Hungarian liquidator if he or she failed to give notice of the Hungarian proceedings or, whether or not such notice was given, if the Hungarian liquidator had failed to give the creditorís details to the German liquidator thereby preventing the latter from giving notice of the main proceedings to the creditor in question.

Similarly, the German liquidator would be at risk if he failed to enquire of the Hungarian liquidator about all creditors or if he failed to act on information provided by the Hungarian liquidator.

Since a main liquidator is much more likely to take the steps required of the German liquidator, I think it is the secondary liquidator who is in practice at greater risk because he or she has to take steps that may come a little less naturally.

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The reach of territorial and secondary proceedings is restricted, but I think it important to note that the restriction is partial. In relation to non-main proceedings and the territory in which they were opened:

The effect of those proceedings shall be restricted to the assets of the debtor situated in the territory of the latter Member State.

I think the key phrase is "the assets of the debtor situated in the territory".

Article 3(2) does not refer to "the establishment situated in the territory", so the territorial or secondary liquidator is a liquidator of the debtor (albeit able to deal only with certain assets but responsible to all the debtor's creditors). Neither does Article 3(2) say "the assets and the liabilities of the debtor situated in the territory", so it is not simply a local insolvency under local law: foreign creditors are accorded rights by the Regulation.

One thing I have sensed in reported cases of secondary proceedings is that the secondary liquidator has seen himself as acting for (even as a champion of) the local creditors. To my mind this is fundamentally wrong, particularly given the rights of creditors to claim in any proceedings by Articles 39 and 32(1). Such liquidators should beware of litigation against them personally from creditors from other jurisdictions, or even from the main liquidator.

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