Uncertainty over Overseas Insolvency Processes
This article was published in the October edition of the International Financial Law Review.
The recent, high profile, application by the Irish Bank Resolution Corporation, IBRC, (in special liquidation, and previously known as the Anglo Irish Bank) for Chapter 11 protection before the US courts, highlights a difficult issue that frequently arises as the fall-out from Ireland’s financial crisisn plays out. This is the question of international cooperation in corporate insolvencies. IBRC’s US litigation will consider how accommodating Ireland’s legal system is to overseas insolvency officers.
As Ireland is a member of the EU, the EU Insolvency Regulation (EC/1346/2000) is directly applicable. The Irish Companies Act 1963, in addition, provides for ministerial recognition of foreign insolvency proceedings. However, as the only country specified under this provision is the UK, this is effectively a dead-letter: the EU insolvency Regulation will apply instead. Therefore, aside from other EU insolvency
processes, there is no statutory basis in Ireland for the recognition of foreign insolvency officers.
It follows that where an insolvency officer has been appointed to a company outside the EU (an IO), the only potential basis for the IO being recognised in Ireland is by seeking a recognition order from the Irish High Court exercising what is thought to be its common law jurisdiction to do so. This is a jurisdiction grounded in 19th century case law. However, it has been invoked recently in Ireland in a number of cases.
One of these involved a former director of IBRC who was made bankrupt in the US. The US IO in that case successfully sought recognition by, and assistance from, the Irish High Court to reverse a disposal of property by the director to his spouse. In two further cases (Mount Capital 2012 (IEHC 97) and Fairfield Sentry 2012 (IEHC 81)), each of which involved corporate funds incorporated in the British Virgin Islands (BVI) and linked with the Madoff Ponzi scheme, the High Court granted orders recognising the IOs in question.
However, the English Supreme Courtdecision in Rubin v Eurofinance (UKSC 46) and an earlier decision of the Irish Supreme Court in the Flightlease case 2012 (IESC12) have cast serious doubts over the existence of the High Court’s common law jurisdiction to recognise the appointment of, and assist, an IO.
In Rubin v Eurofinance, an English Supreme Court majority held that there was no common law jurisdiction to recognise and assist an overseas liquidator. The appointment of a liquidator was a form of judgment: therefore, it was the legal regime for the recognition of foreign judgments which applied – not a discrete common law power to recognise and assist an overseas insolvency officer. (In doing so the court departed from a series of decisions by the highly respected former law lord, Lord Hoffmann). In Flightlease the Irish Supreme Court criticised one of those decisions – Cambridge Gas (Privy Council appeal 46 of 2005) (in which Chapter 11 proceedings were recognised by a Manx court).
However, it is respectfully suggested that this criticism was misplaced. The Supreme Court appears to have been misdirected in legal argument as to the precise role of Cambridge Gas in UK insolvency law. In Mount Capital Justice Laffoy (now an Irish Supreme Court judge) was undeterred by Flightlease in granting recognition to the BVI IO. It is respectfully suggested that she was correct to do so.
The irony, however, is that this uncertainty could be removed if Ireland enacted the UNCITRAL [United Nations Commission on International Trade Law] model law on cross-border insolvency. This provides an off the shelf legislative solution, which any sovereign state choosing to enact the law can adapt to meet its own particular needs. A further irony is that the Irish Parliament is considering a new companies bill, which will effect a wholesale reform of Ireland’s company law. However, there is no provision in the companies bill for the adoption of the UNCITRAL model law. This is all the more surprising given that Ireland recently adopted the UNCITRALmodel law on arbitration.
The current position is, therefore, that an IO looking to get recognised to perform functions in Ireland, or seeking the assistance of the Irish High Court, faces an uncertain legal terrain. The uncertainties arising from the Rubin and Flightlease decisions are made more acute by the requirement under the Irish Constitution that it is only the Irish Parliament (and the EU lawmakers) which can make laws for Ireland. This is obviously highly unsatisfactory for a jurisdiction that has a good tradition of co operation with its global trading partners. It is all the more unsatisfactory bearing in mind that there is a ready-made legislative solution which, for some reason, is not being adopted.