UK debtors may seek recourse against UK based assets

Key point

English law is always a special situation

British government proposals1 only partially implementing the UNCITRAL Model Law on the Recognition and Enforcement of Insolvency-Related Judgments will not affect the “Gibbs Rule”.

English law claims survive foreign compromise

This means that a creditor of an obligation under English law, who refuses to submit to foreign restructuring proceedings, will continue to enjoy a special status under English law, allowing him to enforce his rights to the assets. of a debtor in the UK. This is the case even if the debtor’s plan of compromise releasing those claims is sanctioned by a court with jurisdiction over the plan, and further, even if the plan enjoys Chapter 15 recognition (see below for the discussion of Chapter 15).

The decision of the 19th century English court2known as “Gibbs’ rule” (“Gibbs“), is the reason.

The British government’s proposals will no doubt cause much consternation abroad. Many debtors will need to continue to consider English law despite the plethora of new restructuring laws being implemented around the world.

The existing law keeps Gibbs Safe and sound

As recently as 2018, the UK Supreme Court said Gibbsholding that the Cross-Border Insolvency Regulations 2006 (UK) (“RCIB“)3 does not go so far as to derogate from the common law of Gibbs.

Moreover, the court stated that any decision to override Gibbs rests, not on her, but on Parliament.

Like a sturdy subterranean creature, Gibbs has stood the test of time.

He challenged the creative arguments of the Queen’s Counsel. In the Bank of Azerbaijan Case4it was unsuccessfully argued that a permanent injunction against creditors’ action in the UK would not reverse Gibbs. The Supreme Court seemed to calm his disagreement. She pointed to the lack of a choice of law provision in the CBIR and concluded that if the CBIR had intended to override the substantive rights of creditors under the applicable law governing their debts, this would have been made explicit. . From a practical point of view, she observed that as an insolvency proceeding, the Azeri Compromise Plan had served its purpose and run its course: creditors who chose to participate in the plan had received their rights under plan. From the debtor’s point of view, the court highlighted the fact that no one was arguing that the plan would not achieve its main objective if the claims of the English creditors were successful: only 5% of the claims of the creditors of the plan were affected by Gibbs.

Gibbs also survived the rebuke of the powerful U.S. Bankruptcy Court for the Southern District of New York. In Agrocor5Judge Martin Glenn said that Gibbs should be relegated to the history books and given Chapter 15 relief from a Croatian plan of compromise that included claims under English law. He did so after much reasoning and knowing that granting the relief would indeed be contrary to Gibbs. For those unfamiliar, a Chapter 15 order, in cases where the non-US case is filed in the debtor’s primary area of ​​interest, is effective in granting recognition and enforcement in the United States of an alien compromise plan. The order imposes a stay of the creditor’s action against the debtor’s assets and operations located in the United States.

A glimmer of light – norwegian air?

High Court of Ireland at norwegian air6 exercised its jurisdiction to sanction an Irish program under an Irish review, notwithstanding that the English law claims were subject to the compromise. He did so on the basis of the decision of the English court of Re Business City Express [1997] 2 BCLC 510, where the court recognized and applied an Irish plan of compromise although it included claims under English law. The English court relied on Section 426 of the Insolvency Act 1986 (UK) as leading the way.

East Re Business City Express still good law for this point? Does section 426 really go that far? Section 426 has been reviewed more recently.

Section 426 allows a court in the United Kingdom, as well as a court in certain designated foreign jurisdictions (Ireland being one such jurisdiction), to seek assistance from a court in the United Kingdom in a insolvency proceedings. The relevant provisions are as follows, underlined to emphasize salient words:

(1) A passed order by a court in any part of the UK in exercising jurisdiction over insolvency law must be applied in any other part of the UK as if it had been made by a court exercising corresponding jurisdiction in that other part.

(4) The courts competent in matters of insolvency law in all part of the UK must help courts having corresponding jurisdiction in any other part of the United Kingdom or any relevant country or territory.

(5) … a request made in a court in any part of the UK by a court in any other part of the United Kingdom or in a relevant country or territory is the authority for the court to which the request is made to apply, with respect to the matters specified in the request, insolvency law Which one is enforceable by either court in relation to comparable matters within its jurisdiction. In exercising its discretion under this subsection, a court shall take into account in particular the rules of private international law.

Thus, paragraph (5) specifically includes a choice of law clause: it contemplates that the English court will apply the law of England OR of the “relevant country”.

The Irish court must necessarily have relied on subsection (5). However, the UK Supreme Court in Insist on and New capseven held that subsection (5) does not go that far.

In Insist on, the Supreme Court focused on the difference in language used in the three paragraphs. Subsection (1), the court noted, concerns the application orders made by courts in different parts of the UK only. Subsections (4) and (5), on the other hand, relate to the surrender of assistance in a court in the United Kingdom or a relevant country.

Focusing on this difference in language, the Supreme Court held that subsections (4) and (5) do not apply to orders of courts of a relevant country. The Supreme Court said that if subsections (4) and (5) were to be interpreted as giving the court the power to enforce the judgments of the courts of the countries concerned, this would render subsection (1) entirely redundant. Article 426 is therefore not a means of circumventing Gibbs.

There has been no English decision on this point since Insist on. Technically, the Supreme Court’s decision on Section 426 was “obiterThis means he is more likely to be overthrown than if he were crucial to the decision. Insist on is also 10 years old and the question has not been tested since. However, it appears that the Supreme Court’s decision is valid as a matter of statutory interpretation, and the policy has not evolved. This is not to say that Section 426 may not be useful. For example, on a case-by-case basis, it may be worth considering whether it can be used to initiate full proceedings against the debtor (such as an administration) in the UK, potentially facilitating a waiver of debt.

U.S. Chapter 11 plans are also special

A United States Chapter 11 plan of reorganization, however, is effective in binding creditors who benefit from English law claims, notwithstanding Gibbs. It is for the simple practical reason that an order of a United States bankruptcy court sanctioning a Chapter 11 plan takes effect extraterritorially and applies to all creditors, including English law creditors, and that whether or not they submitted to the jurisdiction of the United States court.

Thus, a creditor acting in defiance of a US plan would visit the defiance of a US court decision, with all its consequences. No creditor has yet had the courage to rely on Gibbs in defiance of a sanctioned United States Chapter 11 plan.

There are not many jurisdictions whose compromise plans are expressed to take effect extraterritorially. Fewer still have the power and true global reach of the United States.

What about chapter 15?

We thought Chapter 15 might be a way to subvert Gibbs, but it appears that Chapter 15 (unlike Chapter 11) does not apply extraterritorially. Therefore, the arguments mentioned above regarding Chapter 11 do not apply. Interestingly, the US Bankruptcy Court for the Southern District of New York recently issued a Chapter 15 order regarding a Cayman Compromise Plan that included claims governed by New York law.8. The court recalled that Gibbs has no place in US law.

Choosing between Chapter 11 and a restructuring process in the UK

If the choice comes down to an English or American restructuring solution, what factors should a debtor bear in mind? As trivial as it may seem, the decision must be made on a case-by-case basis. English law might offer a more bespoke solution. Chapter 11, with its global stay, could facilitate a more complete and operational one.


FOOTNOTES

1 The consultation on the proposals closes at the end of September.

2 Gibbs’ rule originated from Antony Gibbs & Sons c. The Industrial and Commercial Company of Metals (1890) 25 QC 399.

3 The CBIR transposes the UNCITRAL Model Law on Cross-Border Insolvency into English law.

4 Re OJSC Azerbaijan International Bank [2018] EWCA Civil 2802.

5 In re: Agrokor dd, et. Al., 591 BR 163 (Bankr. SDNY 2018). See as well Justice Kannan Ramesh, High Court of Singapore, Pacific Andes Resources Development Ltd. [2016] SGHC 210.

6 In Norwegian Air International Ltd. [2021] IEHC 272.

seven Rubin et al v. Eurofinance SA and others and New Cap Reinsurance Corporation (in liquidation) and other c. A. E. Grant and others [2012] UKSC 46.

8 Subject: Modern Land (China) Co., Ltd., Case No. 22-10707 (MG) (Bankr. SDNY).

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