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No UK stay of creditor’s enforcement of debt, despite foreign restructuring

Creditors with debts governed by English law can take comfort in the English court’s continued application of an English law rule, in the context of a foreign restructuring, that a debt governed by English law cannot be discharged by a foreign insolvency proceeding, other than where the relevant creditor submits to the foreign insolvency proceeding (often referred to as the “rule in Gibbs” as it derives from Antony Gibbs & Sons v La Societe Industrielle et Commerciale des Metaux (1890) LR 25 QBD 399). This case highlights the English courts’ reluctance to subvert the rule in Gibbs by taking a procedural step (eg a stay) which, although permitted by the Cross-Border Insolvency Regulations 2006 (CBIR 2006), would have the practical effect of overriding the rule in Gibbs. Creditors should remain mindful that it is not uncommon for foreign restructuring processes to sit alongside parallel schemes of arrangement in England, which would limit the scope of the rule in Gibbs in those cases: Bakhshiyeva v Sberbank of Russia & ors [2018] EWHC 59 (Ch)

The OJSC International Bank of Azerbaijan (IBA) entered into restructuring proceedings in Azerbaijan to restructure its debts. The restructuring plan was approved by the requisite majorities of creditors so it became binding on all affected creditors, including those that did not vote. The Azerbaijan restructuring proceeding was recognised by the English court as a “foreign main proceeding” under the CBIR 2006. The English recognition order imposed a moratorium on creditors commencing or continuing any action against IBA without the permission of the English court until the end of the Azerbaijan restructuring proceedings. Two creditors argued that they were not bound by the Azerbaijan restructuring plan because their contracts with the IBA were governed by English law.

The rule in Gibbs

Under an English law rule, known as the “rule in Gibbs”, a debt governed by English law cannot be discharged by a foreign insolvency proceeding, other than where the relevant creditor submits to the foreign insolvency proceeding. Neither of the creditors in this case had voted in favour of the restructuring or otherwise submitted to the Azerbaijan insolvency proceeding.

The practical effect of procedural rules – it matters

The claimant, the foreign representative of IBA, sought a permanent extension from the English court of the moratorium on creditors’ enforcement. The key decision for Hildyard J was whether the English court had jurisdiction to extend a moratorium imposed under the CBIR indefinitely, in particular beyond the date on which the foreign proceeding in Azerbaijan came to an end. While the claimant accepted that the rule in Gibbs applied, it argued that the English court was empowered to grant a permanent stay under the CIBR as it was a procedural step, taken to assist a foreign insolvency process, which would fetter the creditor’s right to enforce their claim, but would not discharge the claim itself.

However, Hildyard J was not persuaded to grant the stay on this basis. In his view granting an indefinite stay would as a matter of practice have the same effect as subverting the rule in Gibbs.

The rule in Gibbs and “modern universalism” – can they co-exist?

The rule in Gibbs has been criticised, not least because it was decided in a time preceding complex cross-border insolvencies. Conversely, the very purpose of the UNCITRAL Model Law on Cross-Border Insolvency is to encourage co operation and co-ordination between jurisdictions.

Hildyard J grapples with the principles of “modern universalism” and whether the CBIR can be applied in this case to enable the court to grant the stay, thus advancing the principle of modern universalism, without upsetting the rule in Gibbs. While the court acknowledged the criticisms of the rule in Gibbs in relation to cross border insolvencies, Hildyard J was careful to draw a distinction between “formal” insolvencies (which involve a collection and distribution of assets) and reconstructions, like this case, which involve a variation and substitution of contractual rights. The latter, according to Hildyard J, more obviously contravene the rule in Gibbs. In his concluding remarks he states “I would hesitate, in a reconstruction rather than insolvency context, to remove or vary individual rights for the greater good and in the name of universalism”. Hildyard J emphasises the fact that this case related to a reconstruction (as opposed to a liquidation) and it was open for the English respondents to promote a parallel scheme of arrangement, which if approved by the requisite majorities of creditors would overcome the rule in Gibbs.


There is a growing acceptance of the principles and practices of “modified universalism” and courts have consistently referred to the purpose of the CBIR 2006 as providing enhanced co-operation between local and foreign proceedings to give effect to court sanctioned restructurings and insolvencies. At least in the context of reconstructions, the English courts will be wary of applying the procedural rules of CBIR 2006 where the practical effect would be to vary contractual rights governed by English law.

More broadly, we may need to wait for the UK Supreme Court to truly tackle the modern application of the rule in Gibbs before the English Courts will be prepared to diverge from its application to English law governed contracts.

Further information

This article is part of the Allen & Overy Legal & Regulatory Risk Note, a quarterly publication. For more information please contact Karen Birch –, or tel +44 20 3088 3710.

Legal and Regulatory Risk Note
United Kingdom