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Newsflash: No forum shopping pursuant to the insolvency common law Singularis Holdings v PwC (aka Saad)

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Jennifer Marshall

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11 November 2014

The Privy Council has handed down a landmark decision in relation to Saad Investments Company Limited concerning the power at common law to provide assistance in cross-border insolvencies.

What did the Saad judgment concern?

Cayman liquidators of a Cayman registered company were seeking information relating to the company’s affairs from its Bermudan former auditors. Cayman law allowed the liquidators to obtain information which belonged to the company, but not information the auditors held on their own account. Bermudan law had such a wider power of investigation and the liquidators sought an order from the Bermudan court to utilise those wider powers. It was not possible to place the company into insolvency proceedings in Bermuda and so the application was made as a request for the Bermudan court to provide assistance to the Cayman liquidators by way of the insolvency common law. Whether such assistance could be provided ended up before the Privy Council1.

In a judgment which has taken just over six months to hand down, the Privy Council has held that there is no ability for the court to provide assistance to foreign insolvency officeholders pursuant to the insolvency common law, if that assistance would mean providing the officeholders with a power that they would not have under the law of the foreign insolvency proceedings (in this case, the Cayman liquidation). Modified universalism does not permit foreign insolvency officeholders to forum shop in order to avail themselves of a remedy that they did not already have under the law governing the foreign insolvency proceedings.

Why is this important?

  • Forum shopping for relief pursuant to the insolvency common law is not possible.
  • The principles of modified universalism set out in Cambridge Gas were not accurate.

In the global business world a single company may have operations in many different jurisdictions. The idea behind the principle of modified universalism is to enable a global company to be subject to a unitary insolvency proceeding which receives worldwide recognition and which should apply universally to all the debtor’s assets. A plurality of insolvency proceedings in numerous jurisdictions (with potentially conflicting laws) may then be avoided. The scope of the principle has been a matter of debate but the Privy Council had previously held, in Cambridge Gas, that modified universalism meant that “the domestic court must at least be able to provide assistance by doing what it could have done in the case of a domestic insolvency” and the purpose of recognition of the foreign insolvency officeholders was to “give them the remedies to which they would have been entitled if the equivalent proceedings had taken place in the domestic forum”. In other words, it was not necessary to show that the particular remedy would have been available in the “home” jurisdiction.

In Rubin click here for our bulletin the UK Supreme Court held that Cambridge Gas had been wrongly decided in certain respects, but it was not clear to what extent the above statements remained good law. The Privy Council has now clarified that the remedy in question must also be available under the foreign insolvency law and in doing so has severely restricted the scope of the principle of modified universalism and the assistance that courts can grant in aid of foreign insolvency proceedings as a matter of common law.

What did the Privy Council decide?

  • Insolvency courts have power at common law to recognise and grant assistance to foreign insolvency proceedings.
  • Common law assistance is limited by the powers available to the officeholder in his home jurisdiction and to the powers that would be available if actual proceedings could be opened in the jurisdiction in which assistance is sought (although such proceedings do not need to be opened).

In a nuanced judgment2 the essence of the Privy Council’s decision is that foreign officeholders can seek common law assistance with obtaining information/documents relating to the insolvency, as long as: (i) those officeholders have the relevant powers in their own jurisdiction; and (ii) the domestic courts have the power to apply the domestic provisions to the case at hand (i.e. the domestic insolvency proceedings could actually apply to the foreign company, rather than being applied in a hypothetical manner “as if” the foreign insolvency proceedings were a domestic insolvency process – although domestic proceedings do not actually need to be commenced).  It was held that under the common law there is no power to apply the provisions of domestic insolvency legislation in aid of a foreign insolvency proceeding by analogy or hypothetically.

While the judgment recognises, to an extent, the concept of modified universalism and the ability of foreign courts to provide assistance under this concept, the dual test of needing both the power under the law of the foreign insolvency proceedings and the ability actually to apply the relevant domestic provision to the foreign company, will make the application more limited in practice.

Impact of the decision

  • The decision only concerns the insolvency common law – it does not affect the EC Insolvency Regulation, section 426 Insolvency Act 1986, or local implementations of the UNCITRAL Model Law on cross-border insolvency (Model Law).
  • The assistance which can be offered when recognising foreign insolvency proceedings under the common law is limited.  This will impact most on those jurisdictions whose only avenue to provide cross-border insolvency assistance is the insolvency common law (for example, some of the Asian and offshore jurisdictions which have not implemented the Model Law).
  • Jurisdictions (such as Great Britain, the US, Canada and Australia) which have implemented the Model Law (which enables the court, when recognising foreign insolvency proceedings, to provide any appropriate relief, including relief that may be available to a local officeholder) are likely to become increasingly important.
  • Development of cross-border insolvency law is a matter for the legislation – not the judiciary. Therefore, jurisdictions which have not implemented the Model Law may wish to consider doing so, but any driver to do so may be subject to differing political imperatives.

The decision will have a limited impact on the assistance which the UK courts can provide, for the simple reason that the UK courts have a range of laws (besides the common law) pursuant to which they may be able to offer assistance to foreign officeholders including, where appropriate, the EC Insolvency Regulation, the Cross Border Insolvency Regulations 2006 (implementing the Model Law), section 426 of the Insolvency Act 1986 and a wide jurisdiction to wind up foreign companies.

The decision is most likely to impact on those jurisdictions which do not have such a wide range of options available to them and which have historically provided such assistance, where appropriate, pursuant to the common law (such as many of the British colonies and Asian jurisdictions).  That avenue may just have been severely curtailed for them.

  1. The Privy Council is the highest appellate court for the UK overseas territories and Crown dependencies and certain Commonwealth countries. Privy Council decisions are not strictly binding in England and Wales. However, as the judges that decide cases in the Privy Council are the same judges that sit in the Supreme Court, Privy Council judgments carry huge weight in terms of legal influence.
  2. All five judges gave detailed judgments and these are not entirely consistent.

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