With just over a month to go until INSOL New York, INSOL's annual regional conference this year, it is a pleasure to present you with INSOL’s March 2018 news update.

Clearly one of the most enjoyable elements of being a restructuring and insolvency practitioner, is the opportunity to become involved in complex cross-border cases and meet with people from all over the world.  At the same time, as this month’s edition of the newsletter shows, there is sometimes a struggle when local insolvency regimes do not fully recognise the effects of an insolvency proceeding opened in another country. In some cases, like in my home jurisdiction the Netherlands, the UNCITRAL Model Law has not been implemented nor is there is a local Dutch law recognition process available. Two of the articles in this month’s edition (see under Australia and Singapore) refer to situations where despite having adopted the UNCITRAL Model Law, there were certain limitations on the ability to align the proceedings in various countries.  The recent decision of the English High Court in relation to recognition in England of the Azerbaijani restructuring of the International Bank of Azerbaijan saw the application of an old common law rule leading to a conclusion that the restructuring would not be finally recognised in England in a manner that would release the claims of creditors with English law governed claims; and in Singapore, in a first reported decision of its kind, the court was required to address the public policy exception in deciding whether it could grant recognition to a foreign insolvency representative appointed under Chapter 11 proceedings in the United States after the issuance of a Singapore injunction enjoining those proceedings.

Many countries have in recent years introduced new restructuring and insolvency regimes. I am always slightly embarrassed when I have to admit to international colleagues that our Dutch Bankruptcy Act was introduced in the nineteenth century. I am sure you will agree that we can be seen as “the new kid on the block” compared to some, as when reading the final article of the newsletter we see that certain parts of the insolvency framework in Jersey stem from the medieval period.

Vincent Vroom
Partner
Loyens & Loeff N.V.

Update on Dutch Restructurings  

In 2012, the Dutch legislator announced a number of measures aimed at improving the restructuring capabilities of the aforementioned rather ancient Dutch Bankruptcy Act (which dates from 1893). In particular, proposals on the “Dutch pre-pack” and the “Dutch scheme of arrangement” were welcomed by Dutch practitioners.

The Highlight Article looks at the current position with regard to “Dutch pre-packs” which are used to prepare and negotiate a sale of all or part of a debtor’s business prior to bankruptcy, whereby the actual transfer is implemented post-bankruptcy.  In particular, the article examines the continued attractiveness of the pre-pack in the light of recent case law on the application of EC Directive 2001/23/EC on the Transfer of Undertakings relating to the safeguarding of employees’ rights in the event of such transfers.

A welcome step forward with regard to the second proposed amendment to the Dutch bankruptcy code concerning the introduction of a “Dutch scheme of arrangement” was the publication for consultation purposes in September 2017 by the Dutch legislator of an amended bill on pre-insolvency proceedings. The new proposal enables a company in financial distress to propose a composition to its creditors and shareholders outside insolvency proceedings.  At present, companies can informally offer a ‘composition’ to their unsecured creditor, but there is no mechanism to cram down opposing creditors outside of an insolvency proceeding.  The hope is that the new Dutch coalition government will push on with these proposed legislative changes this year, as the scheme of arrangement, in particular, will be an extremely useful restructuring tool once it becomes enacted into Dutch law.

By

Vincent Vroom
Partner
Loyens & Loeff N.V. 

To read the full article please click here

Cases

USA

No Safe Harbour for “Overarching Transfer”: Trustee can Avoid Payments Passing Through Financial Institutions
 
Merit Management Group, LP v. FTI Consulting, Inc.  (2018) No. 16-784 

On 27 February 2018, the Supreme Court issued a significant decision that will increase the exposure of debt and equity investors that receive payments from all kinds of highly leveraged transactions, including leveraged buy-outs and dividend recapitalisations. The unanimous decision affirmed the Seventh Circuit’s holding that section 546(e) of the Bankruptcy Code does not operate to shield a recipient of an alleged fraudulent transfer when the recipient is not a covered financial institution, notwithstanding the fact that the transfer at issue may have flowed through such a financial institution.  Overturning decisions by other circuit courts of appeal, the Court examined the statutory structure and context of the Bankruptcy Code’s “safe harbour” to distinguish transfers made by, to, or for the benefit of financial intermediaries, with those that merely pass through such intermediaries.

For a case note please see K&L Gates Legal Insight, 1 March 2018

For the case decision please click here

Legislation 

USA
 
Treasury Recommends Retaining Orderly Liquidation Authority

On 21 February 2018, the U.S. Treasury Department released its long-awaited report on the Orderly Liquidation Authority (OLA) established under Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). The report, Orderly Liquidation Authority and Bankruptcy Reform (the Report), recommends retaining OLA and adopting a new Chapter 14 of the U.S. Bankruptcy Code to make resorting to OLA proceedings less likely. The new proposed Chapter 14, which has been developed over several years and has been the subject of several legislative proposals, could be used to resolve systemically important financial institution, narrowing the scenarios where OLA would need to be used. This article examines the background to the OLA and the key recommendations made in the Report.

For the full article please see Cleary Gottlieb Alert Memorandum, 28 February 2018

Articles

British Virgin Islands

The Rise of BVI Special Purpose Acquisition Companies 

There has recently been a resurgence of interest in special purpose acquisition companies (SPACs), which are also known as ‘blank check’ or ‘cash shell’ companies. Over the past 7 years SPACs incorporated in the British Virgin Islands (BVI) have raised aggregate capital of over US$5 billion and, in 2017 alone, new BVI SPACs raised gross proceeds of approximately US$2.5 billion. This article outlines the key features of a SPAC, explores recent market trends and explains why the BVI is a popular domicile for these vehicles.

For the full article please see Conyers Dill & Pearman Newsletter, February 2018

Cases

Australia

The Limits of Recognition under the UNCITRAL Model Law - Foreign Compromises of English Law Claims - Considerations for Australian Insolvency Professionals

Bakhshiyeva v Sberbank of Russia & Ors, Court of Appeal - Chancery Division, [2018] EWHC 59 (Ch)

A critical consideration in cross-border restructuring is international recognition of the compromise and release of claims against a debtor in formal restructuring proceedings in the debtor’s home jurisdiction. The recent decision of the English High Court in relation to recognition in England of the Azerbaijani restructuring of the International Bank of Azerbaijan (an Azerbaijan incorporated bank) saw application of an old common law rule leading to a conclusion that the restructuring would not be finally recognised in England in a manner that would release the claims of creditors with English law governed claims.

The decision highlights an important limitation to the effectiveness of the UNCITRAL Model Law on Cross-Border Insolvency, and is a blow to the concept of “modified universalism” in cross-border insolvencies. This article provides a useful summary of this important decision and examines the key points arising from the point of view of Australian practitioners. 

For a case note please see Baker McKenzie Client Alert, 27 February 2018
 
For the case decision please click here

Hong Kong

Hong Kong Court Confirms Common Law Recognition and Assistance of Foreign Voluntary Liquidations

In the Matter of an Application for Recognition and Assistance by the Joint Liquidators of Supreme Tycoon Limited (in liquidation in the British Virgin Islands) [2018] HKCFI 277 

Joint liquidators were appointed by a written shareholder’s resolution to Supreme Tycoon Limited (the Company), a company incorporated in the British Virgin Islands. The joint liquidators obtained a letter of request from the East Caribbean Supreme Court for recognition of their appointment in Hong Kong to obtain information, books and records about the Company’s affairs from various third parties in Hong Kong. This letter of request was issued on 17 March 2017 and considered by the Hong Kong Court. On 8 February 2018, the Hong Kong Court of First Instance ruled that the common law power to recognise and assist foreign insolvency proceedings extends to voluntary liquidations – this is the first authority on this issue in Hong Kong.  

For a case note please see Hogan Lovells Article, March 2018

Singapore

Public Policy in Cross-border Insolvency under the Model Law

Re: Zetta Jet Pte Ltd and Others [2018] SGHC 16 

This is a landmark decision by the Singapore High Court on the question of public policy under the UNCITRAL Model Law on Cross-Border Insolvency (1997) as adopted by Singapore in the Tenth Schedule of its Companies Act (the Singapore Model Law).  In this, the first reported decision of its kind, the primary question the court was required to address was whether the Singapore court could grant recognition to a foreign insolvency representative appointed under Chapter 11 proceedings in the United States after the issuance of a Singapore injunction enjoining those proceedings. This led to a consideration by the Singapore court of the standard of the public policy exception under Article 6 of the Singapore Model Law. 

 
For a case note please see Oon & Bazul LLP Highlights, March 2018

For the case decision please click here

Cases

UK

English High Court Assesses Whether a Funder’s Security over the Assets of the Borrowing Entity Includes the Proceeds of Tax Credit Payments

Plant & Plant (Administrators of Relentless Software Ltd) v Vision Games 1 Ltd & Ors [2018] EWHC 108 (Ch) 

For a case note please see Mayer Brown Legal Update, February 2018

For the case decision please click here

blications and News

INSOL International Small Practice Technical Paper Series - March 2018 

Uganda  
 

This country study on Uganda was written by Ruta Darius, Fellow, INSOL International, Partner, Namanya Kafureeka & Co. Advocates, Uganda.

INSOL International sincerely thanks Ruta Darius for providing INSOL members with this very informative paper.

To view the full paper please click here

If you would like to send an article for inclusion in one of our forthcoming issues please contact our Technical Officer, Louise Jennings at louise@insol.ision.co.uk

If you would like to introduce a new member to INSOL International please contact our Database Manager, Tony Ashton, at tony@insol.ision.co.uk

American Bankruptcy Institute  
Asociación Argentina de Estudios Sobre la Insolvencia  
Asociacion Uruguaya de Asesores en Insolvencia y Reestructuraciones Empresariales  
Association of Business Recovery Professionals - R3  
Association of Restructuring and Insolvency Experts  
Australian Restructuring, Insolvency and Turnaround Association  
Bankruptcy Law and Restructuring Research Centre, China University of Politics and Law 
Business Recovery and Insolvency Practitioners Association of Nigeria  
Business Recovery and Insolvency Practitioners Association of Sri Lanka  
Canadian Association of Insolvency and Restructuring Professionals  
Canadian Bar Association (Bankruptcy and Insolvency Section)  
Commercial Law League of America (Bankruptcy and Insolvency Section)  
Especialistas de Concursos Mercantiles de Mexico  
Finnish Insolvency Law Association  
Ghana Association of Restructuring and Insolvency Advisors  
Hong Kong Institute of Certified Public Accountants (Restructuring and Insolvency Faculty)  
INSOL Europe  
INSOL India  
INSOLAD - Vereniging Insolventierecht Advocaten 
Insolvency Practitioners Association of Malaysia  
Insolvency Practitioners Association of Singapore  
Instituto Brasileiro de Estudos de Recuperação de Empresas  
Instituto Brasileiro de Gestão e Turnaround  
Instituto Iberoamericano de Derecho Concursal  
International Association of Insurance Receivers  
International Women’s Insolvency and Restructuring Confederation  
Japanese Federation of Insolvency Professionals 
Korean Restructuring and Insolvency Practitioners Association   
Law Council of Australia (Business Law Section)  
Malaysian Institute of Certified Public Accountants  
National Association of Federal Equity Receivers  
Nepalese Insolvency Practitioners Association  
NIVD – Neue Insolvenzverwaltervereinigung Deutschlands e.V.  
  Recovery and Insolvency Specialists Association (BVI) Ltd  
 Recovery and Insolvency Specialists Association (Cayman) Ltd 
Restructuring and Insolvency Specialists Association of Bermuda 
REFOR–CGE, Register of Insolvency Practitioners within "Consejo General de Economistas, CGE"  
Restructuring Insolvency & Turnaround Association of New Zealand  
Russian Union of Self-Regulated Organizations of Arbitration Managers  
Society of Insolvency Practitioners of India  
South African Restructuring and Insolvency Practitioners Association   
Turnaround Management Association do Brasil
Turnaround Management Association (INSOL Special Interest Group)