It is my pleasure to present INSOL’s July 2018 newsletter to you. Once again, it covers a wide variety of topics from all four corners of the globe and provides testimony to the dynamic developments in the area of restructuring and insolvency. The Highlight Article reintroduces an old European favourite: it discusses the practical difficulties in determining where the COMI of a debtor company is located. These difficulties were notably demonstrated by the recent case of NIKI Luftfahrt GmbH, an affiliate of insolvent Air Berlin. In this case both German and Austrian courts consecutively assumed jurisdiction for main insolvency proceedings on the basis that the COMI was located in each of their respective countries. 
 
Jurisdiction, albeit in an entirely different context, was also the main focus in a recent decision of the U.S. Bankruptcy Court for the Southern District of New York. The bankruptcy judges ruled that, even though the court had jurisdiction, avoidance litigation involving foreign litigants would be stayed in the U.S, under the doctrines of forum non conveniens and comity. The Cayman Islands courts handed down judgment with respect to AHAB and the Ponzi scheme it was involved in and China’s Supreme People’s Court established two new international commercial courts to take care of a broad range of international disputes. 
 
Legislative activity has also been abundant. Myanmar is set to adopt new insolvency laws which will include a corporate rescue procedure and the Belgian government has proposed a new Belgian Companies Code providing for a cap on directors’ liability and the abolition of share capital for private limited companies. Meanwhile, at the beginning of June the BVI’s new Micro Business Companies Act came into force.
   
As is already shown by the above selection of topics - this newsletter makes for compelling reading to insolvency practitioners and others interested in this field. Enjoy it. 
 
Dr. Volker Kammel
Partner
Reed Smith LLP, Germany  

 
Cases
 
Cayman Islands
   
AHAB v SICL & Others: The Cauldron of Fraud    
   
Ahmad Hamad Algosaibi & Brothers Company v Saad Investments Company Limited and Others.    
   
As reported in last month’s News Update, on 31 May 2018, judgment was handed down in a case that will become known for the revelation of the largest Ponzi scheme the world has ever seen. At their height, the claims and counterclaims amounted to over US$17 billion.  The Defendants to Ahmad Hamad Algosaibi & Brothers Company’s (AHAB) claims were 16 corporate entities, all of which are in official liquidation, and one individual, Maan Al Sanea. AHAB alleged that its claims gave rise to a proprietary interest in all of the assets held in the estates of the corporate entities, thereby impeding the distribution of the assets of these companies to their creditors by the official liquidators.
   
After a year-long trial the Chief Justice found that far from being the victim of fraud AHAB had been actively involved in an enormous and longstanding Ponzi scheme which had defrauded more than one hundred banks.  This detailed case note considers inter alia what the AHAB partners knew of the fraud on the banks, the benefits they received as a result of it, AHAB's allegations of forgery and manipulation of documents, tracing, and the defence of illegality.  On 14 June 2018, AHAB filed a notice of appeal, appealing the decision of the Grand Court to the Cayman Islands Court of Appeal. 
   
For the full case note by Colette Wilkins, Partner, Shelley White, Partner and Sarah Gavin, Associate, Walkers, July 2018 please click here
   
USA
  
(i) Foreign Debtors' Forum Shopping Warranted Stay of U.S. Avoidance Litigation
   
In re National Bank of Anguilla (Private Banking Trust) Ltd., 580 B.R. 64 (Bankr. S.D.N.Y. 2018)
   
Even if a U.S. court has jurisdiction over a lawsuit involving foreign litigants, the court may conclude that a foreign court is better suited to adjudicate the dispute because either: (i) it would be more convenient, fair, or efficient for the foreign court to do so (a doctrine referred to as "forum non conveniens"); or (ii) the U.S. court concludes that it should defer to the foreign court as a matter of international comity. Both of these doctrines were addressed in this ruling recently handed down by the U.S. Bankruptcy Court for the Southern District of New York. 
   
For a case note please see Jones Day Business Restructuring Review, May / June 2018
   
For the case decision please click here
  
(ii) Ninth Circuit Upholds Lender's Defensive Purchase of Blocking Position in Junior Debt to Protect Existing Claim
   
In re Fagerdala USA-LOMPOC Inc., 2018 WL 2472874 (9th Cir. June 4, 2018)
   
In a decision of significance for secured lenders, the Ninth Circuit recently affirmed a lender's ability to purchase a "blocking position" in junior debt to prevent confirmation of a "cramdown" plan. Specifically, the panel held that the bankruptcy court erred when it disqualified the lender's vote with respect to claims it purchased in the general unsecured class, on the basis that (i) the lender offered to purchase only enough claims to provide a block (in this case, a majority in number of claims), and (ii) blocking the plan unfairly prejudiced the remaining creditors. In reaching its result, the panel held that the relevant inquiry is whether the lender acted with an improper "ulterior motive" that would support a determination that the lender acted in "bad faith."
   
For a case note by Arnold & Porter, 26 June 2018 please click here
   
For the case decision please click here
   
Legislation
  
BVI
  
BVI Micro Business Companies Act Comes into Force   
  
The BVI has sought to enhance its reputation as a cost-effective provider of legal structures with the new Micro Business Companies Act 2017 (the Act) which came into force on 4 June 2018.  The Act is primarily aimed at small, non-financial sector businesses including sole traders, start-ups and small to medium enterprises, for which the BVI recognises that the initial costs of setting up a company, combined with the associated ongoing regulatory requirements, can often be either challenging or outright prohibitive. The Act's ease of use and the simplicity of its corporate governance regime makes it particularly suited for smaller, closely held family businesses rather than for international corporations. 
   
For the full article please see Maples and Calder Update, June 2018

This article was first published by BVI Finance, 16 July 2018.

   
Cases
  
Hong Kong
  
Winding-Up Petitions and Arbitration Agreements  
   
Re Southwest Pacific Bauxite (HK) Ltd. [2018] HKCFI 426
      
Previously in Hong Kong, neither the existence of an arbitration clause in a contract between the company and petitioner, nor the commencement of the arbitration was sufficient to demonstrate in the insolvency proceedings that the “debt” was bona fide disputed on substantial grounds (which is the test to be satisfied by a company facing a winding-up petition when seeking to demonstrate Hong Kong’s insolvency regime is inappropriate). In this recently reported judgment, the Companies Court has brought Hong Kong law into alignment with Singapore and England when considering the effect of an arbitration agreement in a contract giving rise to the debt relied on to support a winding-up petition. 
   
For a case note please see Stephenson Harwood Update, 13 July 2018
   
For the case decision please click here
   
Legislation
 
Myanmar
 
Myanmar Set to Adopt New Insolvency Laws Including a Corporate Rescue Procedure  
  
The Republic of the Union of Myanmar moved a step closer to the adoption of new insolvency and restructuring laws with public consultations for the proposed laws recently taking place in Nay Pyi Taw and Yangon. It is proposed that the new laws will be finalised and put before Parliament in the latter part of 2018 and enacted in 2019. The initiative has been driven by the Asian Development Bank. This article outlines some key features of the proposed new insolvency law including a simplified and less expensive rehabilitation process for MSMEs.
  
It notes that adoption of new insolvency laws modelled on international best practice principles will no doubt assist in the economic development of Myanmar. However, the country will still need to address a number of other related issues including the capacity of the existing legal system and the shortage of experienced insolvency professionals. 
   
For the full KRyS Global Article, 25 June 2018 please click here
    
PRC
   
With an Eye on Belt and Road Disputes, China Establishes New International Commercial Courts
   
China’s Supreme People’s Court (SPC) has established two new international commercial courts to handle a broad range of international disputes.  The new courts are specifically designed to attract disputes related to the Belt and Road Initiative, and offer a one-stop dispute resolution mechanism with access to mediation, arbitration and litigation. An International Commercial Expert Committee will be set up and certain international mediation and arbitration institutions will be selected to work alongside the new courts. However, the level of acceptance by foreign parties will be key to the courts’ success.  
   
For the full article please see Herbert Smith Freehills China Dispute Resolution e-Bulletin, 9 July 2018
   
Articles
   
Singapore 
   
Chief Restructuring Officers in Asia: Is the Appointment of a CRO the Way Forward for Debtor Led Restructurings?  
   
Asia is increasingly seeing the appointment of restructuring professionals as chief restructuring officers (CRO) of stressed and distressed companies to oversee the financial and / or operational restructuring of companies. The CRO concept was first established in the United States and is now an established feature in both U.S., United Kingdom and European restructurings. The concept is becoming more prevalent in Asia and this article defines the role and key skill sets, the key issues and opportunities for CRO and other interim management appointments in Asia. 
   
For the full article please see DHC Capital Insights, 2 July 2018

INSOL International Small Practice Technical Paper Series - Hong Kong

   
June 2018 

This technical paper on Hong Kong focusing on “Small Practices and Consumer Debt Issues” was written by Mat Ng, Board Director INSOL International, FCPA, FCPA (Aust.), SD (Insolvency), CFE, Managing Director; Leonard Chan, CPA, CPA U.S., SQ (Insolvency), Director; and Fiona Fok, CPA, CPA (Aust.), SQ (Insolvency), Senior Manager all of JLA Limited, Hong Kong, PRC.
      

INSOL International sincerely thanks Mat Ng, Leonard Chan and Fiona Fok for providing INSOL

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  
Instituto Iberoamericano de Derecho Concursal Colombia
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 Bahamas
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)