With contributions from four continents and seven countries, this month’s newsletter is a true example of international cooperation!  I thank each of our contributors for their efforts and also our readers, without whom the newsletter would not happen.

Our feature article this month is from The Bahamas.  It discusses the implications for recognition of foreign insolvencies at common law post the Baha Mar bankruptcy case and future possibilities.

There is also a case brief on the recent decision of the United States Bankruptcy Court (for the District of New Jersey) in Re Manley Toys Limited.  That case involved a contested application for recognition under Chapter 15 of the US Bankruptcy Code by liquidators appointed in a Hong Kong voluntary liquidation.  The decision is said to be the first case where the US Bankruptcy Court considers recognition of Hong Kong voluntary liquidators.

Another hot topic in the Americas is the Bankruptcy Venue Reform Act of 2017, a US bipartisan initiative designed to eliminate the ability of a corporate debtor to file a bankruptcy case in its state of incorporation if its “principal assets” or “principal business” is not located in that state.

We also have an analysis of two key issues relating to environmental obligations in US bankruptcy cases: (i) whether an environmental obligation is a “claim” dischargeable in bankruptcy and (ii) the viability of a private party claim against a debtor to recover future environmental response costs.  And to provide the Australian perspective on the subject, we have a briefing on the recent, highly anticipated judgment of the Queensland Court of Appeal in Linc Energy Limited (in liquidation), which was delivered on 9th March 2018.

From Asia, we have an article on the recent judgment of the Hong Kong Court of First Instance in Re China Solar Energy which appears to clarify the position in Hong Kong regarding the appointment of provisional liquidators for the purpose of pursuing a restructuring, even when the assets of the company are not in jeopardy. 

And from Europe, there is a case brief on the decision of the English High Court delivered on 6th March 2018 on an application for directions by the joint liquidators of SHB Realisations Limited (in liquidation) (SHB). The directions sought related to the debt obligations of SHB to its landlord, in circumstances where SHB had entered into a company voluntary arrangement prior to its liquidation, which liquidation was preceded by administration.

In closing I wish to remind our readers of the upcoming INSOL New York conference which will take place from 29th April – 1st May 2018.  Among other things, the conference will bring together over 800 INSOL members and other insolvency practitioners to network and exchange ideas on the trending topics in insolvency around the world.

Tara Cooper Burnside

Partner                                                                                                                                                  

Foreign Insolvency Proceedings in Relation to Bahamian Companies – the Road Ahead.

The Highlight Article this month considers the availability of the inherent common law power of the Bahamas Court to grant recognition and assistance to foreign insolvency proceedings since the passing of the Companies (Winding Up) Amendment Act in 2012 (Winding up Amendment Act) in the light of recent case law, in particular In Re Northshore Mainland Services Inc. v The Export Import Bank of China and others 2015 2 BHS J No 71 (the Baha Mar case).

The Baha Mar case involved an application by a Bahamian company for recognition at common law of certain US Chapter 11 proceedings pending against the company, and assistance to such proceedings by giving effect within the Bahamas of the automatic stays arising under the Chapter 11 proceedings.  The Court declined the application.  Under the statutory framework, the power of the Court to recognise and make orders in aid of foreign insolvency proceedings is limited to cases where the foreign insolvency proceeding (i) is pending in a “relevant foreign country”, as defined by the Winding Up Amendment Act and (ii) relates to a debtor incorporated or established in that foreign jurisdiction.  As a result, the Court concluded that there is no power at common law to recognise and grant assistance to foreign insolvency proceedings where such proceedings are pending in a country that is not designated under the Winding Up Amendment Act as a “relevant foreign country” in respect of a Bahamian company, or where the debtor in the proceedings is a Bahamian company.

Therefore, as matters currently stand, the Court has no power to grant recognition and assistance if a Bahamian incorporated company, which has a COMI outside the Bahamas, has availed itself of a restructuring tool obtainable in the jurisdiction of its COMI.

The Baha Mar case is, however, a first instance decision and is not binding on other courts. It is therefore possible that another Judge may reach a different conclusion, particularly if the facts are distinguishable from those in the Baha Mar case. 

By

Tara Cooper Burnside

Partner                                                                                                                                                  

To read the full article please click here  

 
Cases
 
USA
 
Court’s Recognition of Hong Kong Liquidation Could Have Broad Implications for Foreign Bankruptcy Cases
 
Re Manley Toys Limited, Case No. 16-15374 (United States Bankruptcy Court, District of New Jersey)
 
On 5 March 2018, the United States Bankruptcy Court for the District of New Jersey granted recognition under Chapter 15 of the U.S. Bankruptcy Code to the appointed liquidators in a Hong Kong voluntary liquidation proceeding of an international toy manufacturer. The case is believed to be the first US case considering contested recognition of a Hong Kong voluntary liquidation.  Aviva Sports Inc. and Toys “R” Us, Inc. amongst others, objecting to recognition of the Hong Kong proceedings, alleging that the Hong Kong voluntary liquidation was not a collective proceeding, that it was not judicial or administrative in nature, that Hong Kong was not Manley’s “centre of main interests”, and that recognition would be “manifestly contrary to the public policy” of the United States. 
 
This important decision, which supports the Hong Kong voluntary liquidation regime, will be of particular interest among insolvency practitioners in both the US and Hong Kong. It is also relevant to insolvency practitioners worldwide, as the voluntary liquidation regime is a common feature of many jurisdictions.
 
For a case note please see Archer Client Advisory, April 2018
 
For the case decision please click here
 
Legislation 
 
USA
 
You Want to File a Bankruptcy Case Where?????
 
Under current US law, a company can file a chapter 11 bankruptcy case either in the place of incorporation or in districts where affiliates have pending bankruptcy cases. This has made jurisdictions like Delaware (a common state of incorporation) a popular place to file. Filers often seek to file bankruptcy cases in jurisdictions remote from the actual business operations. (i) where the applicable law may be more favourable; (ii) where judges are perceived to be more user friendly; and/or (iii) where the judges’ approach and rulings are known.
 
In January this year, Senators John Cornyn and Elizabeth Warren introduced a new Bill, the Bankruptcy Venue Reform Act of 2017, which will require corporate debtors to file bankruptcy in the district in which their principal assets or their principal place of business is located. Individual debtors will have to file bankruptcy in the district where their domicile, residence or principal assets are located. If successful, this Bill will severely limit the access many companies now enjoy to the popular, business-friendly court systems of Delaware and New York. Most of all, it could mean the end of forum shopping.

For the full article please see DLA Piper Restructuring E-Newsletter - Global Insight Series, 7 March 2018

For the Bill please click here
 
Articles
 
USA
 
Environmental Obligations in United States Bankruptcy Actions: An Analysis of Two Key Issues
 
One of the primary purposes of the US Bankruptcy Code is to allow a debtor to have a “fresh start.” On the other hand, environmental laws are intended to require responsible parties to comply with environmental standards for the protection of human health and the environment. As a result of these competing interests, there has been extensive litigation related to the interplay between the bankruptcy and environmental regimes. This article analyses two key questions related to environmental obligations in bankruptcy:
 
1) is there a test for determining whether an environmental obligation is a “claim,” and therefore, dischargeable in bankruptcy? and
 
2) is it possible for a private party claim against a debtor to allow for the recovery of future environmental response costs?

For the full article please see K&L Gates Legal Insight, 6 April 2018

Cases
 
Australia
 
Court of Appeal Finds the Missing Linc
 
Longley & Ors v Chief Executive, Department of Environment and Heritage Protection & Anor; Longley & Ors v Chief Executive, Department of Environment and Heritage Protection [2018] QCA 32
 
Shortly prior to the appointment of liquidators to Linc Energy Limited (in Liquidation) (Linc) in May 2016, the Department of Environment & Heritage Protection (Department) issued an environmental protection order (EPO) to Linc in relation to its coal seam gas project in Queensland, Australia.
 
Whilst the Department admitted that the relevant land and licences had been validly disclaimed by the Liquidators, the key issue for the Liquidators was whether, notwithstanding the disclaimer, the company would be obliged to comply with the EPO. The Liquidators of Linc applied for directions from the Supreme Court that they would be justified in not causing Linc to comply with the EPO or any future EPOs issued by the Department. In a controversial first instance decision, the Supreme Court held that the Liquidators were obliged to cause Linc to meet the requirements of the EPO.
 
The Liquidators appealed the Supreme Court decision to the Queensland Court of Appeal.  This case note examines the issues considered on Appeal and what this highly anticipated decision means for practitioners.
 
For a case note please see K&L Gates Legal Insight, March 2018
 
For the case decision please click here
 
Hong Kong
 
(i) Re Legend: Don’t Let the Sun Go Down on Me
 
Re China Solar Energy [2018] HKEC 700
 
This recent Hong Kong Court of First Instance (CFI) judgment has challenged the long accepted position of disallowing the appointment of provisional liquidators for the sole purpose of restructuring as established by the case of Re Legend International Resorts [2005] 3 HKLRD 16. 
 
In Re China Solar Energy, a shareholder opposed the restructuring deal that the provisional liquidators had entered into, which aimed to re-list the company’s shares. The shareholder applied to the Court to discharge China Solar’s provisional liquidators relying on the decision in Re Legend, onthe grounds that a provisional liquidation cannot be permitted when the sole or primary function of the provisional liquidators is to carry out business or debt restructuring. However, the CFI dismissed the shareholder’s application on the basis that it did “not comport with the statutory regime” of Hong Kong and appeared to be “inconsistent with post-Legend case law”.  It is worth noting that Re Legend was a Court of Appeal decision, while Re China Solar Energy is a CFI case. As such, the position in this area will remain uncertain until and unless Re China Solar Energy is reviewed by a higher court.
 
For a case note please see Herbert Smith Freehills Dispute Resolution E-bulletin, 10 April 2018
 
For the case decision please click here
 
(ii) Winding-up Petition v Arbitration Clause: Hong Kong Court Dismisses Winding-up Petition in Favour of Arbitration Clause
 
Lasmos Limited v Southwest Pacific Bauxite (HK) Limited [2018] HKCFI 426
 
On 2 March 2018, the Hong Kong Court of First Instance (CFI) issued a notable decision which signifies a development of Hong Kong law in the contexts of insolvency and arbitration. The CFI held in this case that a winding-up petition issued on the ground of insolvency should generally be dismissed if there is an arbitration clause contained in an agreement giving rise to a debt relied on to support the petition. This is a deviation from Hong Kong's previous position whereby such petition may only be dismissed by establishing a bona fide defence on substantial grounds to the claim for the underlying debt.
 
Please see Hogan Lovells case note, April 2018
 
For the case decision please click here
 
India
 
Report of the Insolvency Law Committee: The New Way Forward
 
On 16 November 2017, the Government of India constituted a committee to undertake a comprehensive review of the Insolvency and Bankruptcy Code, 2016 (IBC) in light of the experiences of various stakeholders during the past year. The Ministry of Corporate Affairs (MCA) constituted the Insolvency Law Committee (ILC) which comprises representatives from across the industry. The MCA released ILC’s report on 3 April 2018 (Report). The Report proposes various amendments to the IBC and the rules and regulations thereunder. The Indian Parliament is likely to consider the Report in the near future to make the relevant legislative changes. This article details some of the major changes proposed by the Report.
 
Please see AZB & Partners full article, 4 April 2018

 
Cases
 
UK
 
The BHS Saga Continues - Can a CVA Ever Permanently Vary the Terms of a Lease?
 
Wright (and another) (as Joint Liquidators of SHB Realisations Ltd (formerly BHS Ltd) (in liquidation)) v Prudential Assurance Company Ltd [2018] EWHC 402 (Ch)
 
On 6 March 2018 the English High Court heard an application for directions from the joint liquidators of SHB Realisations Limited (in liquidation) (formerly BHS Limited) (BHS). BHS was the principal trading company of the BHS group. BHS had entered into a company voluntary arrangement (CVA) with its creditors under which certain landlords agreed to accept lower rents. The CVA was terminated, on its terms, for non-payment of the compromised rent to landlords, following BHS moving from administration to liquidation. The question before the court in this case was whether landlords were entitled to claim the full amount of rent due under their leases or only the compromised rent agreed under the CVA.
 
Please see Bryan Cave Leighton Paisner case note, 13 March 2018
 
For the case decision please click here

 
INSOL International Technical Paper Series – The Thing about Schemes in the Scheme of Things: Recognition of Schemes of Arrangement under Chapter 15 of the U.S. Bankruptcy Code
 

March 2018

 
Chapter 15 of the United States Bankruptcy Code (the Code) allows the foreign representative of an eligible debtor to seek recognition of the debtor’s “foreign proceeding” in the US courts. Whilst U.S. bankruptcy courts have routinely recognised schemes of arrangement, it is arguable that a scheme in its various forms, may not strictly qualify as a “foreign proceeding” under Chapter 15.
 

This interesting paper examines the relevant legal components of the interpretation of “foreign proceeding” under the Code. It reviews the common and distinct characteristics of the proceedings in various jurisdictions labelled as “schemes of arrangement,” including schemes in the UK, Australia, South Africa and the Cayman Islands; and provides an analysis of the treatment by U.S. courts of applications for recognition of schemes of arrangement under different jurisdictions to date. It concludes by providing useful practical guidance for insolvency practitioners who may consider applying for recognition of a scheme of arrangement as a foreign proceeding under Chapter 15, highlighting the factors that may contribute to their success or failure.
 

INSOL International Special Report - Restructuring Options for MSMEs and Proposals for Reform

 
April 2018
 
This project emanates from the INSOL Small Practice Group and consists of ten country chapters.  Overall these country studies show that irrespective of whether a country is an emerging economy or a developed one, the insolvency of MSMEs are taken seriously by the governments due to the significant economic contributions made by such enterprises. In countries where the laws are not developed reforms are being considered. This is also high on the agenda of the World Bank and UNCITRAL. Although this project is INSOL International’s first foray into MSME insolvency and restructuring, it is unlikely to be the last.
 

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 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)