It has become increasingly common for companies needing to restructure to open restructuring / insolvency proceedings in a jurisdiction outside of where their centre of corporate control is located or assets are concentrated. Forum shopping in a restructuring context is becoming more common place, however it also remains highly controversial. The panelists at the INSOL breakout session, A Hitchhikers Guide of Forum Shopping, considered what makes a good forum for restructuring / insolvency, and whether forum shopping is desirable or undesirable. The session was chaired by the Honourable Judge James M. Peck (retired) (Morrison & Foerster LLP), with panelists comprising the Honourable Mr Justice Ian Kawaley (Supreme Court of Berumda), Patrick Ang (Rajah & Tann Asia), Neil Golding (Freshfields Bruckhaus Derringer LLP), and Michael Theirhoff (Theirhoff Muller & Partner).
The panelists began by considering what factors foreign parties should consider when deciding whether or not a jurisdiction is a good one for restructuring. The key factors identified included to what extent the Courts in that jurisdiction are willing and able to extend any restructuring regime to foreign companies, whether it is possible to obtain a moratorium staying creditor enforcement so as to provide the debtor company time to formulate and implement a restructuring plan, the enforceability of any restructuring plan against creditors (wherever they may actually be located), the availability of “cram-down” mechanisms and, critically, the quality and integrity of the judiciary.
In this context, the panelists noted the particular attraction of English schemes of arrangement for foreign / cross-border restructurings. English schemes of arrangement were seen as providing a speedy and flexible restructuring process, and one which avoided the stigma of a formal insolvency process. The US (via Chapter 11 bankruptcy proceedings) was also an attractive jurisdiction, given that creditors will often have operations and assets in the US and be likely to abide by any orders of the US Courts as a result. The panelists also discussed the recent amendments to the Singapore Companies Act, which has introduced a more cross-border focused and flexible scheme of arrangement process, which is more accessible to foreign companies and makes available automatic moratoriums and super-priority lending amongst other innovations.
The panelists discussed that a key limitation on forum shopping was the extent to which any restructuring proposal, once approved by a Court, will be enforceable outside the jurisdiction of that court, particularly against creditors located abroad. It was noted that the English courts are increasingly questioning the enforceability of orders they make against foreign creditors as part of deciding whether to sanction schemes of arrangement. It was also noted that the Hague Convention on Choice of Court Agreements may provide one route for enforcement, and increasingly so as the number of countries which have acceded to the Convention grows.
Lastly, the panelists considered whether forum shopping was desirable or not. The Honourable Judge James M. Peck (retired) noted that forum shopping remains controversial, however the broad agreement was that forum shopping – when done for the right reasons – was desirable and had the potential to allow companies in a restructuring context to achieve better outcomes than they might otherwise.
This in turn, however, raised the question of what constitutes “good forum shopping”. The panel considered a number of answers to this question, including the following comments by the Honourable Mr Justice Newey in the Codere Finance (UK) Limited [2015] EWHC 3778 (Ch) decision: “Plainly forum shopping can be undesirable. That can potentially be so, for example, where a debtor seeks to move his COMI with a view to taking advantage of a more favourable bankruptcy regime and so escaping his debts. In cases such as the present, however, what is being attempted is to achieve a position where resort can be had to the law of a particular jurisdiction, not in order to evade debts but rather with a view to achieving the best possible outcome for creditors. If in those circumstances it is appropriate to speak of forum shopping at all, it must be on the basis that there can sometimes be good forum shopping.”
