What you need to know
The Federal Court – in a much-litigated wider contest about the ownership of the luxury yacht, “Dragon Pearl” drifting in an intriguing cross-border insolvency – has clarified the limitations for foreign entities and their insolvency appointees in pursuing action in Australia to un-wind antecedent transactions (by attempting to use the voidable transaction provisions of the Australian Corporations Act).
Insolvency and restructuring professionals need to know:
- Recognition of a foreign insolvency proceeding under the Australian Cross-Border Insolvency Act (CBIA) (implementing the UNCITRAL Model Law on Cross-Border Insolvency (Model Law)) provides foreign representatives with standing to commence recovery proceedings in Australia, on behalf of the insolvent company. This happened in relation to the US appointee who was the plaintiff in this recent decision.
- The Federal Court has determined, however, that such standing for the foreign appointee has its limits. Importantly, standing alone does not equate to the foreign entity, without more, being one to which the voidable transaction (or “claw-back”) provisions of Part 5.7B of the Corporations Act (Act) have application.
- To access the voidable transaction provisions, the foreign entity must be a “company” under the Act – that means: (a) an Australian incorporated company, or (b) a foreign entity that is registered under the Act as a foreign company or that carries on business in Australia. Simply having the foreign insolvency proceeding recognised under the CBIA does not in itself satisfy those requirements – more is needed.
- Promoting international uniformity, the position adopted by the Federal Court accords with the existing approach in England, as explained in Rubin v Eurofinance  UKSC 46.
- The recently published UNCITRAL Model Law on Recognition and Enforcement of Insolvency-Related Judgments may (if adopted in Australia) streamline this process. A note for our clients on this important development will be published later this month.
- Pending adoption of the Model Law on Recognition and Enforcement of Insolvency-Related Judgments – which will be some years away – a local, auxiliary liquidation of the foreign entity (with all of its complexity, both in initiating and then conducting) is still needed for the purpose of carrying out claw-back proceedings under the Act. Whilst this is not an ideal or elegant solution, that is the state of the law in Australia for the time being.
The detail follows below, for those interested in reading more.Read more…