Universal Approach to Cross Border Insolvency

There is much debate surrounding the upcoming Supreme Court hearing to determine whether foreign court rulings in insolvency matters are enforceable in England and Wales.

The two Court of Appeal decisions which have come under scrutiny are Rubin & anor v Eurofinance SA & ors [2010] (Rubin), and New Cap Reinsurance Corporation Ltd (in liquidation) & anor v AE Grant & ors as members of Lloyds’s Syndicate 991 for the 1997 Year of Account & anor [2011] (New Cap).

In May 2012 the Supreme Court will revisit the issues raised during the Rubin hearing.  In Rubin the justification for the decision to allow the New York judgments to be enforceable in England and Wales included the fact that proceedings in relation to bankruptcy and insolvency are for the purposes of the collective enforcement regime and that the jurisdiction of the foreign court derives from its position as the court of the bankrupt’s domicile.  By recognising the New York judgments in England and Wales creditors do not have to commence parallel proceedings to entitle them to remedies which effectively they have proved they are entitled to in another jurisdiction.  If the Court of Appeal decision in Rubin is reversed, it is likely an appeal in New Cap will subsequently be launched.

New Cap was decided subsequent to the decision reached in Rubin.   The Court of Appeal resolved that the jurisdiction of the New South Wales court must be recognised in light of Rubin.  Therefore an insolvency judgment for the payment of money obtained in an Australian court was found to be enforceable in England and Wales.

Both of the judgments above demonstrate a continuing judicial trend towards a universal approach to cross-bored insolvency proceedings; however commentators are divided as to whether the impact of these decisions on London’s intention to become the leading international dispute resolution centre will be positive or negative.

‘The wider impact – if Rubin is held to be right – will be that if you’re an English company and you get involved in a process with overseas liquidators, you’re probably going to have to appear and contest in the jurisdiction of the liquidator’( David Kendall, instructed by Eurofinance in Rubin).  This will no doubt create uncertainty for UK businesses as they could find themselves subject to a judgment being enforced in England and Wales, without a separate trial in the jurisdiction in which the company has been operating.  Effectively the ambiguity of foreign judgments being enforceable against UK businesses is an uncertainty which will be difficult to quantify.  Further the comfort of the British justice system is eroded for businesses operating in the UK; instead the jurisdiction of the liquidator becomes significant.

Litigating in London

Kendal further asserts that this will encourage non-UK based lawyers not to litigate in London as they would know that foreign proceedings would be enforceable, without the case having to be heard in the jurisdiction.  The effect will be that it is not necessary to litigate in London so litigators probably won’t.

Nick Moser has been instructed to intervene in Rubin on behalf of Irving Picard, trustee of Bernard Madoff Investment Securities.  The expectation of Moser in light of Rubin, is to widen the jurisdictions in which the judgment against Madoff in the New York Court can be enforced; if the judgement is enforceable in London it can also be enforced in the jurisdictions where it is believed Madoff has millions squirreled away in offshore accounts.   According to Moser the jurisdictional reach of the London court will encourage insolvency proceedings to be commenced in London.  Currently the US and Canada are leading in this respect, but in contrast to Kendal, Moser says the influx of foreign lawyers will increase as they come to enforce the law of any country in the London court .

Collective Remedy

Cooperation between courts of different jurisdictions is beneficial for international business according to Moser.  His view is that ‘the ability of lenders to assess the likely risk to the company is much more reliable’.   Lenders will be in a better position to more clearly identify the risks of lending if the outcome of where the insolvency will commence is clear from the outset.  The global economy would eventually benefit from this greater certainty which lenders would be equipped with, as lenders would have more information and comfort about recovery in the event that the borrower becomes insolvent.

Ultimately this approach means international insolvency cases can be run in a ‘sensible, fair and efficient manner’ in which ‘one lot of proceedings in one jurisdiction’ are ‘enforceable around the world’ according to one specialist in the field.  It follows that this is a cost efficient and practical method to manage insolvency proceedings in international insolvency cases.  The alternative, which many believe to be out of touch with the global economy, of bring separate proceedings in each jurisdiction sees the Courts determining the same issues time and time again; This being a waste of resources.

Commentators agree given the judicial trend in recent years, it would be an upset if the Supreme Court were to disrupt the universal approach towards bankruptcy and insolvency proceedings commenced overseas.  An endorsement by the Supreme Court would cement the path towards a more cost effective and efficient approach to multi jurisdictional insolvency cases.