ONE OF THE MOST anticipated international insolvency cases has finally come to an end but, with what looks like disastrous consequences.
The Supreme Court has decided that, in international insolvency cases, practitioners will have to make a legal claim in each country they are pursuing funds, rather than one that will be universally accepted.
Although I can understand the judges' reasoning in their decision (decisions of this magnitude needs to be changed in statute not at common law level) I am shocked at the possible ramifications for the insolvency community.
The negative effects are likely to be seen in time and money - two things that are a scarcity if a positive turnaround from an insolvency is desired.
Given that most companies today have international creditors of some sort, costs such as legal and practitioner fees are likely to rocket. The legal complexities will draw out the process.
The worldwide effort to create a cross-border rule-set (UNCITRAL), a signed agreement that practitioners will have the authority to pursue creditor funds anywhere, are now left in tatters.
But there are other issues. What if one jurisdiction comes to a different conclusion than another? Could the UK see a detrimental effect on its import/export market because of trade insurers' nervousness at future difficulties an IPs could have in recovering funds from other jurisdictions?
The judges in this case think legislators must create a global model - it's not for them to sort out in a courtroom. So now it is left to the profession to stamp their feet and campaign to get this issue in front of MPs, to make them understand the significance of this decision and why a change is so desperately needed.
Although this seems like an arduous task, Accountancy Age is well aware that IPs are quite a resourceful bunch and usually up for a fight. Well they've got one here.
Rachael Singh is Accountancy Age's senior reporter and insolvency correspondent
I'm sorry, but I think that this by far overstates the effect of the decision. The Uncitral Model Law is not left "in tatters" and has been construed to do exactly what it says, which is to permit foreign insolvency office holders to bring avoidance actions in another (e.g. UK) jurisdiction, according to the laws of that jurisdiction. In the UK, that is the Insolvency Act 1986.
Nowhere does the Model Law say that it permits the orders of foreign courts to be enforced directly in the UK, where, according to English private international law (which I think most agree is a reasonable standard), that foreign court order was given without jurisdiction.
The ability of courts to come to different conclusions in insolvency proceedings has already been demonstrated in the Perpetual litigation, and I think that the insolvency world is left relatively unravaged (I wish I could say the same for the securitisation world).
Finally, the decision does not reverse any kind of common practice for UK courts to enforce foreign orders given without jurisdiction. If the US court had had personal jurisdiction over the individuals involved in these cases, then I think this would never have been an issue. However, it did not have jurisdiction and there are important policy reasons why the Supreme Court held that this mattered.
Editor, PLC Restructuring and Insolvency
(Note, these views are my own, not PLC's)
Posted by: Rebecca Catterson, 29 Oct 2012 | 17:52
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