Cross-Border Insolvency: The Role of Local Insolvency Practitioners & the Date of Administration

The recent decision in Wild (Foreign Representative) v Coin Co International PLC (Administrators Appointed); In the matter of Coin Co International PLC (Administrators Appointed) [2015] FCA 354 (Wild) explores, among other things, two particular issues for insolvency practitioners not previously considered in any detail in previous cases.

Issues the Court Addressed

The two issues of particular interest which the Court addressed were in relation to:

1. The appointment of local insolvency practitioners as the approved insolvency representatives in Australia (Local Representative Issue); and
2. The date of the administration of the debtor the subject of the recognition proceeding (Date of Administration Issue).

The Local Representative Issue

In the Originating Process filed by the foreign representatives, the foreign representatives sought the following order:

3. Pursuant to sub-paragraph (e) of Article 21(1) of the Model Law, the administration and realisation of all of the defendant's assets in Australia be entrusted to David Kerr and Peter Marsden of RSM Bird Cameron Partners of Level 12, 60 Castlereagh St, Sydney NSW 2000.

Although that order was not contested the Court noted that it "must nonetheless be satisfied upon the basis of admissible evidence that it should make the orders sought".

Article 21(e) of the Model Law says as follows (emphasis added):

Upon recognition of a foreign proceeding, whether main or non-main, where necessary to protect the assets of the debtor or the interests of the creditors, the court may, at the request of the foreign representative, grant any appropriate relief, including:

...

(e) Entrusting the administration or realization of all or part of the debtor's assets located in this State to the foreign representative or another person designated by the court

In the supporting affidavit to the application, one of the foreign representatives gave evidence that he considered that the appointment of Mr Kerr and Mr Marsden (Local Representatives) would "create efficiencies and be in the best interest of creditors as a whole" for the following reasons:

• It would provide the foreign representative with a presence in Australia without having to rely on agents;
• It would allow decisions to be made more quickly and for documents to be executed more easily on behalf of the debtor;
• The extensive knowledge and contacts that the Local Representatives would have which would assist in the realisation of the debtor's assets; and
• The Local Representatives would be more familiar with local insolvency laws, and as such, would be in a better position to consider the impact of the Corporations Act 2001 (Cth), the Personal Property Securities Act 2009 (Cth) and the Cross-Border Insolvency Act 2009 (Cth) and to seek appropriate advice as necessary.

The Court concluded on the basis of the evidence given by the foreign representatives that the Local Representatives should be designated by the Court for the purposes of Article 21(e) (Local Representative Recognition).

The Court also specified that the Local Representatives had all the powers normally available to liquidators appointed under the Corporations Act 2001 (Cth) (which the Court did notwithstanding that such specification may not strictly be necessary to spell out those powers, as that was the general practice of the Court in cross-border insolvency matters).

The Court then went on to clarify the combined effect of Article 23 in light of the Local Representative Recognition. Article 23 states that upon recognition of a foreign proceeding, the foreign representatives have standing to initiate proceedings in respect of voidable transactions, pursuant to Division 2 of Part 5.4B of the Corporations Act 2001 (Cth) (Voidable Transactions).

The Court noted that the combined effect of Article 23 and the Local Representative Recognition was that both the foreign representative and Local Representatives would have standing to initiate proceedings in respect of Voidable Transactions. In this regard the Court noted that:

Article 23 of the Model Law provides that the foreign representative is not precluded from commencing such actions solely for the reason that the representative is not the insolvency representative approved in Australia. Article 23 also leads to the conclusion that the foreign representative will have the same standing to bring actions … [in respect of Voidable Transactions] as if that representative were a liquidator with power to act under that division.

As Article 23 does not explicitly express the matters referred to by the Court, those matters appear to have been implied by the Court when construing the Article.

The Date of Administration Issue

The foreign representatives also sought the following Order in the Originating Process:

4. Pursuant to sub-paragraph (g) of Article 21 of the Model Law, the administration of the defendant's estate in Australia be taken to have begun for the purpose of section 513C of the Corporation Act 2001 (Cth) on either:
(a) 27 November 2014, being the date on which the plaintiffs were appointed over the defendant in the United Kingdom in the foreign proceedings; or
(b) alternatively, on the date in which the Court makes the orders sought in paragraphs 1, 2 and 3 of this Originating Process

That order was contested by 2 creditors of the debtor, UNICEF and Jetstar.

UNICEF essentially adopted the position that the Court should make the order sought in paragraph 4(b).

Jetstar on the other hand asserted that:

• The Court does not have power to make either of the alternative orders sought in paragraph 4 as:
  • An Australian local insolvency practitioner does not have the power to make an application to a Court as to the date a voluntary administration commenced; and
  • Those orders were unnecessary because the Corporations Act 2001 (Cth) prescribes when a voluntary administration is deemed to have been commenced; and
• In the alternative, even if the Court did have the power it should not do so as it might unfairly prejudice the debtor's Australian secured creditors as against its foreign secured creditors.

The Court noted the importance of the orders sought as it would be significant for any proceeding instituted in respect of Voidable Transactions, as those provisions make reference either to the "relation back day" or "the date when the insolvent administration began".

The Court declined to make the orders sought by the foreign proceeding or to provide any guidance as to how that question would be dealt with in any proceeding instituted in respect of Voidable Transactions, as:

• The Model Law did not "authorise such determination at this stage" and was "not relief of the kind contemplated" by Article 21 or Article 23;
• If Voidable Transaction proceedings are instituted the parties to that proceeding could make submissions and/or tender evidence in respect of the relevant dates; and
• The making of the orders sought would pre-empt a proper consideration of that question and result in a determination that affects the right of parties who have not had the opportunity to be heard.

The Court did not address the matters submitted by Jetstar.

Summary

The Wild decision provides the following guidance:

• The Court has the power to appoint local insolvency practitioners as the approved insolvency representative in Australia. This was previously done in the Saad decision in 2013;
• The Court will exercise the power to appoint local insolvency practitioners as Australian insolvency representatives when sufficient evidence has been put before it to justify their appointment;
• The mere fact that a local insolvency practitioner is appointed as the Australian insolvency representatives does not restrict a foreign representative from commencing its own proceedings in Australia in respect of Voidable Transactions;
• The Model Law does not authorise the Court to make a determination at the time of recognition as to the date when the insolvent administration began, or the relation back day, for the purpose of proceedings commenced in respect of Voidable Transactions. Rather, those dates are a matter for consideration in respect of any subsequent proceeding brought against another party in respect of Voidable Transactions.

The main matters that foreign representatives should consider and take from the Wild decision, among others, are:

• Given the localised expertise of local insolvency practitioners in respect of the Australian market and legal landscape, foreign representatives should seriously consider the benefits (both to the foreign representatives and the debtor's creditors) of appointing a local insolvency practitioner to undertake the realisation and administration of the debtor company in Australia; and
• In light of the lack of authority as to when a Court will determine the date of the administration and/or the relation back day in a cross-border insolvency context, any recognition proceeding should be brought as soon as possible, as:
  • This will increase the likelihood of that date being determined as the date of the foreign proceeding (or at least a date close to it); and
  • There is no guarantee that if the commencement of a recognition proceeding is delayed, a Court in Australia will deem the administration as having retrospective effect from the date of the foreign proceeding.

Matthew Youssef, HWL Ebsworth Lawyers

This article was published in the 12th Edition of HWL Ebsworth Lawyers' National Insolvency & Reconstruction Quarterly Review. To view other topics and case developments, including an ongoing review of liquidator remuneration and others, click here to read.