Presentation - Annual IBA Insolvency Conference in Milan -- May 22-24

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Cross-border enforcement of insolvency judgements:

the EU and beyond

May 24, 2016

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Preparing for the Next Crash

Cross-border enforcement of insolvency judgements:

the EU and beyond

Session / Workshop Chair(s)Patrick Rona

Michael Steinhagen

Duane Morris LLP, New York,

USA; Co-Chair Legislation

and Policy Subcommittee,

IBA Insolvency Section

Dentons Europe Oleszczuk,

Warsaw; Co-Chair,

Legislation and Policy

Subcommittee, IBA

Insolvency Section

DescriptionCross-border enforcement of insolvency related judgements

raises numerous concerns and is rarely automatic. Key

controversies are over proper security of the rights of

parties in interest and the type of judgements which can be

automatically enforced. Since domestic courts take different

approaches, there is a need for harmonisation or a

convention that addresses the enforcement of judgements.

A panel of international experts will discuss recent initiatives

including contemplated amendments to the EU Insolvency

Regulation, the UNCITRAL Model Law on Insolvency and/or

the creation of a new UN Insolvency Convention.

Speakers

Prof Min Han Professor, Ewha Woman’s

University Law School, Republic

of Korea’s Delegate to

UNCITRAL Working Group V,

Seoul

Prof Alberto Mazzoni President, UNIDROIT, Professor

of Commercial Law, Catholic

University of Milan, Milan

Prof S Chandra Mohan

Gabriel Moss QC

Prof Rodrigo Rodriguez

Westin Palace

Hotel, 13:30-15:30

Associate Professor, School of

Law, Singapore Management

University, former Delegate of

Singapore to UNCITRAL

Working Group V (Insolvency

Law), Singapore

South Square, London

Federal Office of Justice,

Switzerland’s delegate to

UNCITRAL Working Group V,

Bern

Location

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Cross-border enforcement of insolvency judgements: the EU and beyond

Moderator

Patrick N.Z. Rona – Session Co-Chair and Moderator

Patrick N.Z. Rona is an international corporate finance and insolvency

lawyer. He works on cross-border restructurings, mergers and

acquisitions, as well as debt and equity offerings (public and private). Mr.

Rona started his legal career in emerging markets working for Baker &

McKenzie in Budapest and has worked as a CEO or CRO of distressed

companies in the U.S. and Europe. Mr. Rona is multilingual and has

worked in many jurisdictions. Early in his career, Mr. Rona served as

law clerk to the Honorable Stuart M. Bernstein and the Honorable Arthur

J. Gonzalez of the U.S. Bankruptcy Court for the Southern District of

New York, and he spent two years training in General Electric's Financial

Management Program prior to entering law school. Mr. Rona is an

Officer of the IBA and Co-Chair of the Legislation and Policy

Subcommittee of its Insolvency Section. Mr. Rona represents the IBA at

the United Nations Commission on International Trade Law, Working

Group V and has formed a Task Force of the IBA that works on the

development of an Insolvency Convention.

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Panel, cont’d

Professor Min Han - Speaker

Min Han is a Professor of Law at Ewha Womans University Law School

in Seoul, Korea. His areas of expertise are insolvency, securities &

finance and company laws. Mr. Han holds law degrees from Seoul

National University College of Law (LL.B., 1981) and from Cornell Law

School (LL.M., 1992). From 2010 to present, he has been acting as a

member (adviser) of the Republic of Korea delegation in the deliberations

of UNCITRAL Working Group V (Insolvency Law). He served as an

outside legal adviser for Financial Services Commission of Korea (2011 -

2013). He is currently participating in a special committee of the Ministry

of Justice of Korea for amendment of Korean insolvency law. He is a

member of Korean and New York bars and previously he worked as a

partner at Kim & Chang (1986 - 1997, 2001 - 2010) and Yulchon (1997 –

2001) in Seoul, Korea. He has been a member of the International

Insolvency Institute since 2010.

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Panel, cont’d

Alberto Mazzoni – Speaker

Alberto Mazzoni – JD. summa cum laude University of Pisa (1965); LL.M.

University of Chicago Law School (1966); Associate at Cohen & Meyohas, Paris

(1968-1970); Research Fellow at Michigan Law School (1970-1971); Associate

at White & Case, New York (1971-1973); Adjunct Professor, University of Pisa

Law School (1973-1978); Partner at Studio Legale Ardito, Rome and Milan

(1974-1982); Founder and Senior Partner of Mazzoni e Associati, Milan and

Rome (1982-2015); Professor of Commercial Law at the Universities of Pisa,

Genova, Sassari an Milan (from 1974 to retirement in 2014).

Currently President of the Governing Council of UNIDROIT; President of the

pre-arbitral Tribunal (Comitato dei Probiviri) of the Milan Stock Exchange; Head

of the Italian Delegation at several UNCITRAL Sessions and

UNCITRAL Working Groups; Member of the Asian Academy of Comparative

Law; Adjunct Professor of the Law School of the University of Macau; Lecturer

at the International Arbitration Master Program at Stockholm University; Senior

Partner of Mazzoni Regoli Cariello Pagni, Milan, Rome, Lucca and Pisa.

Milan, May 2016

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Panel, cont’d

Professor S Chandra Mohan – Speaker

Chandra Mohan is an Associate Professor of Law at the Singapore

Management University. His research interests include insolvency law

and practice, criminal law and corporate crime. In 2014, Chandra

assisted in researching into and drafting “A Lawyer’s Guide to Detecting

and Preventing Money Laundering”, a collaborative publication of the

IBA, the American Bar Association and the Council of the Bars and Law

Societies of Europe. He is a Fellow of the Insolvency Practitioners’

Association of Singapore. Chandra has previously held a number of

senior posts in the Singapore legal service including that of a senior J

judge of the District Court, Official Assignee/Official Receiver, Public

Trustee and Director of Legal Policy (Ministry of Law). During his term as

Official Receiver he was the Singapore delegate on the United Nations

Working Group which drafted the UNCITRAL Model Law on Cross-

Border Insolvency in 1997. In 1999 he was conferred the Public

Administration Medal (Gold) by the Singapore Government for

outstanding work in bankruptcy administration and for initiating major

reforms in insolvency law in Singapore.5

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Panel, cont’d

Gabriel Moss QC – Speaker

Gabriel Moss specializes in UK, EU, EEA and international insolvency and

restructuring, as well as company, banking, financial services, commercial

chancery and offshore law and litigation. He has provided expert evidence

for cases in the US, France, Germany, Australia, Greece, The Netherlands,

Italy, Iceland, Poland and Switzerland. Gabriel sits part-time as a deputy

High Court judge of the Chancery Division and is a part-time Visiting

Professor in Corporate Insolvency Law at Oxford University.

In the last few years, Mr. Moss has acted as leading counsel in eleven major

Supreme Court, Privy Council, CJEU and EFTA Court cases involving

insolvency, banking and commercial chancery matters: Heritable v

Landsbanki, Rubin v Eurofinance, New Cap v Grant, BNY Corporate Trustees

Services v Eurosail, Re Nortel, Re Lehman, Re Kaupthing Singer &

Friedlander, Perpetual Trustee Co v BNY Corporate Trustee, PWC v Saad

Investments Co Ltd, Singularis Holdings Ltd v PW, LBI hf v Merrill Lynch

International Ltd, Works Council of Nortel Networks SA v Liquidator of

Networks SA and the Joint Administrators of the Nortel Group and Olympic

Airlines.6

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Panel, cont’d

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Prof. Rodrigo Rodriguez – Speaker

Prof. Rodrigo Rodriguez is the Head of the Swiss Federal Supervisory

Authority on Insolvency. As such, he assesses legislative projects in all

fields of national and international insolvency law. He is also responsible

for the implementation of international standards in Swiss insolvency and

private international law legislation. He is the Swiss delegate to

UNCITRAL working group V since 1996.

Prof. Rodrigo Rodriguez teaches in several Swiss universities (Bern,

Fribourg, Unidistance) insolvency law, private international law and

comparative procedural law and has published extensively in these

fields. Prior to his current civil service activities, Prof. Rodrigo Rodriguez

worked as a lawyer, amongst others, in the liquidation an restructuring

proceedings of the Swissair companies.

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Outline of our Programme Today

• Overview of insolvency law regimes and regimes for foreign judgments

• Rubin/New CAP cases in England — does the common law or model law enable foreign insolvency-related judgments to be enforced in the UK?

• The Sabena v. Swissair Litigation — Belgium initiates civil proceedings against Switzerland and an insolvency matter ends up in the International Court of Justice!?

• What is an insolvency-related judgment in Switzerland, Italy, Korea, Singapore and the UK?

• Enforcement in Italy of foreign insolvency-related judgments — lex specialis & strictly territorial!

• Notes on the European regime

• A global comparison of regimes8

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Outline of Programme Today, (cont’d)

• Analysis of a hypothetical case which requires

recognition of a foreign discharge and

enforcement of an avoidance action

• If we have time, we will touch upon UK

schemes of arrangement and their

enforcement of judgment issues

• Recommended reforms – do we need a model

law or convention for the enforcement of

judgments?9

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• An enforcement of judgments Convention or Model Law Hague Conference (HCCH) Draft

on Enforcement of Judgments in Commercial and Civil Litigation could delete its current exclusion of “insolvency, composition and analogous matters.”

UNCITRAL WG V could complete its own New Model Law or Convention concerning the enforcement of insolvency-related judgments.

• An Insolvency Convention that provides certainty with respect to not only enforcement of judgment problems, but which also addresses choice of law issues and conflicting group proceedings, as proposed by the IBA and UIA

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Recognition of Foreign

Confirmed Plan

(Discharge)

Recognition and

Enforcement of Insolvency-

Related Judgment

(Avoidance Action)

vs.

U.S. U.K. Singapore Switzerland Italy

Model Law Non-Model Law

Korea

Legislative

Reforms

Needed

Recognition Proceeding

Recognition of Confirmed Plan(within Model

Law)

Recognition of Foreign Judgment(outside of Model

Law)

Opening of (Parallel) Local

Proceedings

Recognition of Foreign

Commonwealth Judgment

automatic(reform being considered)

avoidance avoidancedischarge

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Overview of key int'l insolvency

instruments1

Bilateral or regional efforts

- Latin America: Montevideo (1889, 1940), Havana (1928)

- Europe: Nordic countries (1933) + various bilateral conventions

- Africa (French speaking): OHADA Uniform Bankruptcy Law (1998)

Istanbul Convention (Council of Europe)

- Opened for signature since 5 June 1990

Model law on cross-border insolvency (UNCITRAL)

- Model law + Guide (1997, 2013), enacted cca 20 in States

- Legislative guidance (2004 + supplemented in 2010 and 2014) + Practice Guide

(2009)

IBA developed Model Instruments

EU Insolvency Convention (1995) >> EU Insolvency Regulations (2000, 2015)

1 Kurt H. Nadelmann, Bankruptcy Treaties, 93 U. Pa. L. Rev. 58 (1944-1945).

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The European Union and the Council

of EuropeEU Convention on Insolvency Proceedings (1995)

– by 23 May 1996 signed by 14 out of 15 EU Member States at that time (with the

exception of the United Kingdom)

– Virgos-Schmit (explanatory) report (not approved by the Council)

– Revived in 1999 as a project of EU Regulation

EU Regulations on (general) insolvency– Regulation (EC) No 1346/2000 on insolvency proceedings, Regulation (EU) 2015/848

on insolvency proceedings (the latter replaces the former as of 26 June 2017)

– concern the applicable law, jurisdiction and recognition and enforcement of

judgments + rules on coordination of cross-border group insolvency

– do NOT concern: insurance undertakings, credit institutions, investment firms and

collective investment undertakings

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The EU Insolvency Regulation

• Under the European Insolvency Regulation ("EIR"), (i) judgments concerning

the course and closure of insolvency proceedings (including compositions

approved by a court) and (ii) judgments deriving directly from the insolvency

proceedings and which are closely linked with them (which would include a

judgment concerning a discharge of residual debts, among others) shall be

recognised by a member country without further formalities if such judgments

are handed down by a competent court whose judgment concerning the

opening of proceedings is recognised under the EIR.2

• However, in a secondary proceeding, restrictions of creditors' rights, such as a

stay of payment or discharge of debt, may not have effect in respect of the

debtor's assets which are not covered by such secondary proceeding without

consent of all the creditors having an interest.2 EIR, Article 25(1); Klaus Pannen (ed.) European Insolvency Regulation (De Gruyter Recht, 2007) at 374-377; Alexander

Klauser "Enforcement of Insolvency-Derived Judgments - The Approach of the European Insolvency Regulation" Fourth

UNCITRAL International Insolvency Law Colloquium (Vienna, 16-18 December 2013) <www.uncitral.org/uncitral/en/

commission/colloquia/insolvency-2013-papers.html>.

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What Specifically Does the Model Law not

Address?• The Model Law does not provide uniform Choice-of-Law Rules and

each jurisdiction involved may apply its own private international laws.

• Universalist types of relief such as enforcement of a foreign discharge or turnover of assets.

• The inefficiencies and loss of value which still arise among Model Law countries that adopt the Model Law in different ways.

• Countries, like Korea, Canada and Mexico, refrain from enacting the more ambitious, universalist parts of the Model Law, such as recognition based on a set of objective criteria (COMI), automatic relief and other discretionary relief.

• Most OECD countries like Austria, Belgium, Finland, France, Germany, Italy, The Netherlands, Norway and Sweden have not adopted the Model Law and, indeed, most of the UNCITRAL member states (60 in all) have not.

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RUBIN/NEW CAP CASES(A) RUBIN

US default judgments against UK residents based (to the extent

relevant) on insolvency-related causes of action. Defendants did not

submit to US jurisdiction or take part.

Recognition sought in UK under Model Law as implemented in UK,

alternatively at common law.

UK Supreme Court held that (i) Model Law did not enable foreign

insolvency-related judgments to be enforced in UK (ii) nor did common

law (iii) the usual English law criteria for recognising judgments applied:

since Defendants were not subject to US personal jurisdiction (from

English law point of view) e.g. by residence or submission to

jurisdiction, US judgment would not be recognised in UK.

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RUBIN/NEW CAP CASES (B) NEW CAP

• Australian liquidators obtained Australian judgment in respect of voidable

preference claims against Lloyds syndicates after a trial not attended by

Defendants, who did not submit to jurisdiction.

• Defendants had proved in the Australian liquidation in respect of other claims

and attended creditors’ meetings.

• UK Supreme Court held (see Rubin) that normal English judgment recognition

criteria applied. Defendants had submitted to the Australian liquidation

jurisdiction by lodging claims in the liquidation and attending creditor meetings.

Therefore there was personal jurisdiction in respect of the voidable preference

claims.

• In the subsequent Privy Council case of Shell v Krys (on appeal from BVI), it

was held to be enough that an alleged creditor submitted a claim, even if it

was rejected by the liquidator, for the creditor to have submitted to the

liquidation jurisdiction. The creditor had had the benefit of having its claim

considered and was therefore capable of being subject to an anti-suit

injunction preventing it from seizing the debtor’s assets.

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The (draft) UNCITRAL Model Law on

insolvency-related judgements• Work on a «Model Law on Cross-border recognition and

enforcement of insolvency-related judgements» ongoing

since 2014

• Purpose: «fill the gap» (or: to reverse «Rubin»?)

• Two major issues still to be resolved:

– Scope: narrow as «insolvency related decisions» under the

EuInsReg (subpara II) vs. «catch as catch can» (just in case…)

– Indirect competence: narrow (debtor’s domicile or agreed forum)

vs. «anywhere not unreasonable»

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Insolvency law goes ICJ…

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Recognition of a Foreign ‘insolvency-related’ Judgement in

Switzerland (II) – the Sabena vs Swissair litigation

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B

CH

Claim

Insolvency

Civil proceedings

Insolvency Proceedings

recognition?

Decision (firm)

1. With defendant’s insolvency, any pending claimsbecome «insolvency related» … :-/

2. Lugano/BRX I are not applicable3. Neither is it a «decree» under ch. 11 PILA4. tertium non datur: = no recognition

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Recognition of a Foreign ‘insolvency-related’ Judgement in

Switzerland (II) – regulatory background

Insolvency «decree» «insolvency-related»decisions

«Commercial» decisions

EuInsReg 25 I:“concerning the opening of proceedings […] course and closure”

EuInsReg 25 I 2:“deriving directly from insolvency proceedings and [..] closely linked with them”

EuInsReg 25 II / BrusselsI“others than those”…[..]

2004 Model Law ?[(new) Model Law ?]

Hague Convention (?)national PIL

Recognition under ch. 11 of Swiss PILA

NO RECOGNITION Automatic recognitionunder Lugano ( = Brussels I)

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EU

UN

CH

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Enforcement in Italy of Foreign

Insolvency-Related Judgments

Introductory Remarks

A. Three possible regimes:

(i) Regime for foreign non-EU judgments;

(ii) Regime for foreign EU judgments;

(iii) Regime for foreign judgments to which a bilateral convention applies.

B. Will not deal with cases falling under regime (iii). Note however that:

− Some of the most relevant bilateral conventions on the subject matter had been entered into

with European States and as such they are now superseded by regime (ii); and

− Generally, enforcement under bilateral conventions still in force must follow ordinary

procedural rules of receiving State, that is regime (i).

C. Will focus on regime (i), but final remarks will be devoted to regime (ii) and, in

particular, to a practically very important open issue (enforcement in Italy of UK

schemes of arrangement concerning companies having their COMI in Italy).

Core Point is this: Foreign judgments derived from or connected with foreign

insolvency proceedings have no effects in Italy (and, in particular, have no effect with

respect to assets located in Italy), unless exceptionally granted exequatur

consistently with the overarching principle set out by Art. 9(3) of IBL.

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• Prevailing doctrinal view: applicability of Arts. 64 and 67 of Law 218;

consequential tacit abrogation of Art. 9(3) of IBL in view also of Art. 7

of Law 218, dealing with international lis pendens. Thus, automatic

recognition of foreign insolvency-related judgments, subject to ad hoc

exequatur proceedings whenever any such judgment is challenged

by any interested party.

• Prevailing view among the courts: Art. 9(3) of IBL still in force as lex

specialis; Italian notion of international bankruptcy jurisdiction strictly

territorial (except for universal competence assumed to exist only to

the benefit of Italian bankruptcy jurisdiction). See: Trib. Milan order of

October 30, 2014, in Il Fallimento, 2015, 693; Trib. Naples, order of

January 10, 2008, in Il Fallimento, 2008, 571; Trib. Lodi, In re Dam

Italia-Borgward Industrials B.V., Sep. 27, 2012, in Dir. Fall., 2005,

975.

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insolvency-Related Judgments

Notes On European Regime

If the debtor’s COMI is in the U.S. but in a member State of EU other than Italy (all other

elements being the same).

• If the debtor’s COMI is within the EU, European Insolvency Regulation 1346/2000 («EIR

2000») applies until June 26, 2017, whereafter EIR 2000 shall be replaced by European

Insolvency Regulation 848/2015 («EIR 2015»).

• Consequently, until June 26, 2017 discharge of the debtor with COMI outside of Italy

pursuant to a reorganization plan judicially confirmed in the COMI member State must be

recognized in Italy «without any further formality» pursuant to Art. 25(1) of EIR 2000, whilst

after June 26, 2017 the same result shall be assured by virtue of Art. 32(1) of EIR 2015.

Unless a non-main proceeding had been opened in Italy at the initiative of the Italian creditor

prior to the judicial confirmation of the reorganization plan in the COMI member State, the

automatic recognition of such plan in Italy would result, in my opinion, in the extinction of the

claim of the Italian creditor, thus depriving the latter of the standing for filing in Italy either an

action for the enforcement of such claim or a bankruptcy petition for the opening in Italy of a

non-main proceeding.

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Hypothetical Case3

• A debtor "D", which is a corporation incorporated and existing in the United

States, failed in its business and filed for a Chapter 11 proceeding in the U.S.

The plan was subsequently confirmed and the Chapter 11 proceeding was

successfully closed. A creditor “C" who has citizenship of your country

(Korea, UK, Italy, Switzerland and Singapore) received notices of the filing for

the Chapter 11 proceeding and the filing of proof of claims, but did not file a

proof of its claim in the U.S. Thus, the claim of C was not recognised in the

confirmed plan of D, and as a result, D was discharged from its liabilities for

the claim of C pursuant to the U.S. Bankruptcy Code. D owns assets in your

country. Based on its claim against D, C is preparing for the petition for a

bankruptcy proceeding (an insolvent liquidation proceeding) in a court of your

country where the assets of D are located.

3 The first part of this hypothetical case has been prepared largely based on the hypothetical case introduced in Chivying

Rim, "Cross-border insolvency - a hypothetical case" in Proceeding - The 4th Annual Symposium of East Asian

Association of Insolvency and Restructuring (in Korean) at 75 and Min Han, Recognition of Insolvency Effects of a Foreign

Insolvency Proceeding: Focusing on the Effect of Discharge, 19 Special Issue: Trade Development through Harmonization of

Commercial Law/L’Harmonisation du Droit CommercialFacteur de Développement du Commerce, The New Zealand Ass’n for

Comparative Law 345 (2015) (N.Z.)

http://www.victoria.ac.nz/law/nzacl/PDFS/SPECIAL%20ISSUES/HORS%20SERIE%20VOL%20XIX/20-Han.pdf

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http://www.victoria.ac.nz/law/nzacl/PDFS/SPECIAL ISSUES/HORS SERIE VOL XIX/20-Han.pdf

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Issues Raised By Our Hypothetical Case:

• After the successful close of an insolvency

proceeding (reorganization proceeding) in the forum

state, if a creditor attempts to exercise, in another

country, a claim which was not recognized in the

confirmed plan (and thus for which the debtor’s

liabilities were discharged pursuant to the insolvency

law of the forum state), could the debtor or any other

interested party prohibit or deny the exercise of such

claim by the creditor?

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How about enforcement of avoidance

action?• On the other hand, certain transaction between the

debtor “D” and a third party “T” which has citizenship of

your country (Korea, UK, U.S., Italy, Switzerland and

Singapore) was avoided by a transactional avoidance

action filed in the U.S. pursuant to the U.S. Bankruptcy

Code and D obtained a final and conclusive judgment

against T by which T shall be obligated to pay certain

amount of money to D. As T does not have assets in

the U.S., after the successful close of the Chapter 11

proceedings, D is attempting to enforce the foregoing

judgment in your country where the assets owned by T

are located. 26

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Analysis of the Hypothetical Case

• As to recognition of a foreign discharge effected by the confirmation of

the plan, it appears that virtually all insolvency regimes discussed

above (other than Chapter 15 of the U.S. Bankruptcy Code and the

EIR) apply their respective local rules (rules under the civil procedure

law or the private international law, etc.) for recognition of a foreign

court's ordinary judgment whether or not they have adopted legislation

based on the Model Law.

• As to recognition of a foreign judgment on an avoidance action, it

appears that virtually all insolvency regimes discussed above apply

their respective local rules for recognition of a foreign court’s ordinary

judgment whether or not they have adopted legislation based on the

Model Law.

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Comparative Review - Hypothetical 1: Recognition of Confirmation of

Reorganization Plan (effect of discharge)

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States Available by Model Law relief

Available by recognition of foreign judgement (outside of Model Law)

Necessity for opening parallel local insolvency proceedings to obtain discharge

Model Law States

U.S. Yes Yes (after close of foreign insolvency proceedings)

No

U.K. No Yes (but might be difficult due to personal jurisdiction requirement)

No (Yes, if recognition of judgement will likely be unavailable)

Korea No Yes (but would be difficult due to service of process requirement)

No (Yes, if recognition of judgement will likely be unavailable)

Non-Model Law States

Italy N/A No Yes

Switzerland N/A Yes (through recognition proceeding if reciprocity exists)

Yes (recognition proceeding triggersautomatic local proceedings)

Singapore N/A No Yes

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Hypothetical Case, with Avoidance Action:

• If the insolvency representative (or the debtor-in-

possession) has obtained, in the forum state of the

insolvency proceedings, a favorable judgment on an

avoidance action which orders return of certain

payment (or other assets) to the insolvency

representative (or the debtor-in-possession) for the

benefit of the insolvency estate, after the successful

close of the insolvency proceedings, could the debtor

enforce such judgment in your country and procure

payment from T?

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Comparative Review - Hypothetical 2: Recognition and Enforcement of

foreign judgment on avoidance action

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States Available by Model Law relief

Available by recognition of foreign judgment (outside of Model Law)

Need to file a new localavoidance action

Model Law States

U.S. No (?) Yes No

U.K. No Yes (may be difficult due to personal jurisdiction requirement)

No (Yes, if enforcement of foreign judgement is unavailable)

Korea No Yes (not entirely clear; would be difficult due to service of process requirement)

No (Yes, if enforcement of foreign judgement is unavailable)


Italy N/A No (practically, little chance of success) Yes

Switzer-land

N/A No Yes

Singapore N/A No (For Non-Commonwealth Judgements) Yes

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Comparative Review – variant of Hypothetical 2: filing new avoidance action

with a local court

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States Model Law approach (filed by representative of recognizedforeign insolvency proceedings)

Filed by insolvencyrepresentative of local insolvency proceedings

Model Law States

U.S. Yes, by foreign representative (however, only avoidance under foreign insolvency law)

Yes

U.K. Yes, by foreign representative (however, court may impose conditions on judgment for protection of local creditors)

Yes

Korea Yes, but only by local administrator newly appointed for recognized foreign insolvency proceeding

Yes


Italy N/A Yes

Switzerland N/A Yes

Singapore N/A Yes

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Enforcement of Insolvency-Related Judgments In Korea

(a Model Law Country)

Introduction

• Korea adopted legislation based on the UNCITRAL Model Law by

including provisions on cross-border insolvency in the Debtor

Rehabilitation and Bankruptcy Law (“DRBL”).

– DRBL became effective in April 2006 as a new consolidated insolvency law.

– DRBL discarded the principle of territoriality under the previous insolvency

laws and newly adopted the modified principle of universality.

• Subject to the provisions of the DRBL, Korean courts will provide

recognition and relief with respect to a foreign insolvency proceeding.

– Relief available under the DRBL is similar, but not identical to those under the

Model Law.

– Reciprocity not required.

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• Cross-border Insolvency Cases under the DRBL

– Inbound cases: Several precedents where Korean courts granted

recognition and relief in respect of foreign insolvency proceedings

(e.g., reorganization proceedings of U.S. and Japan; and insolvent

liquidation proceedings of Netherlands and Hong Kong)

types of relief: procedural relief such as stay or cancellation of pre-

judgment attachments; prohibition of compulsory execution and

enforcement of security interest; and/or appointment of a local

administrator, etc.

– Outbound cases: Precedents of Korean insolvency proceedings

(in particular, rehabilitation proceedings of debtor companies

engaging in overseas shipping business) recognized and enforced

outside of Korea (e.g., U.S., U.K. and Australia) are being

accumulated.

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Possible Statutory Basis for Recognition and

Enforcement of Insolvency-Related Judgments

• Model Law Relief under the DRBL (legislation enacting the UNCITRAL Model

Law)

– Simultaneously with, or after recognition of a foreign insolvency proceeding,

the court may grant certain relief, which includes (1) relief identical to the

mandatory relief under Article 20 of the Model Law, (2) the appointment of a

cross-border insolvency administrator and (3) ‘any other relief which is

necessary to preserve the debtor’s business and assets or to protect the

interests of creditors.’

• Questions:

– Whether based on the above provision of the DRBL referring to “any other

relief”, the court may grant (i) relief which recognizes the effect of a foreign

confirmed plan (discharge) (First Hypothetical) and/or (ii) relief which

recognizes and enforces a foreign judgment on avoidance action (Second

Hypothetical).

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• Recognition of a Foreign Judgment under the Civil Procedures Law

– Automatic Recognition: Pursuant to the Civil Procedures Law, a foreign court’s

final and conclusive judgment (including a decision having the same effect) shall

be recognized if such judgment meets all of the following requirements:

Jurisdiction: Such judgment was given by a court having valid jurisdiction in

accordance with the international jurisdiction principles under Korean law and

applicable treaties;

Service of process: The defendant was duly served with service of process

(otherwise than by publication or similar means) in sufficient time to enable the

defendant to prepare its defense in conformity with the laws of the state where the

judgment was rendered (or, in conformity with the laws of Korea if it were made to

the defendant in Korea) or responded to the action without being served with

process;

Public policy: In view of the contents and procedures of such judgment,

recognition of such judgment is not contrary to the public policy of Korea; and

Reciprocity: Judgments of the courts of Korea are accorded reciprocal treatment

under the laws of such foreign state (or the requirements for recognition of a

foreign judgment in Korea and those in such foreign state are not significantly out

of balance and are not substantially different in material respect).

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• Enforcement of a Foreign Judgment under the Civil Enforcement Law

– Enforcement Judgment: Pursuant to the Civil Enforcement Law of

Korea, a foreign judgment which satisfies the requirements for recognition

under Article 217 of the Civil Procedures Law can be enforced in Korea

by obtaining an Enforcement Judgment from the competent court without

re-examination of the merits.

• Questions:

– (First Hypothetical) Whether a foreign court’s decision approving the

reorganization plan can be recognized as a foreign judgment pursuant to

the Civil Procedures Law; and

– (Second Hypothetical) Whether a foreign court’s judgment on an

avoidance action can be recognized and enforced in Korea pursuant to

the Civil Procedures Law and the Civil Enforcement Law of Korea.

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First Hypothetical - Recognition of a Foreign Confirmed

Plan (Discharge)

• Scholarly Views Split

– Recognition has become available based on the modified principle of universality

As the DRBA discarded the principle of territoriality under the previous insolvency laws

and adopted the modified principle of universality, it is generally understood that the

effect of a foreign confirmed plan (discharge) could be recognized in Korea.

– Scholarly views have been split as to how a foreign discharge can be recognized in

Korea:

Model Law Approach: the effect of a foreign confirmed plan (discharge) can be

recognized in Korea by obtaining recognition and relief from the court under the cross-

border insolvency provisions of the DRBL.

Foreign Judgment Approach: the recognition of a foreign confirmed plan (discharge)

must be made pursuant to the provisions of the Civil Procedures Law concerning the

recognition of a foreign judgment.

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First Hypothetical (cont’d)

– Model Law Approach

This approach would have a merit from the perspectives of harmonization of cross-border

insolvency regimes and is more consistent in the treatment of the insolvency effects of a

foreign insolvency proceeding.

However, it has weakness in that if the foreign insolvency proceeding is closed and there

is no longer a representative of the foreign insolvency proceeding, relief under the DRBL

would no longer be available for recognition of a foreign discharge (unless the foreign

insolvency proceeding can be re-opened for cross-border recognition).

– Foreign Judgment Approach

This approach takes the view that relief available under the DRBL addresses only

procedural measures to support a foreign insolvency proceeding and relief which

disposes of a substantive law matter (such as discharge of the debtor’s liabilities) is not

available under the DRBL.

A foreign court’s decision approving the reorganization plan can be recognized pursuant

to the provisions of the Civil Procedures Law.

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• Korean Supreme Court’s Decision dated March 25, 2010 (case no.:

2009Ma1600): upheld “Judgment Approach”

– The recognition and relief under the cross-border insolvency provisions of the

DRBL are procedural supports for a foreign insolvency proceeding and are not

measures which change creditors’ claims in substantive law respects;

– As a court’s decision approving the plan in Chapter 11 proceedings of the U.S.

involves determination on the existence of the debtor’s liabilities under the

substantive laws (i.e., discharge), it would be proper to resolve a dispute on the

effect of a discharge through individual legal proceedings to which the debtor and a

relevant creditor are parties; and

– Accordingly, even if a discharge is effected in the course of a foreign insolvency

proceeding, recognition of a foreign court decision on a discharge is not different

from recognition of an ordinary foreign court judgment.

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• Application of the Supreme Court Decision to First Hypothetical

– In order for the discharge effected in the U.S. Chapter 11 proceedings to be

recognized in Korea, the U.S. bankruptcy court’s order approving the plan must

meet the requirements for recognition of a foreign judgment under the Civil

Procedures Law.

– In the Hypothetical Case, the Korean court having jurisdiction over the bankruptcy

filing for the debtor “D” (or any other relevant legal proceedings between the debtor

“D” and the creditor “C”) will determine whether to recognize the U.S. bankruptcy

court’s order.

– It would be irrelevant whether Chapter 11 proceeding was pending at the time of

recognition.

– In general, it may not be easy to meet all the requirements for recognition and

further, due to the ambiguities in interpretation and the lack of court precedents,

there are legal uncertainties in assessing the possibility of obtaining such

recognition.

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• Jurisdiction

– If a foreign court had a substantial connection with a relevant party to, or a subject

matter of a dispute, such court would have a valid international jurisdiction under

Korean law (Private International Law of Korea, Art. 2).

– In the First Hypothetical, it is likely that the U.S. bankruptcy court had a valid

international jurisdiction which is required for recognition of its order in Korea.

• Service of Process

– Under the Civil Procedures Law, if a service of process is made in Korea, it must

be made in accordance with Korean law (including applicable international treaties).

– The said Supreme Court decision did not address issues involving service of

process.

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• Service of Process (cont’d)

– In the First Hypothetical, if the notices to the debtor “D” in the U.S. Chapter 11

proceedings were made to “D” in Korea and such notices were not made in

conformity with Korean law, the above requirement for valid service of process

would not likely be met.

– Suggestion from practicing attorneys: It may be considered obtaining the

Korean court’s relief under the DRBL (a Model Law relief) by which the Korean

court sends the notices to the relevant parties for the benefit of the U.S. Chapter

11 proceedings. It is not clear whether this view will be accepted by Korean

courts.

– Critical Impediment: The above requirement for valid service of process would

likely be a critical impediment to recognition of the effect of a foreign confirmed

plan (a discharge effected in a foreign insolvency proceeding). It would

necessitate the commencement of a parallel domestic proceeding from the

beginning.

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• Public Policy

– In the above Supreme Court decision, the Supreme Court held that the

recognition of a foreign court’s order may be denied:

if the procedures for such court order are contrary to the public policy (e.g.,

infringement of a relevant creditor’s right to participate in the foreign

insolvency proceeding), or

the result of recognizing a foreign court’s order would be contrary to the public

policy (e.g., such recognition would improperly prejudice the interests of

creditors)

– Thus, in the First Hypothetical, depending upon the circumstances, the recognition

of a discharge effected by a foreign confirmed plan may be denied by the Korean

court on the ground of the public policy.

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• Reciprocity

– Generally, reciprocity requirement would not be an impediment if either of

the following requirements can be met:

Precedents where insolvency proceedings of Korea were recognized

in the foreign country (e.g., U.S.); or

Foreign insolvency law (e.g., Chapter 15 of the U.S. Bankruptcy

Code) provides better or similar level of international comity in

recognition of a foreign insolvency proceeding.

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Second Hypothetical - Recognition and Enforcement of

Insolvency-Related Judgment (Foreign Judgment on

Avoidance Action)

• There is no Korean court precedent on point.

• Model Law Relief: Not feasible

– In light of the above-mentioned Supreme Court Decision, recognition and

enforcement of a foreign judgment on an avoidance action may not be granted

through Model Law relief under the DRBL.

• Enforcement of a Foreign Judgment: Probable

– Whether a foreign judgment on an avoidance action may be recognized and

enforced pursuant to the Civil Procedures Law and the Civil Enforcement Law

Possibility of differing views: affirmative view vs. negative view

– In light of the above-mentioned Supreme Court Decision, although not entirely

clear, it is probable that such judgment may be recognized and enforced if the

requirements for recognition under the Civil Procedures Law are met.

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Second Hypothetical (cont’d)

• Alternative Model Law measures available under the DRBL

– Filing of an avoidance action in Korea based on the applicable laws of the

foreign state where the foreign insolvency proceeding is pending:

(if it is pending) a foreign insolvency proceeding may be recognized

under the DRBL (Model Law).

A local administrator may be appointed through relief granted by the

local court pursuant to the DRBL (Model Law).

The local administrator may file an avoidance action with, and obtain

a judgment from a competent court of Korea based on the relevant

foreign insolvency law (or insolvency-related law).

– This Alternative may be considered if it is unlikely that a foreign

avoidance judgment will be recognized and enforced by a Korean court.

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Insolvency-Related Judgments Under Italian Law

First Hypothetical (1)

Italian creditor seeks to enforce in Italy claim against Italian assets of a U.S. company,

whose obligations towards the Italian creditor have been discharged in the U.S. pursuant to

a judicially confirmed plan under Chapter XI.

Variant: Italian creditor files in Italy petition for the opening of insolvency proceedings in

Italy against reorganized U.S. debtor.

1. Italy has not adopted the Model Law.

2. In the absence of Model Law regime, unclear under Italian law which rules are

applicable to enforcement of foreign non-EU insolvency-related judgments; alternative

between:

(i) rules applicable to recognition and enforcement of foreign judgments generally (Arts. 64 and 67 of Law

218/1995, known as Italian Private International Law, hereinafter “Law 218”);

(ii) special implied rules applicable to foreign insolvency-related judgments (other than EU judgments), as

a result of the notion of Italian international bankruptcy competence based on Art. 9(3) of Italian

Bankruptcy Law of 1942, as subsequently amended (hereinafter “IBL”). Art. 9(3) of IBL reads as

follows: “The entrepreneur, whose headquarters (COMI) is situated abroad, may be subjected to

insolvency proceedings in Italy even if insolvency proceedings have already been opened against him

abroad”.

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First Hypothetical (2)

3. Prevailing doctrinal view: applicability of Arts. 64 and 67 of Law 218; consequential tacit abrogation of Art. 9(3) of IBL in view also of Art. 7 of Law 218, dealing with international lis pendens. Thus, automatic recognition of foreign insolvency-related judgments, subject to ad hoc exequatur proceedings whenever any such judgment is challenged by any interested party.

4. Prevailing view among the courts: Art. 9(3) of IBL still in force as lex specialis; Italian notion of international bankruptcy jurisdiction strictly territorial (except for universal competence assumed to exist only to the benefit of Italian bankruptcy jurisdiction). See: Trib. Milan order of October 30, 2014, in Il Fallimento, 2015, 693; Trib. Naples, order of January 10, 2008, in Il Fallimento, 2008, 571; Trib. Lodi, In re Dam Italia-Borgward Industrials B.V., Sep. 27, 2012, in Dir. Fall., 2005, 975.

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First Hypothetical (3) and Variant

5. Realistic answer with respect to issues posed by First Hypothetical

(discharge hypothetical):− Small or no chances to prevent enforcement by Italian creditor on Italian assets

notwithstanding discharge obtained in the U.S. by U.S. reorganized debtor (see, however,

Trib. Monza October 28, 2008, Bear Steams Bank Plc v. Fall. N.N.V., in Unalex, Decision IT-

532).

− In particular (i) reorganized debtor in possession (and/or court-appointed representative of

same or representative of Newco as successor-in-law of original debtor) would be recognized

standing to sue or to be sued in Italy; (ii) no effect would be given to U.S. discharge if assets

in Italy were deemed to be sufficient (per se or jointly with other elements) to establish basis

for exercise in Italy of bankruptcy jurisdiction and a petition to that effect were filed (see point

6 below); (iii) in the absence of grounds for exercise of Italian bankruptcy jurisdiction, U.S.

discharge might be given effect in Italy only if U.S. reorganized debtor (or court-appointed

representative) were able to show that requirements of Art. 67 of Law 218 are all met by U.S.

order confirming the plan and providing for the discharge (major obstacles: finality; service of

process requirements; Italian action commenced prior to opening of Chapter XI proceedings

in the U.S.).

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Insolvency-Related Judgments Under Italian Law

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The Hypothetical Issues in Singapore

• The Hypothetical raises a number of issues in respect of the recognition of a foreign bankruptcy and the subsequent discharge, the consequences of the discharge, the failure of the bankruptcy administrator not to apply to deal with the Singapore assets, the omission of the Singapore creditors to file proofs of debt in the US Bankruptcy despite receiving notification to do so and the effect of claims by Singapore creditors to assets in Singapore

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Recognition of a Foreign Discharge in

Singapore (not a Model Law Country)• Singapore has no domestic legislation generally dealing with cross-

border insolvency issues

• Singapore is not a signatory to any international treaty or convention relating to cross-border insolvencies of companies

• Singapore Courts have, however, recognized the common law Ancillary Liquidation Doctrine which states that where a company is wound up in its country of incorporation, all other courts are to act as ancillary to the principal liquidation, but subject to a statutory exception, which ringfences assets of foreign companies doing business in Singapore for the benefit of local creditors.

• But recognition of a foreign liquidator, bankruptcy order or discharge does not mean that the attendant consequences such as the stay of further proceedings upon a discharge will be recognized: Beluga Chartering GmbH (2014, Singapore Court of Appeal)

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Recognition of a Foreign Discharge in

Switzerland (not a Model Law Country)• Explicit recognition proceeding required

[including evidence of reciprocity]

• Recognition triggers an automatic local proceeding (even if no local

creditors)

• Both require advance of fees and lawyers’ cost…

• Any transfer of funds abroad requires (additional) recognition of the

status of claims of the main proceedings

• currently a Reform project underway… ‘inspired’ in the Model Law:

would renounce to reciprocity test and allow for ‘skipping’ the local

proceedings in simple cases

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Recognition of a Foreign ‘insolvency-related’

Judgement in Switzerland• Excluded from commercial recognition (Lugano)

• Excluded from insolvency opening/discharge decisions

• NO cross-border recognition (!)

• See SABENA vs SWISSAIR

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The Hypothetical

• Singapore courts may not wish to exercise their inherent discretion to

stay proceedings by the local creditors against the assets in

Singapore for the following reasons:

There was no application by the US debtor to apply to the local courts

to be appointed a liquidator and to deal with the Singapore assets

There is no explanation as to why the assets in Singapore were left

undisturbed and no claims made for these assets by the debtor

The fact that the Singapore creditors did not file a proof of debt will not

prejudice their claims to the company’s assets in the jurisdiction

(Manharlal Trikamdas Mody v Sumikin Bussan International (HK) Ltd

(2014, Singapore High Court))

It would be unfair to deprive the local creditors of their claims against

the local assets in these circumstances

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SCHEMES OF ARRANGEMENT

• These are statutory compromises under company and not insolvency law. They

can apply to either shareholders or creditors or both.

• The procedure involves (i) a court hearing to deal with jurisdiction, both

international and domestic, including the question of classes (ii) one or more

meetings of creditors and/or shareholders, which require majority in number and

75% in value (iii) a further court hearing to approve the “scheme” (plan).

• The procedure can be and is sometimes used as a de facto insolvency

proceeding, although there is no mandatory stay. Judges have granted

discretionary stays under general English law powers. The scheme procedure is

not listed either in the current or Recast Insolvency Regulations and is therefore

not subject to the allocation of international jurisdiction between EU Member

States under those Regulations.

• There are no express international allocation of jurisdiction rules for schemes in

the Recast Jurisdiction and Judgments Regulation.

• Schemes do not require proof of actual insolvency and are therefore popular with

Continental European companies – under other EU Member State laws such

compromises require proof of insolvency and an insolvency filing.

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RECOGNITION OF SCHEMES IN OTHER

COUNTRIES

(A) CONFLICT PRINCIPLES

• As long as an English law debt is extinguished or modified by its proper law,

this should be recognised in other countries on ordinary conflicts principles.

• In relation to EU countries, there can be a separate question raised as to

whether the court order “sanctioning” (confirming) the Scheme (plan) has to

be recognised and enforced in other EU countries pursuant to the Recast

Jurisdiction and Judgments Regulation.

• My own view is that (i) in the light of conflicts principles, this question is

unnecessary (ii) the concept of “judgment” under the Recast Jurisdiction and

Judgments Regulation is very wide and therefore Schemes should be

recognised under the Regulation, even though (iii) the Regulation does not

expressly mention Schemes or provide any express allocation or jurisdiction

rule. The anomaly of having a recognition but no jurisdiction rule arises

because the 1968 vintage text was agreed when the UK was not a party to the

Brussels Convention and the parties did not have UK type schemes.

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Prof. Mazzoni: very

open and

controversial issues

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POTENTIAL REFORM

• Lord Collins in Rubin considered the question of whether there should be a

separate special common law rule for recognising insolvency-related

judgments. This had been suggested by Lord Hoffmann in the previous case

of Cambridge Gas.

• Lord Collins rejected this idea, partly because it would lack reciprocity without

an international convention.

• It would be desirable to have an international convention.

• Meanwhile, other courts could develop extra-statutory principles for indirect

assistance for foreign insolvency-related judgments. “Assistance” would be

discretionary and based on case-law principles, as opposed to “Recognition”

which is mandatory and subject to relatively rigid rules. For example, in

Singularis the Privy Council (on appeal from Bermuda) considered that in

principle a foreign insolvency proceeding could be assisted by discovery

orders pursuant to common law, as long as such relief was available under

the law of the foreign jurisdiction.

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Problems of Current Cross-Border Insolvency Regimes

• Different Procedures and Rules

– Local law requirements for recognition of a foreign judgment are different from

those for recognition and relief available in respect of a foreign insolvency

proceeding under the UNCITRAL Model Law.

– Cross-border recognition of the effect of a foreign confirmed plan (discharge),

which is one of the core insolvency effects, would be governed by different

procedures and rules outside of the UNCITRAL Model Law.

• Prejudice to the Goal of the UNCITRAL Model Law

– In order to secure legal certainty in the discharge of its debts, the debtor may be

inclined to separately file for a local insolvency proceeding in parallel with a foreign

main proceeding rather than relying on cross-border recognition and relief available

for such foreign proceeding under the UNCITAL Model Law.

– Similar problems exist in respect of recognition and enforcement of other “foreign

insolvency-related judgments”, including a foreign judgment on an avoidance

action.

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Improvements Required

• Need to better achieve harmonization of cross-border insolvency regimes

pursued by the UNCITRAL Model Law

• Improvements required for recognition of a foreign discharge (in

the states which have adopted the UNCITRAL Model Law):

– amending Article 21 of the UNCITRAL Model Law to clearly provide for

new relief for recognition of a foreign confirmed plan (and a discharge

order) effected by or relating to a foreign insolvency proceeding; and

– some additional measures for recognition of a foreign insolvency

proceeding which has been closed:

amending the UNCITRAL Model Law to include relief which may be sought by

the debtor (or any other interested party) after the close of a foreign

insolvency proceeding, or

preparing separate legislative provisions that may be applied outside of the

UNCITRAL Model Law after the close of a foreign insolvency proceeding.

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Improvements Required (cont’d)

• Improvements for recognition and enforcement of foreign

insolvency-related judgments

– Desirable to develop a model law or model legislative provisions concerning the

procedures and requirements for recognition of insolvency-related judgments

(including an order confirming the plan and a discharge order) rendered relating to

a foreign insolvency proceeding.

– Currently under deliberations at the UNCITRAL Working Group V (Insolvency Law)

• Issues for further review may include, among others:

– Removal of potential impediment caused by rigid requirements for valid service of

process

– Safeguard to protect creditors’ interest

– Removal of reciprocity requirement

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Please refer any questions or follow-ups to:

Patrick N.Z. Rona

[email protected]

DUANE MORRIS LLP

1540 Broadway

New York, NY 10036

Tel: 212-692-1048

Fax: 212-692-1020

www.duanemorris.com

Disclaimer: These materials and panel’s comments are intended for discussion purposes only and are

not intended as legal advice. The views expressed are the personal opinions of the speakers and not

those of the institutions or organizations with which the speakers are affiliated, or of the International

Bar Association or its officers (which make no representation as to the accuracy of the information

communicated).

Thank you for your participation!

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Presentation - Annual IBA Insolvency Conference in Milan -- May 22-24

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Transcript of Presentation - Annual IBA Insolvency Conference in Milan -- May 22-24