England: Cross Border Restructuring and Insolvency Update
Joint Administrators of Heritable Bank plc v Winding Up Board of Landsbanki Islands hf  UKSC 13
The Supreme Court has clarified which national law should be applied when a credit institution becomes insolvent.
This case arose from the failure of the Icelandic banking system in 2008. Landsbanki was an Icelandic bank, incorporated in Iceland, with its registered office in Reykjavik. Heritable Bank plc, a Scottish bank with its registered office in Glasgow, was a wholly owned subsidiary of Landsbanki.
In 2008, Landsbanki entered winding-up proceedings in Iceland, and Heritable went into administration in Scotland.
Each bank had claims against the other. This case concerned a claim brought in Scotland by the winding-up board of Landsbanki against Heritable in respect of a revolving credit facility for about £86m, and various claims brought in Iceland by the administrators of Heritable against Landsbanki to a total value of about £898m.
Heritable's claim was rejected by Landsbanki, and Heritable withdrew the claim before it was determined by the court in Iceland, because it believed it could not recover. In the action in Scotland, on the other hand, Heritable accepted Landsbanki's claim, but said it should be set off against Heritable's claim against Landsbanki, which would effectively extinguish it.
The Scottish Court found for Landsbanki at first instance, but, on appeal, the Inner House of the Court of Session found for Heritable. It held that although under Icelandic law the withdrawal of Heritable's claim was final, the question of whether set-off applied should be determined under Scottish law.
Landsbanki appealed to the Supreme Court, where the case turned on the construction of the Credit Institutions (Reorganisation and Winding Up) Regulations 2004 ("the Regulations"), which implements the European Directive on the reorganisation and winding up of credit institutions.
Landsbanki argued that regulation 5 of the Regulations provided that an insolvency measure in a EEA state has effect in the UK in relation to an EEA credit institution, and meant that Heritable's claim was extinguished.
The Supreme Court dismissed Landsbanki's appeal. The Court noted that the Regulations made a clear distinction between EEA credit institutions and UK credit institutions.
The Court held that regulation 5, on which Landsbanki relied, simply ensured that the process of winding up an EEA credit institution must be conducted in the EEA member state in which it is incorporated. Thus Landsbanki's winding up was to be conducted under Icelandic law and those proceedings given effect in the UK as if part of the UK's law. Heritable, conversely, was a UK credit institution, and its administration subject to Scottish law.
Regulation 5 was not concerned with the effects of the choice of Scottish law for Heritable's administration. Those effects were provided for elsewhere in the Regulations, which preserved the conditions for set-off as being governed by Scottish law. As such, Heritable would not be precluded from setting off its claims against Landsbanki in its own administration.
Anglo Irish Bank Corporation Ltd v DTZ Debenham Tie Leung Ltd (unreported)
The High Court has refused an application that a bank subject to parliamentary-imposed liquidation should give security for costs of legal proceedings
As noted in last month's bulletin, the Irish Bank Resolution Corporation Act 2013 ("the Act") was passed by the Irish parliament on 7 February 2013. The Act enabled the liquidation of Irish Bank Resolution Corporation Ltd ("IRBC"), formerly known as Anglo Irish Bank. Liquidation was immediately effected by Ministerial Order, without any court order or shareholder resolution required.
Anglo Irish had previously commenced a professional negligence claim against DTZ in England and Wales. If DTZ successfully defended the action, its costs would normally be recoverable against the assets of IRBC in priority to the general expenses of the liquidation.
DTZ applied to the Court for security to be provided for their costs of defending Anglo Irish's claim. It submitted that certain provisions of the Act and the unique circumstances of IRBC's liquidation had resulted in uncertainty as to whether DTZ would be able to recover its costs in the normal way.
The Court dismissed the application. The Act provided for IRBC's liquidator to apply to the Court to exercise the powers available to the Court if it were winding up IRBC itself. The Court found that DTZ had not established doubt as to the liquidator's ability to use IRBC's assets to pay DTZ's costs in priority. Consequently, DTZ had not met the threshold for showing reason to believe that Anglo Irish would be unable to meet an order for costs.
Updates from around the World
US / Canada
Judges in North America have decided that a joint US–Canadian trial should be held to distribute the $9 billion assets of Nortel Networks Corporation. Rejecting a request from Nortel's former European arm for arbitration, the ruling comes after three failed mediations and court actions in various jurisdictions since the company filed for protection from its creditors in 2009.
In Chateau D'Or v Gylling Invest, the Swedish Supreme Court ruled on an issue of jurisdiction in respect of recovery of assets in Swedish bankruptcy proceedings. The Swedish courts had jurisdiction to rule on the recovery of Swedish and foreign patents that had previously been assigned to a foreign company registered in St Kitts and Nevis. The Court held that it was the transfer agreement that was subject to the claim rather than the patents themselves.
We reported in January the High Court's ruling that Brian and Mary O'Donnell's COMI remained in Ireland, despite their permanent move to London. The High Court has now refused their application for that judgment to be set aside so that further evidence could be considered. The O'Donnells are to seek leave to appeal.
Recent figures have shown a marked increase in the number of corporate insolvencies in Thailand. 7,221 Thai companies folded in the last quarter of 2012, compared with an average of around 3,000 for the equivalent period in previous years. Increases in the minimum wage and the strength of the baht are causing problems for exporters.
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