England: Cross Border Restructuring and Insolvency Update - August 2013
Re Hellas Telecommunications (Luxembourg) II S.C.A (a.k.a. Hosking v Nautadutilh Avocats) [unreported]
The High Court held that, in English main proceedings, the English law of legal professional privilege determined which documents could be withheld by Luxembourg lawyers.
Hellas was incorporated in Luxembourg. It moved its COMI to the UK shortly before being put into Administration. It was subsequently placed into Liquidation. The Administration and Liquidation were main proceedings under the European Insolvency Regulation.
Hellas owed substantial sums to creditors. The Liquidators wished to investigate the circumstances of the company's failure: in particular, three transactions involving Hellas. The Liquidators believed that the documents they required were in the possession of Nautadutilh Avocats, a Luxembourg firm of lawyers.
The Liquidators made an application to the English Court for an order that Nautadutilh (and certain individual members of that firm who had worked on the relevant files) deliver up documents "belonging to" Hellas and produce documents "relating to" Hellas.
Nautadutilh argued that it had already provided all the documents "belonging to" Hellas that they could properly disclose under the law of Luxembourg. They submitted that they could not disclose, or even describe, any other documents falling within the application as those documents were subject to Luxembourg rules of professional conduct and secrecy.
The Court found that the European Insolvency Regulation determined that, once insolvency proceedings had been commenced, the law to be applied to those proceedings was the law of the Member State in which they had been opened. Thus the Court held that English rather than Luxembourg law was to be applied when deciding whether a document was protected from inspection by reason of legal professional privilege. Particularly relevant in this case were issues concerning joint clients and communications between lawyers.
The Court ordered production of documents "belonging to" Hellas. The Court would also be prepared to make an order for production of documents "relating to" Hellas, as the order sought by the Liquidators was neither unnecessary nor oppressive, and such documents were reasonably required for the Liquidators' investigations.
The Court held that Luxembourg law was relevant, however, as the legal advice and assistance had been sought under Luxembourg law and the Respondents were potentially at risk of serious professional and criminal consequences for breaching Luxembourg law.
The Court ordered an adjournment to allow opportunity for constructive dialogue between the parties in Luxembourg on the practicalities of disclosure of the documents and a final opportunity for Nautadutilh to comply with the Liquidators’ request. If the parties could not come to agreement, an order for production would be made.
Bluecrest Mercantile NV v Vietnam Shipbuilding Industry Group  EWHC 1146 (Comm)
The High Court has confirmed that it can order a stay in proceedings by a creditor against a debtor company where proposals for a Scheme of Arrangement are on foot.
Vietnam Shipbuilding Industry Group (Vinashin) was a Vietnamese shipbuilding company. It fell into financial difficulties and negotiated with its creditors with a view to entering into a Scheme of Arrangement under the UK's Companies Act 2006. While those negotiations were in progress, two of Vinashin's creditors issued proceedings to recover sums due to them. Vinashin applied to the English High Court for a stay of those proceedings pending agreement of the proposed Scheme of Arrangement.
The Court agreed to order a stay as requested. This decision represents a development in the law: in earlier cases, it had been held that the Companies Act did not give the Court power to order a stay in such circumstances. However, in this case, the High Court held that its general power, under England and Wales' Civil Procedure Rules, to stay the whole or a part of any proceedings was applicable and could be used for the purpose.
In exercising its discretion as to whether or not to order a stay, the Court considered the following factors:
- Whether or not the company was insolvent;
- Whether the Scheme of Arrangement was at a reasonably advanced stage (in this case, a Term Sheet had been prepared and a creditors meeting was to be convened);
- Whether there was a real prospect of the Scheme of Arrangement being approved by the requisite majority of creditors;
- Whether the benefit of the Scheme of Arrangement to creditors generally was such as to outweigh any prejudice suffered by the dissentient creditors; and
- Whether the claims to be stayed would disrupt the proposed Scheme of Arrangement.
This case marks a useful development in the law of Schemes of Arrangement. It confirms that the Court can grant a stay of proceedings (and not just the enforcement of a judgment) to enable a Scheme to be proposed, protecting the debtor company from action by dissentient creditors in the meantime.
Vinashin then made a separate application for orders relating to the proposed Scheme of Arrangement (Re Vietnam Shipbuilding Industry Group  EWHC 2476 (Ch)). The High Court held that Vinashin had sufficient connection with England for the Court to have jurisdiction, because the loan facility agreement under which the debts in question arose was governed by English law and subject to the non-exclusive jurisdiction of the English courts.
Updates from around the World
US / Ireland
Seán Dunne, an Irish property developer who had filed for bankruptcy in the US, has also been made bankrupt in Ireland. The dual bankruptcy had been approved by the US Court with the support of Mr Dunne's US Trustee, who will work with the Irish Official Assignee to realise assets in the bankruptcy estate.
The guide to enactment of the UNCITRAL Model Law on cross-border insolvency has been revised. The revisions relate to the characteristics of foreign proceedings susceptible to recognition under the Model Law, and the factors relevant to determining a debtor's COMI.
In Yu v STX Pan Ocean Co Ltd, the Australian Court recognised STX's South Korean insolvency proceedings as foreign main proceedings but declined to grant additional relief sought by Mr Yu, STX's South Korean Receiver. Mr Yu's application effectively asked the Court to restrain Australian creditors from enforcing maritime liens or arresting or seizing STX's ships in Australian ports. The Court held that it was not in the interests of creditors for it to make such an order.
In Re The Scottish Coal Company Ltd, the Scottish Courts confirmed that a Liquidator has power to disclaim onerous property. The position in Scotland had previously been unclear as, in contrast to England and Wales, there is no express statutory authority for a Liquidator to do so.
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