THE INSOLVENCY PROFESSION is reeling from a Supreme Court judgment that will see increased complexity and cost added to international collapses.
A judgment was handed down today by the Supreme Court on the future of whether foreign court rulings in insolvency matters can be enforced in other jurisdictions.
Practitioners were hoping they could keep costs down by making one legal application for funds which could be enforced universally. However, the Supreme Court ruling now means practitioners will have to bring legal proceedings in each jurisdiction in which they need to pursue funds.
Two cases were joined together and appealed in the Supreme Court in order to bring clarity on cross-border insolvency across the profession.
One half of the case involved practitioners from David Rubin & Partners using a ruling in a US bankruptcy court to pursue funds in the UK. Meanwhile, the other half of the case saw UK liquidators using a ruling to pursue funds owed from entities in Australia.
One insolvency partner said he was “shocked” at the results.
John Verrill, insolvency and restructuring partner at international law firm Chadbourne & Parke, said he was left “reeling” at the judgment, labelling the news as “slightly depressing”.
Verrill, who also spoke on behalf of European insovlency trade body INSOL Europe, said: “The judgment has put international co-operation on cross-border insolvencies back to 1990.”
He argued the law has been pushed back years – if not decades – to a time when insolvency law was not based on pursuing funds that moved around the world electronically.
Representing New Cap Re insolvency lawyer Devi Shah said practitioners could now face huge fees and costs.
“There had been talk of simplifiying the process so that there would be one legal insolvency proceeding in one jurisdiction and a practitioner able to enforce its authority from that base around the world. However, under the latest judgment a practitioner will have to pursue funds through legal proceedings in each jurisdiction, racking up huge fees and costs,” said Shah, partner and joint head of restructuring and insovlency at law firm Mayer Brown.
“Rather than enabling a liquidator of an insolvent multinational group to start one set of proceedings in one jurisdiction, enforceable around the world, the court’s decision has left liquidators needing to bring a number of proceedings in different jurisdictions, with the local courts potentially reaching different decisions on the same facts.”
She added: “As a result of the Supreme Court’s decision, liquidators conducting insolvencies of multi-national groups may need to issue clawback proceedings in a number of different jurisdictions, rather than being able to litigate the claims together in the insolvent’s home jurisdiction against international defendants. This could lead to the liquidator needing to prove the same elements (such as insolvency) over and over again and give rise to the very real possibility that local courts could reach different positions on similar facts.”
The idea behind modified universalism is that, in an increasingly globalised world, insolvency proceedings and related litigation should be simplified and unified as much as possible. In this sense, the Supreme Court’s decision could be seen as a step backwards, because it may lead to a multiplicity of proceedings in various jurisdictions.