recession”, that there will be no growth inBritain in 2010 and that unemploymentwill rise to 10 per cent; The Wrekin £11million ruby appears not to have been aruby after all; Oh and probably not sur-prisingly there has been more disquietabout pre-packs!

There is one rather nice piece of newshowever: Woolworths is back, albeit asan online shop, and will apparently stockmost of the goods seen in the formerstores including the much-loved pic-n-mix sweets.

So what do we have for you to takewith you as part of your summer read-ing? There are articles by Tom Smith onanti-suit injunctions in insolvency pro-ceedings, Sandy Shandro on Chapter 15of the US Bankruptcy Code and GlenDavis on the workings of the InsolvencyRules Committee.

The usual case digests are at pages 5to 13, News-in-Brief is on pages 24 and25 and the latest - really rather different -insolvency challenge is at page 26.

All of us at 3-4 South Square hope thatyou have enjoyed the first year of thenew look Digest. The next one will be inthe autumn. As always, if you find your-self reading this somewhere and you arenot on our circulation list and would liketo be, all you have to do is send an emailto kirstendent@southsquare.com askingto be added and we will do our utmostto ensure that you get the next issue.And if there is any topic that you wouldlike an article from a member ofChambers to cover in a future edition ofthe Digest do let me know by email todavidalexander@southsquare.com

In the meantime we wish everyone apleasant summer.

David Alexander QC- Editor

ell somehow or other the countryseems to have managed to stum-

ble to July. Mainland Europe is nowabout to pack up for the summer and itis not long until August when UK plctends to go quiet for the month. So whathas happened since the May edition ofthe Digest?

Almost everyone will say it has beendominated by politics: MPs expenses, apoor result for Labour in the Europeanand local elections, a new Speaker of theHouse of Commons (John Bercow) andthe fact that Gordon Brown had to re-shuffle his cabinet early to live to fightanother day. All a good distraction fromthe economy!

But the economy stops for no man,albeit that there appears to be a declinein the pace of retailers closing theirdoors over the last couple of months. Butthere are still some well-known namesthat have failed to avoid an insolvencyprocedure. For example, Birthdays - thegreetings card chain with more than 300stores - went into administration in May.As did Cobra beer. And some footballclubs have found themselves in trouble.As has Setanta, the Irish pay-TV broad-caster. But it is the vehicle manufacturerswho stand out as the ones who have hadthe most horrid time recently with LDVVans going into administration in the UKand GM going into Chapter 11 in theUnited States in what was described asone of the biggest bankruptcies ever.

Other news: Landlords are apparentlyfeeling the pain of so many retail collaps-es over the last six to nine months; R3have said that over a million people areinsolvent in the UK; Director disqualifica-tions are said to be at record levels; TheOECD has said that Britain is in a “sharp

Stumbling on...

DIGESTA regular review of relevant news, cases and articles from 3-4 South Square Barristers

July 2009

3-4

Feature article

page 2Anti-suit injunctions in aid of insolvency proceedings

Case digestspage 5Banking and Financial Services

page 6Civil Procedure

page 7Company Law

page 9Corporate Insolvency

page 11Personal Insolvency

page 13Professional Negligence

Feature articlespage 14Chapter 15 of the US Bankruptcy Code

page 18The Insolvency rules committee

page 20Manchester conference

News in briefpage 24

Insolvency Challengepage 26

3-4 Digest is published by 3-4 South Square Barristers,

Gray’s Inn, London WC1R 5HP. 020 7696 9900.

Publication print and production on behalf of

3-4 South Square Barristers by Wendover Publishing. 01428 658697.

In this issueW

2

The remedy of an anti-suit injunc-tion, granted by the English Court torestrain a litigant from pursuing pro-ceedings in a foreign state, has inrecent times been the subject of aconsiderable amount of developmentand in the context of internationalcommercial litigation is now a famil-iar remedy. In contrast, there hasbeen relatively little use and develop-ment of the remedy in the context ofinsolvency proceedings. Whereas inthe context of normal litigation, thepurpose of the remedy is usually toprevent a claimant from litigating hisclaim in another forum, in the con-text of insolvency proceedings thepurpose of the remedy is usually toprevent a claimant from obtaining agreater share of the debtor compa-ny's assets than those to which hewould be entitled to in the Englishinsolvency.

In a recent decision, Re OilexcoNorthsea Limited, Harms OffshoreAHT “Taurus” GmbH & Co Kg vBloom and others, 26 June 2009, theCourt of Appeal has affirmed theavailability of the anti-suit injunctionas a remedy available in aid ofEnglish insolvency proceedings toprevent a creditor from proceedingagainst the debtor company's assetsabroad and, indeed, to require acreditor to disgorge assets which ithas obtained. The Court of Appealalso confirmed that this jurisdictionapplies as much in administration asit does in liquidation.

The background to the case isinteresting and also contains a warn-ing for those cases where a compa-ny is placed into insolvency proceed-

ings in England but carries on busi-ness in US dollars so that its pay-ments have to be cleared throughNew York. The debtor was an oilexploration company which carriedon activities in the North Sea. In thecourse of these activities, the com-pany incurred liabilities to twoGerman companies under charter-parties for the hire of two vessels.The company went into administra-tion in England at the start of theyear.

The two German creditors werenot content to prove their claims asunsecured, pre-administration credi-tors and instead made an applicationto the District Court in New York andobtained orders making “Rule B”maritime attachments attaching toassets of the company in New York.There were in fact no assets of thecompany in New York at the time theorders were made. However, sincethe company carried on business inUS dollars it was necessary for itspayments to be cleared through NewYork. The Administrators were notinformed of the attachments sowhen in due course they attemptedto pay a post-administration supplierthe attachments, which had beennotified to the clearing banks in NewYork, had the effect of freezing thepayment.

The attractiveness of the “Rule B”procedure from the creditors' per-spective is easy to see. It required noconnection with New York other thanthat the company carried on busi-ness in US dollars. In principle, theremedy is available where a creditorhas a “maritime claim”, the defen-

dant is not within the district and thedefendant either has or can beexpected to have assets in the juris-diction. Further, since the orderswere not notified to theAdministrators, as the Court ofAppeal pointed out, they effectivelycreated a trap into which theAdministrators then fell when a pay-ment was made through New York topay the post-administration creditor.The popularity of the “Rule B” reme-dy has meant that large numbers ofcases have been commenced in NewYork: on some reports up to a thirdof all claims commenced in theSouthern District of New York inrecent months have been “Rule B”cases.

Once they became aware of theattachment the Administratorsadopted a twin-track strategy ofseeking an injunction from theEnglish Court requiring the attach-ments to be vacated and of applyingfor recognition of the English admin-istration in New York under Chapter15 of the Bankruptcy Code and forconsequent relief from New Yorkvacating the attachments. At firstinstance, the English Court grantedthe relief sought; the creditors thenappealed to the Court of Appeal.

Paragraph 43(6)As a matter of logic, the first ques-tion was whether the terms of para-graph 43(6) of Schedule B1, whichprevent the commencement or con-tinuation of legal process after acompany has gone into administra-tion, applied to prevent the twoGerman creditors from having com-menced the attachment proceedingsin New York. There was no authorityon this point in the context of para-graph 43(6). However, in Re OrientalSteam Company (1874) LR 9 Ch App

Anti-suit injunctions in aidof insolvency proceedingsThe recent court of appeal decision regarding Oilexco confirmsthe ability of the English court to grant anti-suit injunctions insupport of its own insolvency proceedings says Tom Smith

3

July 2009 3-4 digest

557 and Re Vocalion (Foreign)Limited [1932] 2 Ch. 196 the Courtshad held that the equivalent provi-sion in winding up (now Section130(2)) applied only to domesticprocess. Given the presumptionagainst extra-territoriality and thefact that Parliament could have legis-lated to make paragraph 43(6)explicitly extra-territorial if it had sowished, the Court of Appeal consid-ered that paragraph 43(6) was limit-ed in the same way to domesticprocess, although it did not expressa final conclusion on the issue.

This conclusion may well be right,although it is possible to conceive adistinction between a creditor who isnot subject to the English jurisdictionand a creditor who is already subjectto the English jurisdiction. In the lat-ter case, it is less easy to see whyparagraph 43(6) should not apply toprevent the creditor proceedingagainst the company's propertyabroad. In the Oilexco case, it couldbe said that the German creditorswere already subject to the EnglishCourt either because of the effect ofthe EC Regulation on InsolvencyProceedings or because they hadcome into and proved in both theadministration and the associatedCVA (cf. Re Tait & Co (1872) L.R. 13Eq. 311).

Jurisdiction to grant injunc-tive reliefHowever, the Court of Appeal con-sidered that there was a clear juris-diction to grant injunctive relief in aidof English insolvency proceedings toprevent a creditor from proceedingabroad, or to require it to disgorgeassets obtained abroad, where thecircumstances required such relief tobe granted.

The existence of this jurisdictionhas been long established in thecase law in relation to liquidation,although there are surprisingly fewexamples of it being exercised. Theexistence of the jurisdiction wasrecognised in Re Oriental InlandSteam, in Re Vocalion (although thejudge refused to exercise it on thefacts) and by Millett J in Mitchell vCarter, Re Buckingham Internationalplc [1997] 1 BCLC 673. The present

case, however, represented anextension of the jurisdiction in tworespects: first, the insolvencyprocess was administration ratherthan liquidation and, secondly, thecreditors were not resident inEngland. Neither point appears to

The Court of Appeal considered thatthere was a clear jurisdiction to grantinjunctive relief in aid of English insolvency proceedings

Tom Smith

have caused the Court of Appeal sig-nificant difficulty.

As to the first, it is true that liqui-dation imposes a trust over a com-pany's assets and administration (atleast prior to the giving of notice ofintention to distribute) does not. It is

4

also true that substantial parts of thereasoning in the early authorities asjustifying the existence of the juris-diction refer to the existence of theliquidation trust. However, the betterview is that the basis for the grant ofan injunction restraining a creditorfrom proceeding abroad is that theEnglish Court is seeking to upholdthe integrity of its own process i.e.the insolvency process in England.This consideration applies equally toadministration as it does to liquida-tion and the Court of Appeal wasclearly right to regard it as artificialto attempt to draw a distinctionbetween the two insolvency process-es for these purposes.

As to the second point of distinc-tion, Millett J noted in Buckinghamthat in all the cases where the Courthad exercised the jurisdiction thecreditors in question were resident inEngland. In this case, the creditorswere resident in Germany. However,it could properly be said that theEnglish Court had jurisdiction over

the creditors either by virtue of theEC Regulation (under which anyjudgment of the English Court wouldhave been recognised as against thecreditors in Germany) or becausethey had come into the English insol-vency by proving in the administra-tion and CVA.

DiscretionThe main question in any case, how-ever, is whether the facts justify theexercise of the jurisdiction. On this,it is clear from the Court of Appeal'sjudgment that considerations ofcomity are extremely important. Onthe other hand, the Court of Appealalso plainly considered that in cir-cumstances of an English adminis-tration of an English company theforeign court (in this case, the USBankruptcy Court) would be assistedby having its views. In the Oilexcocase, the Court of Appeal thereforeupheld the granting of the injunctiverelief, even though there was also apending application by the

Administrators to the US BankruptcyCourt for relief.

The facts of the Oilexco case were,however, exceptional in that thecreditors had sought to interfere withthe payment of a post-administrationcreditor in circumstances where theCourt clearly thought that the con-duct of the creditors had beenunconscionable. A more difficult setof facts might arise where a creditorseeks to attach to property which isalready in the foreign country at thedate of the administration order.Where the relevant foreign countryhas a mechanism for recognising theEnglish insolvency (such as Chapter15), the appropriate course may inthese circumstances be for theoffice-holder to seek relief from theforeign court. However, where thispossibility is not available, then inprinciple the English Court ought togrant injunctive relief to uphold theintegrity of the English insolvency.

FootnoteThe footnote to the judgment is theCourt of Appeal’s warning to office-holders about making US dollar pay-ments through New York in circum-stances where the English insolvencyhas not been recognised in New Yorkunder Chapter 15. It would, however,be unfortunate if office-holders hadto go to trouble and expense of hav-ing an English proceeding recognisedin New York in circumstances wherethe company has no link with NewYork other than it makes payments inUS dollars. But the only other solu-tion would be for the New York Courtto restrict the availably of the “RuleB” remedy. There is some evidencethat New York Court are becomingmore resistant to the use of “Rule B”attachments: where a foreign insol-vency is recognised in New Yorkunder Chapter 15 it appears that theBankruptcy Court will now grant reliefvacating any “Rule B” attachmentsgranted after (and possibly also priorto) the opening of the foreign pro-ceedings: see Re Atlas Shipping A/S,27 April 2009.

William Trower QC (left) and TomSmith (p3) appeared for theAdministrators in Oilexco.

5

The applicant (“A”), an Icelandicbank with a London branch, appliedfor a stay of the proceedingsbrought against it by the respon-dent (“R”). R had entered into aGlobal Master Securities LendingAgreement under which A had lentsecurities to R against the transferof collateral.The agreement con-tained an English law and jurisdic-tion clause.After the collapse of A,R sent a notice of default and ter-minated the agreement.A sought astay of R's proceedings on the basis

of comity, and submitted that thecourt should order a stay againstan undertaking that A would agreeto lift it if the dispute between theparties was not resolved throughthe administrative claims process ofthe Icelandic insolvency regime. Itwas held that the parties hadagreed that any dispute should beresolved by the English courts andthat any stay which had the effectof depriving R of resort to thecourts of the agreed jurisdictionwould be unjust (Mazur Media Ltd

v Mazur Media Gmbh [2004]EWHC 1566 (Ch) applied).A couldonly succeed if some exceptionallystrong grounds could be foundwhich did not have the effect ofdepriving R of its chosen jurisdic-tion or bringing in forum non con-veniens arguments by the backdoor.The weight of authority sug-gested that the court was deprivedof its common law discretion tostay proceedings in favour of anoth-er jurisdiction on forum non con-veniens grounds where the ECRegulation applied.[Michael Crystal QC; GabrielMoss QC]

BANKING AND FINANCIAL SERVICES Digested by Jeremy Goldring and William Willson

Jefferies International Ltd v Landsbank Islands HF [2009]EWHC 1217 (Comm) QBD (Comm) (Cooke J), 28 April 2009

case digests

Cukurova Finance International Ltd (2) Cukurova Holding ASv Alfa Telecom Turkey Ltd [2009] UKPC 19 PC (BVI) (LordHope, Lord Scott, Lord Walker, Baroness Hale, Lord Mance),5 May 2009

The appellant companies (“A”)appealed against a decision of theBVI Court of Appeal that therespondent company (“R”) hadenforced its share charges by avalid appropriation.The remedyhad been introduced by article 4of EC Directive 2002/47 (“theDirective”), put into effect in theUK by the Financial CollateralArrangements (No 2) Regulations2003 (“the Regulations”). Shares inA had been provided as securityfor a loan under two sets of equi-table mortgages, one governed byBVI law, the other by English law. Rclaimed the English share charges

were enforceable.The courtdetermined whether the power ofappropriation had been validlyexercised.A said the power couldonly be exercised where R becamethe registered holder of theshares.The judge agreed, and heldthat it was not enough to obtainfull equitable ownership free ofany equity of redemption.The BVICourt of Appeal reversed this,holding that the judge had misap-plied the notion of an autonomousEC meaning of 'appropriation' asrequiring uniformity throughoutthe EC.The Privy Council heldthat the judge had overstated the

importance of giving 'appropria-tion' an autonomous EC meaning.The Directive did not have directeffect. In transposing it into theirnational legal systems, MemberStates would be expected to referto legal concepts familiar in theirown legal systems, so long as theydid not depart from the generalconcept of 'appropriation' in theDirective.The BVI Court of Appealhad been right to adopt a prag-matic interpretation, and to con-clude that it was not necessary forthe collateral-taker to becomeregistered holder of the shares.Any other interpretation of theRegulations would mean that thecollateral-taker did not have themeans of rapid and non-formalisticenforcement which the Directivecalled for.

July 2009 3-4 digest

Jeremy Goldring

Hilary Stonefrost

The cases digested cover a wide range of issues. The approach to ascertaining the “centre of main interest” ofa company has come before the Court in a contested hearing before Mr. Justice Lewison in Re StanfordInternational Bank Ltd. This is an important judgment, summarised in the Corporate Insolvency section ofthis digest, which clarifies the approach to the much discussed and debated question of COMI. In addition, of particular note is the decision in Nortel Networks SA in which administrators applied to the Court for directions in relation to the opening of secondary proceedings. A report of the Cesc Fabregas disciplinaryhearing is also on page 13.

William Willson

Edited by Hilary Stonefrost

Michael Crystal QC

6

Parabola Investments Ltd & Ors v Browallia Cal Ltd (formerlyUnion Cal Ltd) & Ors[2009] EWHC 901 (Comm) QBD (Comm)(Flaux J), 6 May 2009

The claimant (“C”) claimed dam-ages for deceit against an invest-ment broker (“D1”) and itsemployee (“D2”). C was the cor-porate vehicle for the tradingactivities of its ultimate beneficialowner (“G”). C dealt in small-capshares, using D1 as its broker. D1admitted that D2 had fraudulentlymisrepresented to G that thetrading conducted was profitable,and that it had also misrepresent-ed the amount of funds held inthe account. C claimed not onlythe capital loss of the amount by

which the trading fund wasdepleted, but also loss of profitswhich it would have made onalternative trades during the peri-od of the fraud (right up untiltrial). D1 and D2 argued that Ccould not prove that it wasinduced to trade by D2's deceit,and that the claim for loss ofprofits until the date of judgmentwas too speculative. It was heldthat, as a result of the continuousmisrepresentations as to the prof-itability of the trading and theamount of money in the account,

C and G carried on trading in cir-cumstances where they wouldotherwise have ceased to do so.That was sufficient inducement.Lost profits were not only recov-erable in deceit where it could beshown that there was an alterna-tive transaction which was neces-sarily profitable, nor did aclaimant have to identify a specificalternative transaction into whichhe would have entered but forthe fraudulent misrepresentation.There was no reason in principlewhy lost profits should not berecoverable as damages for theentire period up until the trial(Smith New Court Securities vCitibank [1997] AC 254 applied).

Karafarin Bank v Gholamreza Mansoury-Dara [2009] EWHC1217 (Comm) QBD (Comm) (Teare J), 4 June 2006

The applicant (“A”) applied for astay on the grounds that therewere concurrent proceedings inIran.The respondent bank (“R”)had sued in England on 13 chequeson which it claimed D was liableunder (the governing) Iranian law.Unknown to A, R had alreadyissued proceedings in Iran in rela-tion to 4 of the cheques (andobtained judgment). In his absence,A had also been convicted ofcriminal offences in Iran, and hadonly discovered the civil and crimi-nal judgments in Iran as a result of

disclosure in the English proceed-ings.A submitted that (1) it was anabuse of process for R to sue onall 13 cheques when it had alreadyobtained judgment in Iran inrespect of 4 cheques; (2) thereshould be a stay because theIranian proceedings were lis alibipendens; (3) alternatively, thereshould be a stay by virtue of sec-tion 34 of the Civil Jurisdictionand Judgments Act 1982 (“CJJA”).It was held that it was an abuse ofprocess for a claimant to pursue adefendant for the same debt or

damages in two jurisdictions.Section 34 of CJJA gave statutoryforce to that principle, but alsorecognised that further proceed-ings might be commenced inEngland if the judgment obtainedabroad was not enforceable inEngland.When the English pro-ceedings were commenced theIranian judgments could not beenforced in England because theywere obtained in A's absence andwhere he had not submitted tothe jurisdiction. R therefore had toissue fresh proceedings in England,and this was not an abuse of theprocess as it was permitted byCJJA.

Icebird Limited v Winegardner, Privy Council, 2 June 2009

Proceedings commenced by aclaimant had been subject toinordinate delay in circumstanceswhere no satisfactory excuse forthe delay had been offered. Thejudge struck the proceedings outon grounds of inordinate andinexcusable delay and on groundsof severe prejudice to therespondent. The correct

approach to an application tostrike out on grounds of want ofprosecution remained Birkett vJames [1978] AC 297: a strike outcould be justified where therehad been intentional and contu-melious default or there hadbeen inordinate and inexcusabledelay which gave rise to a sub-stantial risk that a fair trial would

not be possible or had caused orwas likely to cause serious preju-dice. In the present case, therehad been inordinate and inexcus-able delay but by itself this didnot justify the striking-out of theproceedings. There was no rea-son why the delay should preventa fair trial of any of the reasonsgiven and accordingly the appealagainst the strike-out would beallowed.

CIVIL PROCEDURE Digested by Tom Smith

Tom Smith

case digests

July 2009 3-4 digest

7

Pickthall v Hill Dickinson LLP Court of Appeal (Laws, ThomasLJJ, Mann J), 11 June 2009

A former director of a companyconsidered that he had a claim innegligence against his former solic-itors. The director was adjudgedbankrupt with the consequencethat the benefit of the claimformed part of his estate in bank-ruptcy, albeit that the claim wasnot pursued by the trustee. Both

the bankrupt and the trustee weredischarged. The former bankruptthen commenced proceedingsagainst the solicitors. This wasdone prior to obtaining an assign-ment of the claim from the OfficialReceiver, in order to prevent therelevant limitation period fromexpiring. The assignment was sub-

sequently obtained. However, theproceedings when they wereissued were an abuse of processsince the claimant had known thathe did not have standing to pursuethe claim. Further, the Courtought not to have permitted theproceedings to be amended toplead the subsequent assignment.The proceedings would thereforebe struck out as an abuse ofprocess.

Supperstone v (1) Hurst (2) Hurst, Bernard Livesey QC, 9June 2009

permissible in exercising the discre-tion to grant relief to take intoaccount the fact that an ECROagainst B would be unlikely to beeffective unless relief was alsogranted against the wife.As such, anECRO could be granted against thewife in order to ensure the effec-tiveness of the relief granted againstB, which order would continue foran identical period to that granted

against B. However, the inherentjurisdiction of the Court to grantan ECRO did not extend to curtail-ing, by way of injunction, B or thewife's right to correspond with thetrustee or his representatives inany manner which they thought fit.Any remedy for pure harassment (ifproven) would be likely to befounded on the Prevention ofHarassment Act 1997 and not theCourt's inherent jurisdiction toregulate its own process.[Richard Fisher] RIchard Fisher

Re Carson Country Homes Ltd [2009] EWHC 1143 (Ch) (DavisJ), 1 May 2009

Following the appointment ofjoint administrators by the bankpursuant to a debenture, C adirector of CCH, alleged that hissignature on the debenture wasforged. The joint administratorssought directions in relation tothe validity or otherwise of theirappointment. Davis J found asfollows: (1) The signature on thedebenture was not the signatureof C; (2) C did not give his fellowdirector, J, actual authority to signthe debenture on his behalf; (3) Aforged document was not a nulli-ty for all purposes. In the pres-ent case, J had been clothed by

CCH with ostensible authority towarrant to the bank that all for-malities relating to the approvaland execution of the debenturehad been duly complied with andthat the signatures could berelied upon as genuine; (4)Pursuant to section 44 of theCompanies Act 2006, in favour ofa ÒpurchaserÓ as defined, a docu-ment which ÒpurportsÓ to havebeen signed in accordance withsection 44 is deemed to havebeen duly executed; (5)Accordingly, the debenture wasvalid pursuant to section 44 ofthe Companies Act 2006 as (i)

the debenture purported to besigned by two authorised signato-ries; (ii) the bank was a Òpurchas-erÓ within the meaning of section44(5) as it had exercised forbear-ance from taking any enforce-ment steps against CCH; (iii) sec-tion 44 operated so as to vali-date documents which are for-geries in circumstances wherethe person entering the forgedsignature had ostensible authorityto warrant to the bank that allformalities relating to theapproval and execution of thedebenture had been duly com-plied with and that the signaturescould be relied upon as genuine.[Hilary Stonefrost; David Allison]

COMPANY LAW Digested by Daniel Bayfield

A trustee in bankruptcy appliedagainst the former bankrupt (B)and his wife for an extended civilrestraint order (“ERCO”) pursuantto Rule 3.11 of the CPR 1998 andthe accompanying practice direc-tion. In granting the order, theCourt held that, in circumstanceswhere B had conducted litigation inthe name of (and on behalf of) hiswife on numerous occasions, it was

Daniel Bayfield

8

case digests

Enviroco Ltd v Farstad Supply A/S [2009] EWHC 906 (Ch)(Gabriel Moss QC), 22 May 2009

The court was required to deter-mine whether an indemnity con-tained in a charterparty extendedto the claimant, a contractor whohad been engaged to clean the oiltanks of a vessel owned by thedefendant and chartered to a thirdparty.The charterparty defined“affiliate” as covering a situation inwhich the relevant companieswere each subsidiaries of the sameparent.The term “subsidiary” was,by cross-reference, given the mean-ing assigned to it by section 736 ofthe Companies Act 2006.Theclaimant and the third party wereeach subsidiaries of the same par-ent company that had pledged itsshares in the claimant to a bank.

The bank's nominee had becomethe registered holder of the shares,but the parent company retainedits voting powers.The key issuewas whether the indemnity appliedto the claimant as an “affiliate” ofthe third party.The claimant suc-ceeded on the basis that, with ref-erence to section 736A(7), a hold-ing company did not cease to besuch simply because it pledged itsshares in a subsidiary as security,even if the security required thatthe shares were registered in thename of the security holder.Treating the rights to vote andappoint directors as being held bythe provider of the security alsorequired it to be treated as the

registered member; the alternativemade no sense. In so holding thecourt followed the Court ofAppeal's approach in Brett v BrettEssex Golf Club Ltd (1986) 52 P &CR 330 that when a section of astatute was incorporated into acontract by cross-reference, it wastreated as having been set out inthe contract and its meaning wasto be taken from that context,which meaning might not be thesame meaning as the section had inother contexts. Further, where theexpress terms of the section werenot, on their literal terms, wideenough to prevent absurdity, thewords could be given a non-literalmeaning (Antaios CompaniaNaviera SA v Salen Rederierna AB(The Antaios) [1985] AC 191).[Gabriel Moss QC]

Re Southern Counties Fresh Foods Ltd [2009] EWHC 1362(Ch) (Warren J), 17 June 2009

Following the court's judgment onan unfair prejudice petition,requiring the first respondent tobuy out the petitioner's shares inthe company, the court was askedto admit new expert evidence andevidence of fact to assist on thequestion of the price to be paidfor the shares. The court heldthat, in relation to applications to

adduce evidence after a trial,unfair prejudice petitions are in aclass of their own and that thequestion whether to admit furtherevidence raises issues of fairness,justice and of proportionality.TheJudge was not being asked toadmit new evidence to reversefindings which he had alreadymade; the new evidence was

sought to be adduced to fill someof the gaps which the Judge hadidentified, the purpose being toenable him to achieve as fair aresult as possible as between theparties as regards the purchaseprice of the shares.The correctapproach was to address eachproposed piece of new evidenceaspect by aspect and admit fur-ther evidence if to do so wouldfurther the overriding objective todeal with the case justly.

Stewart Ford v Polymer Vision Ltd [2009] EWHC 945 (Ch)(Blackburne J), 6 May 2009

The applicant applied for summaryjudgment in his claim against therespondent company for declara-tions as to the validity of a deben-ture and an option agreement. Hesucceeded in relation to the deben-ture, notwithstanding that the meet-ing at which the resolution waspassed to grant it was not validlyconvened, but he failed in relationto the option agreement (which

was similarly an agreement enteredinto pursuant to an invalid resolu-tion by the respondent company toenter into it).The applicant reliedupon section 40 of the CompaniesAct 2006 which provides that:ÒInfavour of a person dealing with acompany in good faith, the power ofthe directors to bind the company,or authorise others to do so, isdeemed to be free of any limitation

under the company’s constitutionÓ.For section 40 of the CompaniesAct 2006 to apply, it was necessarythat the person dealing with thecompany had to deal Òin goodfaithÓ. Good faith is presumedunless the contrary is shown. Onthe evidence, there was no evidenceto rebut the presumption of goodfaith in relation to the debenturebut there was such evidence in rela-tion to the option agreement, whichrequired the claim that it was validto be tried.

Gabriel Moss QC

July 2009 3-4 digest

9

CORPORATE INSOLVENCY Digested by Blair Leahy and Marcus Haywood

Re Golden Key Limited (in receivership) [2009] EWCA Civ636, Court of Appeal (Master of the Rolls, Arden, Lloyd LJJ),30 June 2009

The Company, which was an SIVinvesting in residential mortgage-backed securities, had issued CP toinvestors. In August 2007 theCompany had encountered financialdifficulties and subsequently wentinto receivership. On 23 August2007 a Mandatory AccelerationEvent had occurred in relation tothe Company and on 24 August2007 notice of a MandatoryAcceleration Event was given bythe Security Trustee.Those credi-tors with later maturing CP (Òthe

LongsÓ) contended that the effectof the notice was to postpone thedate for payment of all outstandingCP to the AccelerationRedemption Date (24 September2007) at which time all CP wouldbe paid out pari passu.Those cred-itors with CP maturing on 23 and24 August 2007 (Òthe ShortsÓ)contended that mandatory accel-eration did not apply to CP whichmatured prior to the AccelerationRedemption Date, or at least didnot apply to the CP maturing

prior to the date on which thenotice was served by the SecurityTrustee, and that this CP thereforeenjoyed priority. Held that theservice of notice of a MandatoryAcceleration Event did postponeto 23 September 2007 the date onwhich all outstanding CP were tobe due for payment, except forthat CP with maturity dates whichfell on or before the date onwhich that notice was served.Accordingly, the payment dates forthe CP held by the Shorts was notpostponed.[Mark Phillips QC, Robin DickerQC, Antony Zacaroli QC, BarryIsaacs, Tom Smith]

Re Stanford International Bank Ltd [2009] EWHC 1441 (Ch)(Lewison J), 3 July 2009

The Court considered rival appli-cations under the Cross-BorderInsolvency Regulations 2006 by: (i)the Antiguan Liquidators ofStanford International Bank Ltd(“SIB”), a company incorporated inAntigua, for recognition of theAntiguan liquidation of SIB; and (ii)the receiver appointed by theUnited States District Court forthe Northern District of Texasover the assets worldwide of SIB,for recognition of that receiver-ship. Both applications alleged thatSIB's centre of main interests wasin the jurisdiction where the appli-cant had been appointed. Bothapplications sought an orderentrusting the applicant with thedistribution of SIB's assets locatedin Great Britain pursuant toArticle 21(2) of the Model Law.The US Receiver also applied forsimilar relief in relation to hisappointment over other Stanfordentities and, in every case, recogni-tion at common law in the alterna-tive.The Court approached thequestion of where SIB had itsCOMI on the basis that the COMIconcept in the Model Law is thesame as that under the ECRegulation on InsolvencyProceedings. It was common

ground that the court should fol-low the ECJ's guidance on COMI inRe Eurofood IFSC Ltd [2006] Ch508.The Judge considered theAdvocate-General's opinion andthe ECJ's judgment in Eurofood andaccepted that, to the extent he had,in Re Lennox Holdings Ltd [2009]BCC 155, considered and appliedthe “head office functions” test onthe basis of paragraph 114 of theA-G's opinion (i.e. that the “ascer-tainability by third parties” of thecentre of a debtor's main interestsis not central to the concept of the“centre of main interests”), he hadbeen wrong to do so.The Judgeheld that Pre-Eurofood decisions byEnglish courts should no longer befollowed in this respect. COMImust be identified by reference tofactors that are objective andascertainable by third parties (para-graph 33 of the ECJ Eurofood judg-ment).What was ascertainable by athird party was what was in thepublic domain and what a typicalthird party would learn as a resultof dealing with the company.Animportant feature is the perceptionof the objective observer.TheCOMI test provides certainty andforeseeability for creditors whenthey enter into a transaction.The

Judge rejected the US Receiver'ssubmission that where it is allegedthat the company was used as avehicle for fraud, the court shouldnot investigate the COMI of thecompany, rather it should investi-gate the COMI of the fraudsters.By its very nature the existence ofa fraud behind the scenes is unlikelyto be ascertainable by third parties.In Eurofood the ECJ emphasisedthe importance of the presumptionin favour of COMI coinciding witha company's registered office andthe Judge accepted that this pre-sumption is a true presumption andthe burden lies on the party seek-ing to rebut it. On the facts, andapplying the proper test for identi-fying a debtor's COMI, the Judgefound that SIB's COMI was inAntigua.The Judge also found thatthe US Receivership was not a “for-eign proceeding” within the mean-ing of the Model Law as he was notsatisfied that the US Receivershipwas a “collective proceeding” orthat the US Receiver was appoint-ed “pursuant to a law relating toinsolvency” for the purpose of“reorganisation or liquidation”.Accordingly, the Antiguan liquida-tion was recognised as a foreignmain proceeding and the Courtheld that the Antiguan Liquidatorsshould take possession of SIB'sassets within this jurisdiction and Antony Zacaroli QC

Robin Dicker QC

Barry Isaacs

Stuart Isaacs QC

Blair Leahy

Marcus Haywood

10

Hardy v McLoughlin and another [2009] EWHC 944 (Ch)(Bernard Livesey QC), 6 May 2009

By an administration order madein January 2002, the Respondentswere appointed administrators ofNMG plc and other companieswithin the NMG group. In April2004, the administration order wasdischarged and the administratorswere released from liability under s20 of the Insolvency Act 1986.Hardy applied to the Court seek-ing (1) an order setting aside orvarying the order releasing theadministrators from liability; and(2) an order for an inquiry intodamages allegedly caused to him bythe administrators during the time

they had acted as administrators ofNMG plc.The application wasbased upon an allegation that theorder for the release of the admin-istrators had been obtained byfraud and false accounting.TheJudge dismissed the applicationfinding (1) It was not sufficient forHardy to show there was or mighthave been an irregularity duringthe conduct of the administrationor an inaccurate statement in theapplication for discharge; (2) Therewas no evidence to suggest thatthe Respondents secured theirdischarge and release by any fraud-

ulent or other misrepresentationsto the Court; (3) Hardy was not aperson with appropriate locusstandi to bring the matter beforethe Court.Absent an assumptionof responsibility to a particularindividual, the Respondents did notowe a duty of care at common lawto creditors, or to shareholders orofficers or prospective officers ofNMG plc; (4) In any event, notone of the alleged misrepresenta-tions was made directly to Hardy.This was clearly insufficient to actas a foundation for a cause ofaction in negligence or in misrep-resentation, whether negligent orfraudulent.[David Allison]

On 14 January 2009, Blackburne Jmade orders placing 19 companiesin the Nortel group into adminis-tration on the basis that theCOMI of each of the companieswas located in England. 18 of thecompanies (Òthe CompaniesÓ)were registered in EC RegulationMember States other than theUnited Kingdom. On 5 February2009, Patten J directed that theCourt do send a send a letter ofrequest to the courts of a numberof Member States in the EC askingthose courts to put in placearrangements under which thejoint administrators would begiven notice of any request orapplication for the opening of sec-ondary proceedings in respect ofany of the Companies.Subsequently, the joint administra-tors determined that secondaryproceedings were necessary in

respect of Nortel Networks SA(ÒNN SAÓ).The joint administra-tors applied to Court to seekdirections in relation to the open-ing of secondary proceedings,including incidental directions inrelation to their power to pay overthe assets under their controlwithin the main proceedings whilstensuring that the administrationexpenses would continue to bemet. HHJ Kaye QC ordered that(1) the joint administrators were atliberty to apply to TheCommercial Court of Versailles(Òthe Versailles CourtÓ) in accor-dance with Article 29(a) of the ECRegulation for the opening of sec-ondary insolvency proceedings inrespect of NN SA; (2) the jointadministrators were at liberty toenter into a protocol, in substan-tially the form placed before thecourt, with the relevant adminis-

trateur judiciaire and liquidateurjudiciaire appointed by theVersailles Court in any secondaryproceedings; (3) the joint adminis-trators were at liberty, followingthe opening of secondary pro-ceedings, to pay over from time totime such of the assets currentlyunder their control within theadministration as they think fit tothe secondary proceedings provid-ed that (a) the Versailles Courtmade a final and binding order thatthe current and future administra-tion expenses arising in the admin-istration shall be paid from theassets of NN SA situated inFrance in priority to all otherclaims, debts, liabilities and expens-es payable or arising under or inconnection with the secondaryproceeding; (b) the joint adminis-trators were satisfied that alladministration expenses were oth-erwise adequately secured.[Gabriel Moss QC; David Allison]

David Allison

Re Stocznia Gdynia SA; Re Stocznia Sczcecinska Nowa sp. z.o.o. Chancery Division, Companies Court, Chief Registrar

The Court recognisedCompensation Proceedingsunder Poland’s law of 19December 2008 on

Compensation Proceedings con-ducted in undertakings of partic-ular importance for the Polishshipbuilding industry. Although

the companies’ centre of maininterest was in Poland, the spe-cial proceedings in Poland felloutside those listed in Annex Aof the European InsolvencyRegulation.[Glen Davis] Glen Davis

case digests

Re Nortel Networks SA, 20 May 2009 (HHJ Kaye QC)

could remit those assets to Antigua.The US Receiver's application forcommon law recognition of SIB'sreceivership was dismissed.

Common law recognition was givenin the case of the receiverships overthe assets of the other Stanfordentities.The US receiver has been

granted permission to appeal.[Stuart Isaacs QC; AntonyZacaroli QC; Felicity Toube;Daniel Bayfield]

FelicityToube

July 2009 3-4 digest

11

PERSONAL INSOLVENCY Digested by Georgina Peters

Re First Orion Amber Limited; Re First Orion AmberNominees Limited Chancery Division, Companies Court(Peter Smith J), 25 June 2009

incorporated companies owningproperty in London, and directedthat the creditors who wouldhave had priority status under the

(1) Paul Warren Lewis (2) Gonda Taryn Lewis v MetropolitanProperty Realisations Limited [2009] ewca Civ 448 (Laws andThomas LJJ, Mann J), 20 May 2009

The Court allowed the appealagainst a decision refusing a decla-ration that the respondent (M)had no interest in property for-merly belonging to a married cou-ple (L), of which the husband wasbankrupt. Rather than seek anorder for sale of the property, thetrustees in bankruptcy hadassigned the husband's beneficialinterest to M, the second largestcreditor, for £1 and 25 per cent ofany proceeds of sale. L contendedthat after three years the hus-band's interest revested in himpursuant to section 283A(2) ofthe Act.The Court rejected M’s

contention that the trustees had“realised” the interest within themeaning of section 283A(3)(a) byvirtue of the assignment. Havingconsidered the use of the word“realise” in various authorities, theCourt concluded that its normalmeaning involved a conversion tocash.That did not happen until thecash was actually available.Theword was also used elsewhere inthe Act and subordinate legislationin a sense which involved turningrealised property into cash; thiswas inconsistent with part of itsvalue being left outstanding in anunfulfilled monetary (or other)

obligation.That interpretation wassupported by an analysis of thestructure and apparent parliamen-tary purpose of section283A(3)(a).The section was partof a scheme under which thetrustee was not allowed to waitforever as co-owner to see ifproperty values rise.The provisionalso achieved a degree of certain-ty for both bankrupt and co-owner.A sale of the beneficialinterest for a future price, or par-tially future price, would not fitinto that apparent background.Such a transaction consequentlydid not constitute a “realisation”within section 283A(3)(a) and thehusband's interest reverted tohim.[John Briggs]

Rottmann v Brittain [2009] EWCA Civ 473 (Ward, Keene,Lawrence Collins LJJ), 18 March 2009

The case concerned an applicationby R, a bankrupt German citizen,for permission to appeal againstan order that a public examinationpursuant to rule 6.175(6) of theInsolvency Rules 1986 be sus-pended until further order on thecondition that he submit to a pri-vate examination. R, having fled to

the United Kingdom to avoidcriminal proceedings in Germany,was subsequently adjudged bank-rupt.The Court of Appeal dismissedthe application, rejecting R's con-tention that continuance of thehearing would infringe his rightnot to incriminate himself and

prejudice his right to a fair trialenshrined in Article 6 of theEuropean Convention of HumanRights.The Court held that thejudge had correctly exercised hisdiscretion under rule 6.175(6) byordering a private hearing.Thebankruptcy court retained controlover the use of proceedings.Toreveal the information withoutpermission would constitute acontempt of court. It was for the

Bankruptcy (Désastre) (Jersey)Law 1990 (on the facts, theComptroller of Income Tax)were to be afforded preferentialstatus if there were a distribu-tion in the English administra-tions[Glen Davis]

Acting on a Letter of Requestfrom the Royal Court of Jersey,the Court made administrationorders in respect of two Jersey-

Re Oilexco Northsea Limited, Harms Offshore AHT “Taurus”GmbH & Co Kg v Bloom and others Court of Appeal (Ward,Stanley Burton LJJ, Sir John Chadwick), 26 June 2009

Following a company going intoadministration, two creditors hadsought and obtained attachmentorders in New York which had sub-sequently had the effect of attach-ing a payment made by the adminis-trators to a post-administrationcreditor.The administrators applied

for an injunction requiring therelease of the attachments and pre-venting further steps being taken inNew York.The Court held that therelief should be granted.Althoughpara. 43(6) of Sch. B1 probably didnot apply to process commencedabroad, the Court had a jurisdiction

to grant injunctive relief to protectthe assets of a company which is inadministration in England. On thefacts of the case, the conduct ofthe creditors in obtaining theattachment orders was uncon-scionable and it was appropriate togrant the relief sought, notwith-standing that proceedings were alsopending before the BankruptcyCourt in New York.[William Trower QC; Tom Smith]

Georgina Peters

William Trower QC

John Briggs

12

judge dealing with the matter toexercise his discretion in allowingor not allowing incriminatingquestions to be put to andanswered by R. Further, it had to

be assumed that the Germancourt would consider any objec-tion to the use of the transcriptshould R stand trial in Germany. Itwas for that court to control its

proceedings; it was not for theEnglish bankruptcy court to befurther concerned about thehypothetical use of the informa-tion in those proceedings.

Louise Brittain v (1) Hamid Dehdashti Haghighat (2) NasrinDehdashti Haghighat [2009] EWHC 934 (Ch) (George BompasQC, sitting as a Deputy Judge of the High Court), 23 March2009

The Deputy Judge refused thebankrupt's (H) application for arehearing of the determination ofa preliminary issue under section375(1) of the Insolvency Act 1986,concluding that H had failed todemonstrate exceptional circum-stances which required H to showthat there was a material differ-ence in the evidence before theCourt or that there was a realisticprospect of the rehearing having adifferent outcome. B, the trustee,

brought proceedings concerningownership of a property.Thecourt determined as a preliminaryissue that, in the face of an earlier2000 judgment, it was not open toH and his wife (N) to argue thatthe property belonged beneficiallyto N.The two grounds were abuseof the court's process and estop-pel by record. H contended thatwhen the preliminary issue wasargued, he had been sent away byN's counsel who had lied to the

court. H pointed to extra docu-ments which, he argued, amountedto fresh evidence authenticating analleged declaration of trust. H'saccount of the reason for hisabsence from court was rejected.Further, in the case of new evi-dence, it was relevant to knowwhy it had not been before theCourt at the previous hearing (cf.Papanicola v Humphreys [2005] 1All ER 418) and H had failed toprovide a good explanation. In anyevent, the additional documentsdid not affect the finding on estop-pel by record and the appropriateforum for a challenge to that deci-sion was by way of appeal.

Official Receiver v Christine McKay [2009] EWCA Civ 467(Mummery and Lloyd LJJ, Sir Paul Kennedy), 7 May 2009

ment order ought to be made. Mcontended the conditions formaking an order under s.282(1)(b)were not satisfied where thebankruptcy debts had beenreleased by way of a withdrawalof a proof of debt.The Court found no reason whythe requirement to pay in full allproved debts should require pay-

ment in full of a debt which oncehad been proved but where itsproof had been withdrawn orexpunged under rules 6.106 and6.107 (notwithstanding that theunderlying debt still existed andhad not been released). In addi-tion, if the amount of a proof hadbeen varied by agreement underrule 6.106, section 282(1)(b) didnot require payment of the origi-nal amount rather than the variedamount.

The Court dismissed the appealof a former bankrupt (M) against adecision annulling her own bank-ruptcy.The petitioning creditorhad withdrawn her claim andagreed to discharge the costs andexpenses of the estate; that debthad constituted M's only liability.The Official Receiver soughtdirections as to whether an annul-

John Remblance v Octagon Assets Limited [2009] EWCA Civ581 (Ward, Mummery and Dyson LJJ)

The Court of Appeal held that incircumstances where a debtorand guarantor's obligations wereco-extensive, it was material toapplication of rule 6.5(4)(d) of theInsolvency Rules 1986 when con-sidering setting aside a statutorydemand served on the guarantor,to consider whether a statutorydemand in respect of the princi-pal debt would be set aside asagainst the principal debtor underrule 6.5(4)(a).The Court(Mummery LJ dissenting) there-

fore allowed the appeal of theguarantor (R) against a refusal toset aside a statutory demand. Inthis case the principal debtorcompany had a pending actionagainst the creditor for damages;had a statutory demand beenserved against the principaldebtor, it would thus have beencapable of being set aside underrule 6.5(4)(a). R was not in a posi-tion to invoke rule 6.5(4)(a) asthe cross claim belonged to theprincipal debtor. However, R's lia-

bility depended on the principaldebtor's default: their obligationswere co-extensive.Where theprincipal debtor would be likelyto succeed in a hypothetical appli-cation under rule 6.5(4)(a) on thebasis of a cross claim, and havingregard to the co-extensivenessprinciple, the mere fact that theguarantor could afford to pay thedebt should count for no more inrelation to rule 6.5(4)(d) thanshould the fact that the principaldebtor could afford to pay in rela-tion to rule 6.5(4)(a). Justicerequired that both cases be treat-ed in the same way.

July 2009 3-4 digest

13

Tamlura NV v CMS Cameron Mckenna [2009] EWHC 538 (Ch)(Mann J), 19 March 2009

reference to the market price ofthe Consideration Shares on theCompletion Date. During the peri-od of 2 years after the CompletionDate, the market price of theConsideration Shares fell substan-tially.As a result, the SecondTranche was not worth £4 millionwhen allotted. However, because ofthe terms of the agreement, C wasentitled only to such number ofConsideration Shares as wouldhave been worth £4 million on theCompletion Date; the fact that themarket value of the ConsiderationShares had fallen substantially bythe Allotment Date was irrelevant.C contended that D should havedrafted the sale agreement so as to

provide for the number ofConsideration Shares in the SecondTranche to be calculated by refer-ence to the market value on theAllotment Date, so as to ensurethat C received ConsiderationShares which were worth £4 mil-lion when allotted. C's claim wasdismissed.The Judge held that theparties had agreed for the SecondTranche to be valued as at theCompletion Date and that D hadaccurately implemented the termsof this agreement. Further, D wasnot under a duty to explain themeaning or effect of the agreementto C.The terms of the agreementhad been concluded between expe-rienced men of commerce. D wassimply implementing C's clearinstructions and had not acted neg-ligently.

C claimed damages for negligencein respect of the sale of shares in acompany.The total considerationfor the shares was £40 million: £21million to be paid in cash on com-pletion (“the Completion Date”)and £19 million to be paid in theform of shares in another company(“Consideration Shares”).Theagreement provided for £15 millionworth of Consideration Shares tobe allotted on the CompletionDate, and for the remaining £4 mil-lion worth of Consideration Shares(“the Second Tranche”) to be allot-ted 2 years later (“the AllotmentDate”).The agreement also provid-ed for the value of eachConsideration Share to be fixed by

So v HSBC Bank plc & Anor [2009] EWCA Civ 296 (SirAnthony Clarke MR, Keene LJ, Etherton LJ), 3 April 2009

had acted negligently by makingcertain representations to C; (3) Dwas vicariously liable for itsemployee’s negligence (ArmagasLtd v Mundogas SA [1986] AC 717considered; Dubai Aluminium CoLtd v Salaam [2003] 2 AC 366 fol-

lowed); but (4) the breach of dutyhad not caused any loss to C,because C had not relied on D’semployee’s representations, andhad relied instead on assurancesgiven to him by fraudsters.Accordingly, the claim failedbecause of the absence of a causallink between the breach of dutyand the losses suffered.

Levicom International Holdings BV v Linklaters [2009] EWHC812 (Comm) (Andrew Smith J), 21 April 2009

The Judge held that C had failedto show on the balance of proba-bilities that different advice fromD in respect of the merits of an

arbitration claim brought by Cagainst a third party would havecaused C to act differently in theconduct of settlement negotia-

The Court of Appeal held that: (1)on the facts, D was under a duty ofcare to C (Caparo Industries plc vDickman [1990] 2 AC 605 andCustoms & Excise Commissionersv Barclays Bank plc [2007] 1 AC181 followed); (2) D’s employee

PROFESSIONAL NEGLIGENCE Digested by Andreas Gledhill and Stephen Robins

Andreas Gledhill

Stephen Robins

tions with that third party.AlliedMaples Group Ltd v Simmons &Simmons [1995] 1 WLR 1602 andBolitho v City and Hackney HA[1998] AC 232 considered.Accordingly C was entitled tonominal damages only.

OTHER CASES

Mark Phillips QC

The Football Association v Cesc Fabregas, the Decision ofthe Regulatory Commission, Thursday 14 May, 2009

Cesc Fabregas was charged withmisconduct for breaches of FA RuleE3 in respect of the FA CupQuarter Final between Arsenal andHull City. It was alleged that hiswords and/or behaviour to playersand/or officials of Hull City hadamounted to improper conduct andthat he deliberately spat in the

direction of Brian Horton, the HullCity Assistant Manager.The FA’sDisciplinary Rules provide that aplayer can deny the charge but notrequest an oral hearing on theunderstanding that the charges willbe dealt with on the content of thedocuments served on the playerand the material supplied him to

the FA in answer to the charge.Fabregas put in a full written sub-mission supported by witness state-ments and CCTV/Video material. Arequest by the FA to adjourn thehearing so that they could put infurther evidence in response wasrefused. The DisciplinaryCommission reviewed the materialand found that neither chargeagainst Fabregas had been proved.[Mark Phillips QC]

14

1There is a strong feeling in otherparts of the world that the US hastaken a large step backwards in thecause of the efficient administrationof cross-border cases by the way inwhich the UNCITRAL Model Law hasfound expression in Ch.15 of the USBankruptcy Code, and also by theway in which it has been interpretedby the courts.2

This is where we started:“Chapter 15 is fundamentally pro-

cedural in nature and does not con-stitute a change in the basicapproach of United States law, whichhas long been one of honouring prin-ciples of comity.”3

This seems to be where we arenow:

“Attempting to cloak the clearlyintended objective standards [ofCh.15] with a robe of comity andflexibility is conjury.”4

And it is therefore clear that thecomments of US commentators SidBrook and Robert Lanz wereprophetic:

“[Chapter 15 is] a law that is cer-tain to be more complicated andpossibly controversial as it is appliedover the next few years.”5

Section 304 (the predecessor ofCh.15) was a very effective expres-sion of a US legislative choice toendow the US bankruptcy court withpowers to assist a foreign proceed-

ings. It also provided guidance onthe principles to be applied in exer-cising those powers. Looked at fromoverseas one did not have theimpression that there was a pro-found inquiry, as a condition ofdeciding whether or not to hear arequest for assistance, into the basison which the jurisdiction to initiatethe foreign proceeding was founded.Rather, the kind of assistance to berendered would be conditioned onthe case, and of course on anyresistance to what was being soughtby any opposing stakeholders. Thisapproach was inherently respectfulof the authority conferred on anoffice holder by virtue of his appoint-ment. It was also an approach whichalways betokened a healthy respectfor the principle of comity, describednot so long ago by the late JudgeTina Brozman in these terms:

“Comity, however, is much morethan a discrete element or factor tobe considered as part of a largeranalysis; it is a pervasive principle ofinternational law which reflects thatcourts of one nation ought to respectthe authority of another nation tolegislate over, command and adjudi-cate issues concerning its own citi-zens”.6

It also needs to be said, for non-US practitioners are alive to thispoint, that this was consistent with

the approach which the US bank-ruptcy court has taken to foundingits own jurisdiction: assets of negli-gible value will do. The key to it all isthat the US bankruptcy court is con-fident, based on a long and extreme-ly successful history of so doing,that once the parties are before it,relief can be tailored to suit the caseand ongoing supervision provided.

In light of decisions like that ofSweet DJ in Bear Sterns7 and JudgeGerber in Basis Yield8, it wouldappear that the flexibility of the for-mer approach has been swept awaywith the coming into force of Ch.15.

The question is, is the newapproach fit for purpose?

The new Chapter 15 approach“Recognition is the 'gateway' toentering the US legal system …[Recognition] is the seminal andtriggering event that accords legiti-macy for a foreign proceeding …without recognition, nothing hap-pens”.9

What the US courts require inorder for recognition to be grantedwas set out by Sweet DJ in BearStearns in very clear terms:

“The objective criteria for recogni-tion reflect the legislative decision byUNCITRAL and Congress that a for-eign proceeding should not be enti-tled to direct access to or assistance

Chapter 15 of the USBankruptcy Code:Our way or the Highway?

The US is seen as out of step, explains Sandy Shandro

1/ A version of this paper first appeared in the March 2009 ABI Journal, vol. XXVIII, No.2, reprinted with permission from the American Bankruptcy Institute (www.abi-world.org). 2/ See, for example, Guy Locke “What are we achieving through the UNCITRAL Model Law?” INSOL World - Second Quarter 2008; 20-21: “ … the policy ofthrowing out 15 years of cross-border co-operation and replacing it, instead with the rejection of comity and co-operation, is bewildering.”, and George Kehinde “Chapter 15Recognition of Bermuda Proceedings after Bear Sterns” INSOL World - Second Quarter 2008, 24-25: “[It is] an unwelcome surprise.” 3/ In Re Iida 377 BR 243 at 256. 4/D Glosband, “Bear Sterns Appeal Decision” INSOL World - Third Quarter 2008. 5/ Transnational Insolvency 101: A New Guide to Cross-Border bankruptcy Proceedings. 6/Re Board of Directors of Hopewell International Insurance Ltd (1999) 2238 BR 25. 7/ Re Bear Sterns High-Grade Structured Credit Strategies Master Fund Ltd Case Nos07-12383, 07-12384 - BRL (Bankr. S.D.N.Y. 2007). 8/ Re Basis Yield Alpha Master Fund Case No. 07-12762 (REG) (Bankr. S.D.N.Y.). 9/ Transnational Insolvency 101.

15

July 2009 3-4 digest

Sandy Sandro

from the host country courts unlessthe debtor had a sufficient pre-peti-tion economic presence in the coun-try of the foreign proceeding.”10

It is seen as following that this per-mits or indeed requires a close exam-ination by the US court under its ownrules whether the foreign proceedingis main, non-main or neither.

In the latter event, there will be norecognition of any kind, and thus noassistance. It has been persuasivelyargued by a distinguished US com-mentator that this state of affairswas brought into being deliberately,and that Ch.15 does indeed requiremore of a jurisdictional basis in theforeign country than was requiredunder s.304. This was done so as to

impose “clearly intended” objectivestandards.11 As a result, each andevery request for assistance will giverise to a fact-based inquiry to ascer-tain if the threshold requirements ofCh.15 are met.

I could not possibly argue that theanalysis of learned US commenta-tors is wrong. That said, assumingthat the analysis is correct, it wouldbe unfortunate if there is nothingthat can now be done to reverse adeveloping dogma which is arguablycontrary to the interests of debtorsand creditors alike.

To put the point differently, onewonders if, under s.304, there wouldhave been assistance available to theforeign representative in one or both

of Bear Sterns and Basis Yield. Ifthere would have been, then theresult of the decisions is unwelcome,and is out of step with the evolvingconsensus in other important bank-ruptcy jurisdictions. There are in anyevent a number of bases for realconcern about the direction of USCh.15 jurisprudence:

(a) It is inconsistent with theobjectives of the Model Law. Theauthors of the Model Law did nothave in mind that it would replaceexisting modes of assistance, butthat it would supplement them. It isfor this reason that Article 7 of theModel Law provides that “Nothing inthis law limits the power of a court… to provide additional assistanceto a foreign representative underother law of this State.” I shall leaveit to others to explain why s.304 wasreplaced by Ch.15, but in the UK thepossibility of repealing IA s.426when the Model Law came into forcewas considered and rejected, and,importantly, Article 7 was adoptedverbatim from the draft Model Law.In the US, s.1507 makes the provi-sion of any additional assistancecontingent on recognition.12

(b) The cases make short work ofthe statutory presumption that COMIis presumed to be the debtor's regis-tered office “in the absence of evi-dence to the contrary.” But there is achoice of insolvency law being madewhen a jurisdiction of incorporationis selected, and this ought, if possi-ble, to be respected, particularly inthe case of entities whose existenceis more metaphysical than real, andwhose stakeholders are very likely tobe sophisticated. Many (probablymost) jurisdictions accept that theplace of incorporation is going to bethe location of the main or principalinsolvency proceeding. One wonderswhy the US court would go to suchlengths to thwart theseexpectations.13 To put the point com-paratively, in the Eurofoods case itwas held that the presumption couldonly be rebutted by reference to cri-

10/ House Report at 110. 11/ DM Glosband, “The Bear Sterns Decision” INSOL World - Third Quarter 2008, 14-16. 12/ S.1507(a) provides: “subject to the specific limita-tion stated elsewhere in this chapter, the court, if recognition is granted, may provide additional assistance to a foreign representative under this title or under other laws of theUnited States.” The comparable UK provision is: “Nothing in this Law limits the power of a court or of a British insolvency officeholder to provide additional assistance to aforeign representative under other laws of Great Britain.” 13/ See A Dessain, “Bear Sterns and COMI - a worried reaction from Jersey,” INSOL World - Second Quarter 200825-26.

16

The US approach does not take adequateaccount of the nature of different typesof debtor.

of such an entity is likely to havebeen chosen for tax and regulatoryconvenience. However difficult itmay be to do so, the motivation forthis choice ought to be as irrelevantto the COMI decision as it was for itsstakeholders. When viewed in thisway, choosing to permit the pre-sumption to operate is a logicalchoice. 14

(d) The US approach may requirethe court to examine very subtleissues of law arising in the jurisdic-tion of incorporation. This must beundesirable as a matter of principle,quite apart from the time and costsrequired to do so without engagingin a form of guesswork. For example,in both Bear Sterns and Basis Yieldthere was consideration of what kindof “business” could be done by an“exempted company” under Caymanlaw when on the face of it such acompany could not by virtue of that

teria that were both objective andascertainable by third parties; the USview seems to be that the presump-tion is only there for speed and con-venience where there is no seriouscontroversy. It is ironic that UScourts are attaching much lessweight to the presumption eventhough the consequences of recogni-tion in the EU are far more signifi-cant, extending not merely to juris-diction but also to important mattersof substance.

(c) The US approach does not takeadequate account of the nature ofdifferent types of debtor. A hedgefund, for example, does not makewidgets, and may have no employ-ees. Its activities consist in the mainof entering into contracts with man-agers and auditors by the actions ofits board. It is effectively nothingmore than the entity governing rela-tions between investors and assets.To consider in such a case the con-cept of COMI as somehow akin tothe US concept of a “principal placeof business” (as Sweet DJ did inBear Sterns) is bound not to be help-ful. The jurisdiction of incorporation

status have a presence or conductbusiness in Cayman. The conclusionreached by the US courts on thispoint has been called “plain wrong”by an eminent Cayman lawyer.15

(e) The US approach may give riseto competing sets of main proceed-ings. Under the EU InsolvencyRegulation, the decision of the firstcountry to open main insolvencyproceedings is unimpeachableexcept in the courts of that country.There can never be two sets of mainproceedings, as a jurisdictionalquagmire would be the result. Andyet this could be the consequence ofdecisions like Bear Sterns, where theCayman court will continue to con-sider that its proceedings were theprincipal proceedings, and its officeholder the validly appointed agent ofthe debtor for all purposes. In addi-tion to this, other courts may wellrecognise the proceedings begun inthe jurisdiction of incorporation. InBasis Yield, the Cayman liquidationswere recognised in the UK (under IAs.426) and in Australia (on comitygrounds). There was evidence thatthird parties had appeared inCayman and in Australia and that nocourt or creditor had challenged thebasis for the liquidation proceedingsin Cayman. It is not obvious how afull-blown Ch.7/11 would co-existwithin this framework of proceedingsancillary to the main one in Cayman.One thing is clear: it would be costlyto find out.

(f) Without wishing to overstatethe point, there may be a risk thatCh.7/11 proceedings “thrust upon”an unwilling debtor (in essence itsliquidator appointed elsewhere)might not be recognised elsewhere.It is well known that the US courtswill assume what amounts to pri-mary bankruptcy jurisdiction withouta COMI clearly being in the US, and,in that event, presumably expect

14/ Guy Lock, “What are we achieving Through the UNCITRAL Model Law?” INSOL World - Second Quarter 2008 20-21.15/ Guy Lock, “What are we achieving Through the UNCITRAL Model Law?” INSOL World - Second Quarter 2008 20-21, n.4. Another commentator has pointed outthat there are many technical requirements imposed on exempted companies to have a presence in jurisdictions where they are found, including reporting obligations to the localregulator. In Bermuda, exempted companies are also permitted to carry on business within the jurisdiction with parties outside the jurisdiction, with other exempted companiesfor the furtherance of their business in Bermuda, and reinsurance of companies incorporated in Bermuda. See: K. George, “Ch.15 Recognition of Bermudan Proceedings afterBear Sterns” INSOL World - Second Quarter 2008 24-25.

For example, in both Bear Sterns and Basis Yield there was consideration of what kind of “business”could be done by an “exempted company” under Cayman law

17

3-4 digestJuly 2009 3-4 digest

recognition abroad. But if the UScourts do not recognise proceedingsconsidered to be principal (or main,if you will) proceedings begun else-where, perhaps a similar receptionmight be expected in other parts ofthe world. The stark fact is thatother jurisdictions do recognise pro-ceedings based on the presumption,and thus they deal in their own waywith what has been identified as themain philosophical reason for theUS approach, namely that “US bank-ruptcy laws are decidedly in rem anda lack of significant property in theforeign proceedings suggests a pro-ceeding that may not effectivelycontrol the debtor’s assets”.16 Theterm “foreign proceeding” is definedin 11 U.S.S 101(23) as a proceedingin which “the assets and affairs ofthe debtor are subject to control orsupervision by a foreign court”, and“foreign representative” is defined inthe next paragraph as a personauthorised in such proceeding to“administer the reorganisation orliquidation of the debtor’s assets oraffairs.”

In making its order commencingthe liquidation, the foreign courtconsiders that it has kicked off sucha proceeding and appointed justsuch a person. Indeed, the capacityin which the foreign representativeapproaches the US court dependson accepting the validity of hisagency, which itself hinges on thejurisdictional validity of his appoint-ment. One could say that there is anundercurrent in the Bear Sterns andBasis Yield cases of a feeling thatthese rather odd vehicles may besomewhat shady offshore entitieswith no fixed abode, incorporatedfor the most part in sunny farawayplaces out of reach of US style regu-lators, and that the US courts oughtto allocate to themselves a largedegree of control over how they arewound up.

However, the sophistication of thetypical investor in such vehicles is astrong reason to permit the insol-vency regimes in those jurisdictionsto operate fully, including recognis-ing decisions taken within them.

Those who defend the presentposition maintain that cases like

Bear Sterns and Basis Yield were“letter box company” cases, and thatthe results in those cases were inthat context neither surprising norunfortunate. This justification under-estimates the intellectual enterpriseof US bankruptcy attorneys. Letterbox cases they may be, but theyopen the door widely to a fresh con-sideration of the COMI decision ofany foreign court in any type of case.

Granted, the Bear Sterns and BasisYield reasoning is likely to apply incases where the debtor's operationsare, in corporate terms, atypical, butit is safe to predict that it will not belong before a US bankruptcy judgewill be in the invidious position ofhaving a good, hard look at the wayin which (say) a UK court handledCOMI arguments in the context of anapplication by a UK-appointed insol-vency officeholder for assistanceunder Ch. 15. It is already apparentthat US attorneys are in practiceapproaching any Ch.15 applicationas a hearing de novo of the COMIquestion.

It is the contention of this articlethat s.1507(a) should be amendedso as more closely to conform with

the suggested wording in the ModelLaw itself. Instead of making “addi-tional assistance” conditional uponrecognition, the section should say:“Nothing in the Chapter limits theability of the court to provide addi-tional assistance to a foreign repre-sentative under this title or underother laws of the United States.”

If that were done, then the shop-ping list of factors which are now setout in section 1507(b) could remainand, in the appropriate case, theresidual common law discretionwhich is beginning to take on a leaseof life in other common law jurisdic-tions could also be invoked in theUnited States. Surely every effortmust now be made to ensure thatthe present iteration of Ch.15 (anymore than s.304 before it) does notbecome firmly entrenched as theonly gateway to the very importantrole which the US courts can play incross-border insolvencies. Not to doso will mean that, over time, one willfind that non-US bankruptcy practi-tioners will pay ever greater attentionto the ways in which the US bank-ruptcy system can be avoided alto-gether.

16/ D Glosband, “The Bear Sterns Appeal Decision,”INSOL World - Third Quarter 2008 14-16.

“Nothing in the Chapter limits the ability ofthe court to provide additional assistance toa foreign representative under this title orunder other laws of the United States.”

Those who defend the present position maintain that cases like Bear Sterns and Basis Yield were“letter box company” cases,

18

Anyone forsausage?Glen Davis discusses his work as a member of the Insolvency Rules Committee.

The Insolvency Rules Committeeoccupies a somewhat curiousniche in the constitutional land-

scape. For more than thirty years, ithas operated as a sort of appendixto the legislative process relating toinsolvency, relying on the voluntaryservices of practitioners, with atbest influence but no formal power.It formally exists nowadays merelyto be consulted before relevant sec-ondary legislation can validly bepassed into law. There is no require-ment for lawmakers to act in accor-dance with the views of the commit-tee, although in a public law sensethose views must no doubt be takeninto account.

Nonetheless, at the time of thedebates on what became theEnterprise Act, the existence of theInsolvency Rules Committee wasadduced by the government as justi-fication for using the “negative reso-lution” Parliamentary procedure tomake and amend Insolvency Rules:that is to say, they are laid beforeParliament subject to the possibilitythat they may be annulled by a reso-lution of either the House ofCommons or the House of Lords(which has never happened). WhatLord McIntosh said was this:

“The first power in Section 412 ofthe Insolvency Act 1986 allows theLord Chancellor, in agreement withthe Secretary of State, to make rulesgiving effect to the bankruptcy pro-

visions contained in that Act. Thosewords, ‘giving effect to’ are impor-tant in terms of restricting how thepower can be used. They mean thatthe power can be used only to putflesh on the bones of the primarylegislation, not to alter it.

“For instance, the Act may saythat a meeting of creditors shouldbe called and what its purpose is.The power then allows rules to bemade setting out where it should beheld, who should be the chairman,who could come and vote, and soon. That is what a negative resolu-tion procedure is about.

“That does not mean that theGovernment can bring forward ruleswithout giving careful thought totheir content. Under Section 413 ofthe Insolvency Act 1986, the LordChancellor must consult theInsolvency Rules Committee beforemaking any rules. That is a knowl-edgeable committee, chaired by aHigh Court judge … and made up ofindividuals with a considerableunderstanding of insolvency law andpractice. One of the committee's keyfunctions is to ensure that rules

work properly in practice. It hasbeen in place since 1976 and hasthe confidence of all parties involvedin insolvency. In light of the scrutinyof the rules by the SelectCommittee, it is the Government'sview that it is not necessary tochange the current arrangements forparliamentary consideration of therules.”

Leaving aside the rather flatteringnature of those comments, and theobvious slip of the minister's tongueelevating the Rules Committee to thestatus of “select” committee, thegovernment of the day clearlyregarded the role of the RulesCommittee as a significant one.

In reality the role of theCommittee is limited. It has no roleregarding primary legislation (and ascan be seen from, for example, thedrafting of Schedule B1, there is nohard and fast rule as to what is dealtwith by primary legislation and whatis left to be filled in by InsolvencyRules).

For the first decade of its exis-tence, the remit of the RulesCommittee was a pro-active one; it

The making of laws is like the making ofsausages - it doesn't do to enquire tooclosely into either, and the less you knowabout the process, the more you respectthe result.

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July 2009 3-4 digest3-4 digest

Glen Davis

was required by statute to keepunder review the Bankruptcy Rules(made under the Bankruptcy Act1914) and the Winding-up Rules(made under the Companies Act1948) and make recommendationsto the Lord Chancellor as to anychanges in the rules that may fromtime to time appear to the commit-tee to be desirable. Since 1986, it ismerely required to be consultedbefore rules relating to corporateinsolvency (made under section 411of the Insolvency Act) and bankrupt-cy (made under section 412) aremade or amended, but it has no roleregarding other forms of secondarylegislation (regulations or orders)which are made under other powersin the Insolvency Act or otherstatutes (which is one of the rea-sons why the patchwork of legisla-tion governing the insolvencyregime is so complicated).

Rule-making powers governingvarious special insolvency regimesoften cross-refer to section 411 ofthe Insolvency Act, and in thosecases the Rules Committee is gener-ally consulted. The Rules Committeewas consulted, for example, regard-ing the draft Insurers (Winding Up)Rules 2001 (SI 2001/3635) (techni-cally made under section 411 of theInsolvency Act as modified by sec-tion 379 of the Financial Servicesand Markets Act 2000. The RulesCommittee was also consultedbefore the Energy AdministrationRules 2005, SI 2005/2483 weremade pursuant to power in section159(3) of the Energy Act 2004, butnot when the Railway AdministrationOrder Rules, SI 2001/3635 weremade for the purposes of provisionmade by sections 59-65 andSchedules 6 and 7 of the RailwaysAct 1993. In the case of rules to giveeffect to the new bank administra-tion regime under Part 3 of theBanking Act 2009, special provisionswere included in the modificationsto the Insolvency Act introduced bysection 160(6) so that there was noduty to consult the Insolvency RulesCommittee in respect of the first setof rules to govern that regime, butthe Rules Committee will have a rolethereafter.

Technically, the Insolvency RulesCommittee is an unfunded, advisory

non-departmental public body (orNDPB) sponsored by theDepartment for ConstitutionalAffairs. For some purposes, at least,it qualifies as a public authority (it isone of the bodies listed in Schedule1A to the Race Relations Act 1976,and as such it has a statutory duty,in carrying out its functions, to havedue regard to the need: (a) to elimi-

nate unlawful racial discrimination;and (b) to promote equality ofopportunity and good relationsbetween persons of different racialgroups).

The members of the committeeare required to be: a Chancery Judge(the present energetic Chairman isMr Justice David Richards); a circuitjudge (presently HH Judge Behrens);

It is the Government's view that it is notnecessary to change the current arrangements for parliamentary consideration of the rules.

20

The workload of the Rules Committeeseems set to be substantial for sometime to come.

a High Court Bankruptcy Registrar(presently Mr Registrar Jacques); acounty court registrar (at present,District Judge Bullock); a practisingbarrister; a practising solicitor; and apractising accountant. There is alsothe possibility of appointing “addi-tional members” who appear to havequalifications or experience thatwould be of value to the committee:there are currently two additionalbarristers and one additional solici-tor serving on the committee.

Members of the Rules Committeeare appointed for a three-year term,with the possibility of being invitedto serve for a further term. They arenot paid. In former times, prospec-tive appointees were nominated bythe Lord Chancellor's Departmentand the selection process wassomewhat informal. Nowadays,vacancies are advertised, and thereis a formal interview process.

My own involvement dates backto 1998 when, with Robin Dicker, Iwas asked to participate in a hastily-convened sub-committee to advisethe then Vice-Chancellor on whatamendments to the Insolvency Rulesmight be required to accommodatethe imminent implementation CivilProcedure Rules. Fortunately thechanges required were not too great,and our recommendations werereflected in the Insolvency(Amendment) (No 2) Rules 1999 (SI1999/1022). I was asked to assistwith the review of some of the sec-ondary legislation which implement-ed aspects of the Financial Servicesand Markets Act 2000 in relation toinsolvency, and some time after thatthe opportunity arose to join WilliamTrower as a formal “additional mem-ber” of the Insolvency RulesCommittee, a position I have heldsince 2002.

There have been periods over thehistory of the Insolvency RulesCommittee since 1976 when thecommittee has had little to do, andhas rarely met. That has not beenthe case in recent years. It has beena very busy time, with the imple-mentation of the new Administrationregime, successive changes to theInsolvency Rules, consideration ofvarious special insolvency regimesand more recently the early stagesof the Modernisation andConsolidation of the InsolvencyRules, the changes to advertisingrequirements and the introduction ofthe Debt Relief Order regime. Theworkload of the Rules Committeeseems set to be substantial forsome time to come. The most recentannouncement from the InsolvencyService is that there will be aLegislative Reform Order (to amendprimary legislation) and Insolvency(Amendment) Rules 2010 in April ofnext year, followed by completeconsolidation of the InsolvencyRules as amended in April 2011.

How does the Rules Committee

work in practice? The actual discus-sions are of their nature confidentialbut the fact that the membershiphas been stable for some timemeans that a good working relation-ship has developed with the individ-uals in the Insolvency Service whoare responsible for the detaileddrafting. Although there are stilloccasions when the RulesCommittee is only asked to com-ment at a relatively late stage andagainst a tight time-table, the usualprocedure (at least,where substantialchanges are envisaged) is for thereto be substantive engagementbetween the Rules Committee at arelatively early stage. The role of theRules Committee is then to scruti-nise the drafts as they emerge, anddraw attention to points which mayraise issues of interpretation orpractical application. Often the com-ments of the committee are takeninto account in a re-draft, or the pol-icy issues are explained and can bedebated.

Ultimately (and with one eye onthe Parliamentary timetable) a finaldraft is provided and the Secretaryto the Rules Committee - who is theDirector of Policy at the InsolvencyService - writes to the Chairman ofthe Rules Committee asking him toconfirm that the Rules Committeehas been consulted regarding a pro-posed rule or amendment to theRules, and is content with it. TheChairman replies confirming that theRules Committee has been consult-ed and is content. Insofar as theRules Committee has any power, itderives from the theoretical possibil-ity that such consent might be with-held.

There is an observation, tradition-ally attributed to the 19th centuryGerman Chancellor, Otto vonBismarck, that the making of laws islike the making of sausages - itdoesn't do to enquire too closelyinto either, and the less you knowabout the process, the more yourespect the result. If that is anappropriate analogy, the function ofthe Insolvency Rules Committeefalls somewhere between tastingand quality control just before theraw meat is extruded into thecasing.

Otto von Bismark: Sausage analogist.

John Briggs

Stephen RobinsBlair Leahy

William Willson

David Alexander QC

Adam Al-AttarGeorgina Peters

Lexa Hilliard QC

Hannah Thornley

WEDNESDAY 23 SEPTEMBER 2009, 5.00PM - 8.00PM

3-4 South Square is keen to continue and improve its long-standing links with professionals practising in ourfield of expertise and has organised a Seminar to takeplace at The Midland Hotel, Manchester, M60 2DS (TheDerby Suite) on Wednesday 23 September 2009, 5.00pm-8.00pm for solicitors and insolvency practitioners.

There will be four or five 10-15 minute talks on topicalinsolvency law issues including:

o Licensing, landlords and administration.o Council Tax and bankruptcy.o Challenging administrations (and pre-packs)o IP’s remuneration/costs

Members of Chambers who will either be speaking orattending the Seminar include:-

David Alexander QC (chair)Lexa Hilliard QCJohn BriggsLloyd TamlynBlair LeahyStephen RobinsHannah ThornleyWilliam WillsonGeorgina PetersAdam Al-Attar

Registration will begin at 4.30pm and it is anticipated thatthe Seminar will justify 2 CPD Points. It is free of charge andwill be followed by drinks and canapés.

If you and any colleagues wish to attend the seminar,please contact our Practice Manager, Dylan Playfoot, byMonday 7 September 2009 on 0207 696 9900 or byemail to dylanplayfoot@southsquare.com.

We look forward to seeing you there.

3-4 South Square Barristers is delighted to announce its

INSOLVENCY LAW SEMINAR AND RECEPTION

AT THE MIDLAND HOTEL, MANCHESTER

Lloyd Tamlyn

22

Lord Hoffmann, LennyHoffmann, celebrated his 75thbirthday last month. Last night

he was presented with the III 2009Outstanding Contributions Award inNew York. He is the first British juristto receive this award. This is a shortappreciation in his honour.

Let me start with a brief biographi-cal introduction. Lord Hoffmann wasborn in South Africa. After an out-standing career as a law student andteacher including 10 years of teachingat Oxford University and a period atthe junior bar, he became a Queen'sCounsel after 13 years of practice in1977. As a Q.C. Lenny became one ofthe leading and most sought-afteradvocates of his generation.

In 1985, at a young age for thosedays, Lord Hoffmann became a judgeof the High Court of Justice inLondon. After 7 years there he wasappointed an Appeals Court judge in1992. After a very short period as anAppeals Court judge, in 1995 he wasmade a Lord of Appeal in Ordinary,in other words a member of theBritish equivalent of the U.S. SupremeCourt. From that position, after 14years, Lenny has recently retired.

During his time as a Lord of Appealin Ordinary Lenny also participatedin, and presided over, the hearing ofmany important final appeals fromStates in the British Commonwealthof Nations as a member of the boardof the Privy Council in London.These appeals came from jurisdictionsfrom all over the world, from theCaribbean and Bermuda to NewZealand and Hong Kong. And since1988, after the resumption of Chinesesovereignty, Lord Hoffmann has sat asa judge in Hong Kong as a non-per-manent member of the Court of Final

Appeal of Hong Kong in the PeoplesRepublic of China.

And now a little about the range ofLord Hoffmann's judgments as ajudge. It is no exaggeration to say thathis judgments over the last quarter ofa century have touched on and influ-enced almost every important area ofthe law. From human rights law tointellectual property law. From tortlaw to commercial law in all itsbranches. And also company law. Andmore recently, the assimilation ofEuropean law into a UK context.

Lenny is one of the jurists whoseinfluence on the development ofBritish and Commonwealth law willcontinue to be felt in the decades tocome. He is one of a handful ofBritish judges since the end of WWIIwhose judgments, in whatever area ofthe law, command immediate respectand attention.

And what are the secrets of Lenny'ssuccess? Let me venture a couple ofsuggestions. First, he has a liveliness ofthought. Secondly, he has demonstrat-ed a willingness to break with conven-tion where justice requires and tothink outside the box. And thirdly, hisjudgments disclose a style of reasoningwith clarity from first principles. Fromthe grundnorms on which a legal sys-tem is based, melding principle andlegal precedent. I am sure there aremany others.

This is a distinguished gathering ofjudges and insolvency professionalsfrom all over the world. I thereforethought you would welcome a fewwords on Lenny's contribution to theBritish and commonwealth insolvencylaw over the last 25 years.

Lord Hoffmann did not have a spe-cialist bankruptcy or insolvency prac-tice while he was a junior barrister or

a QC. And the UK, unlike manyother industrial nations, does not havespecialist bankruptcy judges at theHigh Court or Appellate levels. Nonethe less, from his earliest years on thebench Lenny made his mark on bank-ruptcy and insolvency law. At roughlythe same time as his appointment as aHigh Court judge, the bankruptcyand insolvency law in the UK wasradically overhauled in the mostimportant shake-up since WWII. Arescue regime was introduced and arescue culture began to permeateinsolvency legislation. This newapproach was developed by a numberof modernist judges, including Lennyin particular. These judges gave theimpetus to making the rescue regimeworkable and manageable. And thereare literally dozens of reported prece-dents decided by Lenny in the insol-vency and related fields between 1986and 2009.

A lot of English bankruptcy law istechnical and procedural. The reform-ing influence of Lenny made the pro-cedure clear and workable. In somecases, distilling 150 years of precedentinto a modern approach to a recurrentinsolvency issue, such as set-off.

I would like to single out two areasof Lenny's judicial activism in thebankruptcy field for special mentionthis afternoon. These are first, cross-border insolvency and secondly themanagement of conflicts in insolvencysituations.

Cross-border insolvency is probablythe most obvious area of interest inthe bankruptcy field world-wide. AndLord Hoffmann has moved Englishnon-statutory law forwards in thisfield. Although English Courts havefor many years been prepared torecognise, in appropriate cases, foreignbankruptcies, the nature and extent ofsuch assistance has been a matter ofdebate and uncertainty over a lengthyperiod of time. In particular, whilst

An appreciation in honour ofLord HoffmannThis is the text of a speech given by Michael Crystal Q.C. on Friday June 192009 at the Ninth Annual International Insolvency Conference at ColumbiaUniversity Law School, New York.

23

July 2009 3-4 digest

the English Courts have accepted anover-arching principle of universalismfor 200 years or more, or at leastmodified universalism, certainly ininsolvencies emanating from the for-mer British Empire, the nature andextent of the assistance to be affordedhas been less clear.

Cross-border recognition and assis-tance can, in modern times, be assist-ed and developed by internationalconvention, EC regulation or theUNCITRAL model law. But theEnglish common law still has a realrole to play in this area as LordHoffmann recently demonstrated in adecision of the Privy Council in whichhe gave the judgment of the Court.

In the Cambridge Gas case (2007)1 AC 508, the Privy Council wasfaced with an insolvent Isle of Mancompany which was in proceedingsunder Chapter 11 of the USBankruptcy Code in the UnitedStates. (The Isle of Man is betweenEngland and Ireland). A request wasmade by the United States Court tothe Isle of Man court to give assis-tance to the US proceedings by givingeffect at common law to a reorganisa-tion plan which had been promulgat-ed in the Chapter 11 proceedings.The Privy Council held that the prin-ciple of universality and the principleof assistance conferred on the Isle ofMan Court jurisdiction at commonlaw to assist the US Chapter 11 pro-ceedings by recognising and givingeffect to the reorganisation plan.

Lord Hoffmann said:“The domestic court must at least

be able to provide assistance by doingwhatever it could have done in thecase of a domestic insolvency. Thepurpose of recognition is to enable theforeign office-holder or the creditorsto avoid having to start parallel insol-vency proceedings and to give themthe remedies to which they wouldhave been entitled if the equivalentproceedings had taken place in thedomestic forum.”

This description of comity and fullfaith and credit assistance to foreigninsolvencies is likely to inform theEnglish judicial approach in con-fronting issues arising out of the cur-rent global credit crisis.

One more striking illustration of

Lord Hoffmann's influence in thecross-border insolvency world is theMaxwell bankruptcy. Many in thisaudience will remember the compet-ing administrations in that case. Thecritical role played by Lenny was toapprove and implement the diarchy,the separation of roles and powers,between the English court and the USBankruptcy court and to dismiss anti-suit injunction relief sought inLondon by a UK bank only wantingto be sued in its own back yard. Hisjudgment in that case is still a classic.It was upheld by the Court of Appealand is well worth a re-read even 17years later.

The second specific area I want totouch on is the topic of conflict ofinterest in insolvency situations.Lenny has had an interest in devisingan approach to managing problems ofconflict of interest in insolvency situa-tions in the United Kingdom. In thatcontext (primarily through his deci-sions as High Court level and morerecently in the Privy Council) therehave emerged workable and manage-able rules of thumb.

Large group insolvencies, whetherdomestic or international, inevitablyraise the potential for conflicts ofinterest. These can relate to a myriadof matters including, for example,inter-company balances, competingclaims to assets, allocation of liabili-ties, guarantee and indemnity claims,issues of set-off or double proofclaims, the validity of security, tax andavoidance or recovery actions. Often,at the stage at which insolvency officeholders are appointed and for someconsiderable time thereafter, it maynot be clear what conflicts exist orhow they should be managed.

In the context of large group insol-vencies, Lord Hoffmann's approachhas been that the appointment of acommon office holder is prima facialikely to be in the interests of the gen-eral body of creditors of each compa-ny. The conduct of the insolvencies bya common office holder will be moreefficient and less costly than having aplethora of appointments.

Having regard to these considera-tions, Lord Hoffmann hasapproached the issue of conflicts inrelation to large group insolvencies in

a common sense and pragmatic way.His approach has been:- (1) thatlicenced insolvency practitioners areprofessional men who are well accus-tomed to dealing with conflicts; (2)that in general it is in the interests ofcreditors, at least in the first instance,to appoint a single office holder andany conflicts are usually best left to bemanaged if and when that becomesnecessary; (3) that if and when itbecomes clear that any conflict is suf-ficiently material to require to bemanaged, one of a variety of differentapproaches may be appropriatedepending on all the circumstancesand (4) that such different approachesmay include, for example, obtaininglegal advice, the appointment of anadditional partner from the same firmor the appointment of an independ-ent partner from a different firm.

Very recently, the Privy Council onan appeal from the Cayman Islandsin a judgment delivered by LordHoffmann, affirmed that the attitudeof the Courts to conflicts should beto leave them to be dealt with by theCourts (on the application of the rel-evant office holders) as and whenthey arise during an insolvency. Andnot to waste valuable resources oftime and money exploring the hypo-thetical.

It may seem to you in the audiencethat the solutions given by LordHoffmann to the issues mentionedabove are obvious and right. If that isso, then I will have demonstrated thecontribution which Lenny has made.Because as a practitioner in the bank-ruptcy field I can assure you that theanswers were not all that obvious atthe time Lenny's judgements weredelivered.

The time allotted for this apprecia-tion does not enable full justice to bedone to all Lord Hoffmann's achieve-ments as a jurist, even just in thebankruptcy field. But I hope that thisappreciation explains why LordHoffmann's talents as a jurist in theinsolvency field will be sorely missedby practitioners in the UK and theCommonwealth and in the BritishCourts in the years to come.

I would like to wish Lenny a longand scintillating retirement, whateverthat means in his case.

24

Proposals for a contingentlegal aid fundThe Bar Council's PolicyAdvisory Group led by formerChairman Guy Mansfield QC,has suggested that a self-fundingscheme be established to provideassistance to those deemed eligi-ble for help to ensure access tojustice for those currently ineligi-ble for legal aid but without themeans to enforce their rights.

The Contingent Legal Fund(“CLAF”) would be an activelymanaged pool of money intend-ed to fund legal costs. The caseswhich a CLAF would fundwould be those which are consid-ered to be worthwhile but out-side the scope of the current civillegal aid regime. The CLAFwould be managed by financial

professionals who would deter-mine whether claims should besupported. Successful claimswould pay a reasonable propor-tion of their winnings back intothe CLAF pool which would inturn fund future claims. The BarCouncil's Policy Advisory Groupwill report to Lord JusticeJackson as part of his Review.

Consultation on rescue culture

news in brief

The Chairman of the Bar Council

has issued revised guidance on

court dress. In particular changes

have been made to remove the dis-

tinction between different types of

appeal in the Chancery Division

and to clarify the position in rela-

tion to hearings in the County

Court. Details are available on the

Bar Council website.

An article by Ron Harris, a Professor atLaw and Legal History at Tel AvivUniversity, and Michael Crystal QC(right) entitled “Some Reflections onthe Transplantation of British CompanyLaw in Post-Ottoman Palestine”appeared in Volume 10, Number 2 ofTheoretical Inquiries in Law.Theoretical Inquiries in Law is pub-lished by the Cegla Center forInterdisciplinary Research of the Law atthe Buchmann Faculty of Law, Tel AvivUniversity. The article discusses thetransplantation and harmonization ofcompany law legislation in the BritishEmpire in the early 20th century and inPalestine in particular. It describes thedisplacement of Ottoman law and itsreplacement by British company law inPalestine.

Lord Justice Jackson is conducting a

wide-ranging review of the rules and

principles governing the costs of civil

litigation. The objective of the Review

is to find ways of controlling the costs

of litigation so as to promote access

to justice at proportionate costs. Lord

Justice Jackson released his

Preliminary Report on 8 May 2009. A

copy can be downloaded from the

Judiciary of England and Wales web-

site. The deadline for responses is 31st

July 2009.

Court Dress

Jackson review

The Honourable Mr Justice

Nicholas John Patten has been

appointed as a Lord Justice of

Appeal with effect from 4 June

2009, following the appointment of

Lord Justice Collins as a Lord of

Appeal in Ordinary.

Lord Justice Patten

Legal transplantation

On 15 June 2009, theInsolvency Service launched aconsultation on measuresaimed at enhancing furtherthe UK's business rescue cul-ture, to give struggling, butviable, companies a greaterchance to succeed. In particu-

lar, the proposals consider theintroduction of a new Court-sanctioned moratorium avail-able to all companies to allowthem time to reach agreementon a Company VoluntaryArrangement.

The proposals are part of

the Government's businessrescue measures that theChancellor of the Exchequerannounced in the 2009Budget Report earlier thisyear. The deadline forresponses to the consultationis 17 September 2009.

The Organisation for Economic

Cooperation and Development

(OECD) has revised down its forecast

for the UK economy in 2009. It warns

that the UK is in "a sharp recession"

with output set to contract by 4.3% in

2009, worse than its previous forecast

of a 3.7% fall. The OECD predicts zero

growth in the UK economy in 2010

and says the UK budget deficit will hit

14% of GDP next year.

OECD Forecast

25

July 2009 3-4 digest

diary dates8th-10th September 2009.Insolvency & Restructuring Summer

School, chaired by Sir Gavin Lightman.

London.

23rd September 2009.3-4 South Square Conference.

Midland Hotel, Manchester.

1st-4th October 2009Insol Europe Annual Congress.

Stockholm, Sweden.

9th October 2009ABI International Insolvency Symposium.

Paris Westin, France.

12th October 2009ABI Chicago Consumer Bankruptcy

Conference.

Chicago, Illinois, USA.

5th November 2009Insol International Seminar.

Grand Cayman.

11th November 2009ABI Detroit Consumer Bankruptcy

Conference.

Dearborn, Michigan, USA.

11th November 2009ILA Annual Dinner.

Natural History Museum, London

2010

21st-23rd February 2010Insol International Annual Conference.

Dubai, UAE.

15th-18th April 2010American Bankruptcy Institute, 28th

Annual Spring Meeting.

Gaylord National Resort & Convention

Center, National Harbour, MD, USA.

13th-17th October 2010Insol Europe Annual Congress.

Vienna, Austria.

2nd-23th September 2011INSOL Europe, Annual Conference.

Venice, Italy.

3-4 digest

From 21 April 2009 it will be possi-

ble to issue most Administrative

Court proceedings at the District

Registry of the High Court at

Birmingham, Cardiff, Leeds or

Manchester as well as at the Royal

Courts of Justice in London.

Professor Dame Joan Higgins hasbeen appointed as the new layChair of the Queen's CounselSelection Panel, replacing BaronessButler-Sloss who acted as interimChair in the 2008-09 competition.Two new lay members and a solici-tor member have also been

appointed to the QCAppointments Selection Panel.The appointments to the SelectionPanel bring the total number ofthose on the Panel up to nine. SirColin Budd, former Ambassadorto the Netherlands, and HelenPitcher, the Chief Executive and

Deputy Chair of IDDAS, a com-pany which specialises in mentor-ing and advisory services to seniorexecutives, are the two new laymembers of the AppointmentsPanel. Razi Shah, is the new solici-tor member of the AppointmentsPanel.

The Law Commission has pub-lished a report on capital andincome in trusts. The projectexamined the complicated rulesgoverning the treatment of trustreceipts and outgoings as capitalor income and the extent towhich trustees who have to dis-tinguish between income andcapital should be able to invest

on a "total return" basis, withreference particularly to trusts forinterests in succession and tocharitable trusts with permanentendowment. The LawCommission's report recom-mends that receipts followingtax-exempt corporate demergersshould be classified as capital,subject to a limited discretion to

make a payment to income. Italso recommends the abolition ofthe equitable and statutory rulesof apportionment for all newtrusts. Finally, it recommends anew statutory provision that willmake total return investmentmore easily accessible to charita-ble trusts with a permanentendowment.

Law commission publishes reporton capital and income in Trusts

New appointments to the QC appointments selection panel

Former law lord calls for scrapping of ID card planFormer law lord, Lord Steyn, hascalled for the £5.3bn national iden-tity card scheme to be abandoned.He said there was no evidence IDcards would improve security, thattheir introduction for foreign

nationals was a pretext to condi-tion the public to their use and theidea that they would be useful inthe fight against serious crime wasa Home Office fiction. Deliveringthe Lord Williams of Mostyn

memorial lecture, he also ques-tioned the official costings andsaid that heading into a prolongedeconomic downturn was an inop-portune time to introduce an IDcard system.

Stuart Isaacs QC has been elected as a Fellow of theSingapore Institute of Arbitrators. Stuart has also beenappointed to the Commercial Mediators Panel of the ChinaCounsel for the Promotion of International Trade.

Far East appointmentsRegional venues for theAdministrative Court

Two out of three law firm partners

believe the recession will present

attractive opportunities to secure

opportunistic mergers, suggesting

that the UK market could be set for

a run of consolidation.

Partners predict marketconsolidation…

26

Insolvency ChallengeMany thanks to all those who entered the insolvency challenge in the May edition of the Digest: a record number of entries!The correct answers and the winner appear in the box at the foot of the opposite page. In the meantime here is an insolvencychallenge with a difference devised by Stephen Robins. All you have to do is name the eight faces: they are all people who havebeen influential as lawyers in the insolvency world, although to make it slightly easier clues appear with each photograph. Therewill, of course, be a magnum of champagne for the winner. Answers by email to kirstendent@southsquare.com or by post to theaddress on the back page in either case by Friday 15 September 2009. Good luck!

Judge of the Chancery Division from 1985-1992; Lord Justice ofAppeal 1992-1995. Appointed to the Lords in 1995.

Judge of the Chancery Division 1996-1994; Lord Justice of Appeal1994-1998; Appointed to the Lords in 1998.

Judge of the Chancery Division 1991-1997; Lord Justice of Appeal1997-2007.

Author of “Principles of Corporate Insolvency Law”.

1

2

3

4

27

July 2009 3-4 digest

May Insolvency Challenge(1) In re Condon, ex parte James. (2) Mann v Goldstein. (3) Barclays Bank Ltd v Quistclose Investments Ltd. (4) British Eagle International AirlinesLtd v Compagnie Nationale Air France. (5) Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd. (6) Ayerst v C &K (Construction) Ltd. (7) Rea Debtor (No 1 of 1987). (8) Re Produce Marketing Consortium Ltd. (9) Bristol Airport v Powdrill, Paramount Airways. (10) Re MC Bacon Ltd (11) ReAtlantic Computer Systems plc. (12) British & Commonwealth Holdings plc v Spicer & Oppenheimer. (13) Re Shoe Lace Ltd, Power v SharpInvestments Ltd. (14) Stein v Blake (15) Re T&D Industries plc (16) Bank of Ireland v Hollicourt (Contractors) Ltd. (17) Cadbury Schweppes v Somji(18) National Westminster Bank v Spectrum Plus Ltd, Spectrum Plus (19) Re Eurofood IFSC Ltd (20) McGrath v Riddell, HIH Casualty and GeneralInsurance Ltd.There were a considerable number of correct entries. But the winner of the Insolvency Challenge from the May Digest - drawn from the wig tin by3-4 South Square's senior practice manager, Paul Cooklin - is John Harvey of Kennedy’s to whom go many congratulations and, it being a rolloverfrom the previous Digest, two magnums of Champagne.

Judge of the Chancery Division from 1970- 1979; Lord Justice ofAppeal 1979-1982; Appointed to the Lords in 1982.

Called to the Bar in 1938; took silk in 1965.

Judge of the Chancery Division from 1994-2008.

Judge of the Chancery Division from 1 October 2003.8

5

6

7

28

Michael Crystal QC

Christopher Brougham QC

Gabriel Moss QC

Simon Mortimore QC

Stuart Isaacs QC

Richard Adkins QC

Richard Sheldon QC

Richard Hacker QC

Robin Knowles CBE QC

Mark Phillips QC

Robin Dicker QC

William Trower QC

Martin Pascoe QC

Fidelis Oditah QC

David Alexander QC

3-4 South SquareBarristers

Telephone+44 (0)20 7696 9900

Fax+44 (0)20 7696 9911

Emailclerks@southsquare.com

Felicity Toube

Jeremy Goldring

Lucy Frazer

David Allison

Daniel Bayfield

Tom Smith

Richard Fisher

Blair Leahy

Stephen Robins

Marcus Haywood

Hannah Thornley

Simon Fuller

William Willson

Georgina Peters

Adam Al-Attar

Antony Zacaroli QC

Stephen Atherton QC

David Marks QC

Lexa Hilliard QC

Ronald DeKoven

John Briggs

Mark Arnold

Adam Goodison

Hilary Stonefrost

Lloyd Tamlyn

Glen Davis

Andreas Gledhill

Barry Isaacs

Ben Valentin

“Barristers who are invariably terrific, and clerks who know their business to a tee.”

“You cannot get any better”

Chambers 2009

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London WC1R 5HP, UK

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