Contents at a glance... Editor’s Note Highlight of this Issue Where Trust is Misplaced : Global Trader Europe Case Decisions •  Australia The Samsun Decision - The First Successful Application for In-bound Recognition of a Foreign Insolvency Proceeding in Australia       •   UK Pre-pack Administration : Court Considers Its Discretion and Pre-appointment Costs Legislation • India Bankruptcy Law in India Articles • Argentina Abusive Proposals in the Argentine Bankruptcy System        • United States of America Chapter 11 Ruling Calls into Question Basic Tenets of Securitization Structures Publications • Bank Bankruptcy in Canada : A Comparative Perspective     • Insolvency within Multinational Enterprise Groups - By Irit Mevorach News • INSOL 2009 - 8th World Congress - Vancouver, 21-24 June 2009 This issue was kindly sponsored by: Please visit David Rubin and Partners by clicking here

Our Highlight article by Vivien Tyrell & Peter Fidler examines the recent Global Trader decision in England, in which the High Court addressed the question of whether a failure to segregate client money in accordance with the rules of the Financial Services Authority was fatal to the existence of a statutory trust over those monies. The decision has been the subject of substantial attention in the UK because of its relevance to the many other current insolvencies of financial services firms with vast amounts of client funds under their control. In the US, the Bankruptcy Court's approval of the use of cash flow generated by special purpose entities in the Chapter 11 of General Growth Properties has called into question certain assumptions in the securitization markets concerning the use of bankruptcy remote vehicles, whilst in Australia the courts have, for the first time, exercised their powers of recognition under the Cross-Border Insolvency Act 2008 (which enacts the UNCITRAL Model Law). These decisions are covered in notes provided by White & Case and Blake Dawson respectively.

In the UK, the subject of "pre-packs" continues to grab headlines and divide opinion. Government is concerned about public confidence in the insolvency system and the potential for abuse: transparency in the process is, broadly, seen as the answer (for the time being) and this theme has been reinforced by a recent case noted by Freshfields Bruckhaus Deringer, in which the court held that, when an application is made for an administration order, evidence submitted by the insolvency practitioner in support of the order should disclose details of any proposed pre-pack sale as this may be a matter relevant to the court's decision. In the longer term, the UK Government consultation on rescue funding, as noted in last month's newsletter, may ultimately provide an alternative solution in some cases where, at present, a pre-pack is the only option outside of liquidation."

Radford Goodman
Partner
Norton Rose LLP

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Where Trust is Misplaced : Global Trader Europe

On 24 March 2009, Sir Andrew Park sitting as a High Court judge in the UK Companies Court handed down his judgment in the case of Global Trader Europe Limited (Global Trader). The case is highly significant both for the global financial services industry and for those having to deal with the insolvency or near insolvency of financial institutions. The directors of this minor player in the derivatives arena would not have known that their company's treatment of its various types of clients and counterparties would become the focus of attention by the legions of lawyers, bankers and accountants dealing with the largest financial group collapse the world had ever seen: Lehman.

Sir Andrew Park's judgment is identified in a substantial number of the issues which the administrators of Lehman Brothers International Europe (LBIE) have brought before the UK court for determination. A directions hearing with preliminary matters takes place on 19 June. The extent to which the findings in the Global Trader case are to be applied in LBIE will be determined within the next few months. Whether some or all of the findings will be the subject of appeals will be a question in the forefront of interested parties' thinking.

The Global Trader judgment is easy to read, a blessing for those having to grapple with the complexities of the relationships between such financial products providers and their counterparties and clients. The judgment gives a judicial interpretation of the application of the UK client asset and money rules implemented under the Financial Services and Markets Act 2000 (the CASS Rules) where none has been given before. It is therefore essential reading for those faced with advising clients on the interpretation of those Rules.

For more details please click here.

For the full judgment please click here.

By
Vivien Tyrell & Peter Fidler
Edwards Angell Palmer & Dodge UK LLP

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Asia Pacific

Australia

The Samsun Decision - The First Successful Application for In-bound Recognition of a Foreign Insolvency Proceeding in Australia

Hur v Samsun Logix Corporation [2009] FCA 372 - 17 April 2009

One of the key aspects of the Model Law, as in force in Australia, is that a foreign representative may apply for recognition in Australia of a foreign insolvency proceeding and obtain the benefit of stays which are applicable under the Australian insolvency regime.

In this case, The Federal Court of Australia on 17 April 2009 delivered its judgment which appears to be the first successful application for recognition in Australia of a foreign main proceeding under the Cross-Border Insolvency Act 2008 (Cth), which enacts the UNCITRAL Model Law.

The receiver of Samsun Logix Corporation, a company incorporated in Seoul, Korea, successfully applied for the Court's recognition of rehabilitation proceedings to which the company was subject in Korea in order to obtain the benefit of stays to protect the company's property in Australia.

The decision is a reminder to financiers and creditors that the new Cross-Border Insolvency Act 2008 (Cth) is now in effect and may impact upon their rights of enforcement against the Australian assets of companies that are subject to foreign insolvency proceedings.

For a full case note please click here.

For the full judgment please click here.

Europe, Africa, & Middle East

UK

Pre-pack Administration : Court Considers Its Discretion and Pre-appointment Costs

In the Matter of Kayley Vending Limited - [2009] EWHC 904 (Ch)

A recent court decision confirmed that transparent pre-pack sales can be used where they are in the best interests of the creditors as a whole. The court ruled that:

• The applicant must provide sufficient information on the pre-pack to enable the court to see that the procedure is not being obviously abused to the disadvantage of creditors and ;


• the proposed administrator’s costs in putting together the pre-pack sale may potentially be treated as an expense of the administration.

For a case note please see Freshfields Bruckhaus Deringer LLP, Briefing, June 2009.

For the full judgment please cleck here.

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Asia Pacific

India

Bankruptcy Law in India

In 1981, in order to assess the causes of industrial sickness and suggest remedial measures, the Reserve Bank of India constituted a committee under the chairmanship of Mr. T. Tiwari, chairman of Industrial Reconstruction Corporation of India (now known as Industrial Development Bank of India “IDBI”). This resulted in the enactment of a special legislation, the Sick Industrial Companies (Special Provision) Act, 1985 (referred to as “SICA”). SICA has been repealed and replaced by the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 paving way for amendment of the Indian Companies Act, 1956 through insertion of Chapter VI A to deal with the Revival and Rehabilitation of Sick Industrial Companies.

This article explores the development, evolution and tribulations of bankruptcy law in India and more importantly, what it means for lenders and investors.

For the full article by Bob Jacobs and Meenakshi Maheshwari please see Ferriers Focus Asia, June 2009.

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Americas

(i) Argentina

Abusive Proposals in the Argentine Bankruptcy System

There is a strong link between law and ethics expressed in Argentine legislative texts in force as well as judicial decisions that have applied rules to practical problems of whatever nature that needed resolution.

The law of bankruptcy includes some specific rules that relate to the payment proposal issue, deeming as abusive any proposal that does not adjust to ethical standards accepted either by positive rules or else by reasons sustained by judicial decisions and inherent doctrine. In such circumstances the debtor’s proposal is not admitted as binding in bankruptcy proceedings, thus, non-legal viability is duly ordered.

This article discusses the rules in force and looks at abusive bankruptcy proposals in the context of the laws in force.

For more details please see article by Prof. Hector Miguens, INSOL Scholar 2008-9.

(ii) United States of America

Chapter 11 Ruling Calls into Question Basic Tenets of Securitization Structures

On May 14, 2009, Judge Allan Gropper of the US Bankruptcy Court, Southern District of New York, approved a US$400 million DIP financing package in the US$27 billion General Growth Properties, Inc. (“GGP”) Chapter 11 case. Judge Gropper’s ruling also included approval of GGP’s proposal to use cash flow generated by shopping centers, structured by GGP as bankruptcy remote, special purpose entities, to fund GGP’s ongoing central operations while in bankruptcy.

The bankruptcy filing by the GGP subsidiaries and Judge Gropper’s ruling appear to call into question two basic tenets of securitization structures: (1) that the entity holding the securitized assets will remain out of the reach of the equitable powers of a bankruptcy court and (2) that a special purpose entity’s assets will not be used to support the bankruptcy estate of the parent sponsor.

While Judge Gropper’s ruling may or may not have a significant economic effect on the lenders of the GGP subsidiaries (only time will tell), the true significance of the GGP proceeding in the near term is the uncertainty it likely will introduce with respect to the status of wholly owned special purpose entities that were structured to be bankruptcy remote and the impact this may have on the ratings assigned to asset-backed securities issued in transactions involving such entities.

For the full article please see White & Case Insolvency Notes, June 2009

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Europe, Africa, & Middle East

(i) INSOL Technical Series - Paper No 8

Bank Bankruptcy in Canada : A Comparative Perspective

INSOL has recently published this interesting and well researched Technical Paper written by Associate Prof. Stephanie Ben-Ishai, Osgoode Hall Law School, York University, Toronto, Canada.

This paper provides an overview of the legal bank bankruptcy regime in Canada. In particular, it introduces The Global Bank Insolvency Initiative: Legal, Institutional, and Regulatory Framework to Deal with Insolvent Banks (“GBI”) which is used as the framework for locating the Canadian system within an international context.

It also provides a brief overview of the landscape and role of banks in Canada, offers an overview of the legal and institutional framework for bank bankruptcy in Canada, describes and assesses the framework for liquidation proceedings under the Winding-up and Restructuring Act (“WURA”) and concludes and summarizes the assessment of the Canadian regime for bank bankruptcy.

For the full paper please click here.

(ii) Insolvency Within Multinational Enterprise Groups - By Irit Mevorach

Insolvency within multinational enterprise groups (MEGs) raises complex issues due to the foreign elements of the case and the multiplicity of debtors. The key problem is deciding to what extent and in which ways should there be 'linkage' between the entities in the course of their insolvency in order to promote insolvency goals. Historically the issue has been neglected both in national and international regimes. However, new initiatives are currently developing.

This book provides updated case law subject to different cross-border insolvency regimes such as the EC Regulation, UNCITRAL Model Law and use of protocols. It also reviews the main models for cross-border insolvency and their application to the multinational group cases including the very recent development currently under discussion by UNCITRAL Working Group V.

ISBN - 978-0-19-954472-1, Oxford University Press, May 2009.

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INSOL 2009 : 8th World Congress - Vancouver, 21-24 June 2009

INSOL will be holding its 8th Quadrennial in Vancouver this month and a large gathering of leading lawyers, accountants, turnaround professionals, judges and academics are registered to attend. It will be a truly international Congress - a meeting of minds of those interested in what is happening in the world of the turnaround and insolvency profession.

In addition to the main Congress technical programme, there will be three ancillary meetings as well as a closed meeting for the judges.

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This issue was kindly sponsored by:

Please visit David Rubin and Partners by clicking here

INSOL Contacts

If you would like to send an article for inclusion in one of our forthcoming issues please contact our Technical Manager, Sonali Abeyratne at sonali@insol.ision.co.uk

If you would like to introduce a new member to INSOL International please contact, Jelena Sisko at jelena@insol.ision.co.uk