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Cross Border Restructuring and Insolvency Update - December 2014

Akers and others v Samba Financial Group [2014] EWCA Civ 1516

We reported on the High Court decision in March 2014. The Court of Appeal has recently considered the Liquidators'' appeal. As a reminder, the facts are as follows.

In 2009 Saad Investments Co Ltd ("SICL") was wound up by the Grand Court of the Cayman Islands and the Joint Liquidators applied to the English Court for recognition of the Liquidation as foreign main proceedings.

SICL and Samba Financial Group ("Samba") had entered into a facility agreement in which Samba advanced $60 million. The facility agreement was governed by English law. Prior to the Liquidation of SICL, Mr Al Sanea was the registered owner of a share portfolio (the "Disputed Shares"). He transferred them to Samba, to whom he had given a personal guarantee for SICL''s liabilities.

The Joint Liquidators claimed the shares were held by Mr Al Sanea for SICL on trusts governed by the law of the Cayman Islands. Samba disputed this. The Liquidators therefore wished to make a claim against Samba for the return of the Disputed Shares under s.127 Insolvency Act 1986. They issued proceedings and served them on Samba at its London address.

On the application of Samba, the High Court granted a stay of proceedings on the grounds that it was more appropriate for the matters in dispute to be dealt with in Saudi Arabia. This was on the basis the ownership of the shares was governed by the law of the place where the company was incorporated, namely Saudi Arabia. Further, Article 7 of the Recognition of Trusts Act 1987 provided that the governing law of a trust, if not determined on creation, is that with which the trust is "most closely associated". On the facts, the English High Court held that this was Saudi Arabia.

After considering the Articles of the Recognition of Trusts Act 1987 in great detail, the Court of Appeal overturned the High Court''s decision. The stay was lifted because it was at least arguable that the governing law of the trusts was Cayman Islands law. Proceeding on this assumption, Article 4 of the Recognition of Trusts Act 1987, which excludes the Act''s application to preliminary matters, did not operate. 

The Court of Appeal also considered that there were a number of matters that could only be determined with cross-examination of expert witnesses. The High Court had not been in a position to do so and the issues should be decided at trial after all appropriate evidence had been heard.

Accordingly the application to stay the proceedings was lifted. We will keep you posted on any further developments on this case.

Stichting Shell Pensioenfonds v Krys

This case arose out of the Liquidation of Fairfield Sentry, an investment fund based in the British Virgin Islands which had invested 95% of its assets in the collapsed Bernie Madoff Ponzi scheme. Fairfield held significant funds with a Dutch bank in an account in its Irish branch.

Stichting Shell Pensioenfonds ("Shell"), a Dutch pension fund who had bought shares  in Fairfield, obtained an order from the Amsterdam District Court for attachments over the funds in the Irish bank account. The effect of the attachments were that, if the substantive claim in Holland succeeded, Shell could satisfy its judgment debt in full, whereas other creditors with claims in the Liquidation would only receive a dividend.

Shell submitted a Proof of Debt to the Fairfield Liquidators which was subsequently rejected and the Liquidators sought an anti-suit injunction preventing Shell from continuing with the Dutch action.

The first instance Judge in the BVI refused the application but the BVI Court of Appeal allowed the appeal. The appeal court held that Shell was subject to the jurisdiction of the BVI having lodged a Proof of Debt in the Liquidation and that it was not entitled to obtain a priority over the assets in the Liquidation which it would not have otherwise had. Shell appealed this decision to the Privy Council.

The Privy Council dismissed Shell''s appeal, upholding the anti-suit injunction.

The Privy Council held that, as Shell had voluntarily submitted to the jurisdiction of the BVI Court by filing the Proof of Debt, they had elected to be bound by the BVI insolvency system which prevented Shell from gaining a priority by utilising another jurisdiction.

The Privy Council considered the fundamental principle applicable to anti-suit injunctions, that a Court should not interfere in the jurisdiction of a foreign Court, but may act personally upon a Defendant by restraining the commencement or continuance of proceedings in a foreign Court where the ends of justice require it.

The Privy Council considered the public interest in enabling a single Court, in the country of the company''s incorporation, to conduct the winding up of its affairs on a worldwide basis. It also considered the principles behind granting anti-suit injunctions as applicable in insolvency cases. The Privy Council held that it was not necessary to show, when the Court was concerned with insolvency proceedings, that the foreign proceedings were vexatious or oppressive. The Court would intervene if it is appropriate for the Court of the company''s incorporation to deal with the distribution of the company''s assets within the insolvency proceedings.

Shell had invested in a company incorporated in the BVI and must, as a reasonable investor, have expected that in the event Fairfield became insolvent, it would be wound up under the law of that jurisdiction. This case shows that in insolvency cases, courts will exercise jurisdiction to prevent a creditor achieving priority over other creditors in a Liquidation, particularly where they had submitted to the foreign Court''s jurisdiction.

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