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Australian Tax Office wins the right to recover taxes due In Australia before assets remitted to a Cayman liquidator: Cross Border Restructuring and Insolvency Update - January 2014

Ackers (as joint foreign representative) v Saad Investments Company Limited [2013] FCA 738


The Federal Court of Australia held that taxes due in Australia from a foreign company in liquidation in the Cayman Islands could be paid out of the assets realised by the foreign representatives in Australia before the assets were remitted to the Cayman Island's Liquidators.

Saad Investments Company Limited ("Saad") had its Centre of Main Interests in the Cayman Islands. Main proceedings had been opened there and had been recognised in Australia as foreign main proceedings, with the Cayman Islands Liquidators being recognised as foreign representatives. The foreign representatives undertook not to remit any assets realised in Australia without giving notice to the Australian Tax Office ("ATO") who claimed to be a creditor of Saad. The foreign representatives realised approximately USD 7 million from the sale of Saad's Australian assets and informed the ATO of their intention to remit the assets.

The Australian Commissioner of Taxation sought interlocutory relief under Article 22(3) of the Model Law to prevent the Liquidators from remitting the assets to the Cayman Islands until he had received a distribution from the proceeds of no more than what he would be entitled to receive under the pari passu entitlements.

The basis of the Commissioner's claim was that his interests as a creditor were not 'adequately protected' within the meaning of Article 22(1) of the Model Law. The law of the Cayman Islands prohibited his proof from admission in the Cayman liquidation because it was a foreign tax debt. The foreign representatives estimated that creditors would receive a return of 20 to 24 cents in the dollar. The Commissioner therefore sought to ring fence from the assets realised in Australia the same amount as the dividend other creditors would receive.

The Federal Court held that creditors of Saad would be likely to expect the company would meet its local tax obligations. The insolvency of a foreigner should not be a reason to exclude him from liability in circumstances where the insolvency of a local person would remain liable. The court further held that the normal operation of the principle of modified universalism is to ensure a fair distribution to creditors of a cross border insolvency. If relief was not granted to the Commissioner he would receive nothing which certainly would not amount to a fair distribution. Furthermore, in the event that the Commissioner's proof was not admitted the other creditors would receive a windfall, which also goes against the spirit of the Model Law and the principle of modified universalism.

Since the Commissioner's interests were not adequately protected, the court amended the recognition orders to permit the Commissioner to recover the taxes due on a pari passu basis before the assets were remitted to the Cayman Islands.


Ward Brothers (Malton) Limited v Middleton, Unite and Bulmers' Transport Limited (in Administration).

This case considered the meaning of being "under the supervision of an insolvency practitioner" pursuant to Regulation 8(7) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE").

Regulation 8(7) of TUPE provides that when a company is subject to bankruptcy or analogous insolvency proceedings instituted with a view to the liquidation of the assets and under the supervision of an insolvency practitioner, Regulations 4 and 7 of TUPE are disapplied, meaning that employment contracts do not transfer to the acquiring company.

Bulmers was the subject of a winding up petition; however it decided to cease trading on Friday 4 February, before the order was made. On Monday 7 February Ward Brothers took over Bulmers' major haulage contracts and utilised their workforce where possible, but for lower rates of pay.

Bulmers had received advice from licensed insolvency practitioners between ceasing to trade. Indeed the insolvency practitioners were on site on the day trade ceased with a view to being appointed as Administrators. However they ultimately decided not to take the appointment. Administrators (from a different firm) were eventually appointed ten days after Bulmers ceased trading.

Thirteen former Bulmers employees who were not retained by Ward Brothers brought claims for unfair dismissal and an additional claim was brought by a union that there had been inadequate consultation with the workforce prior to the transfer. These claims would succeed if the Employment Tribunal held that TUPE applied.

At first instance the Tribunal held there was a TUPE transfer. Ward Brothers sought to argue that TUPE did not apply to the transfer due to the high level of involvement of insolvency practitioners and that, at the point that Bulmers ceased trading, there was an outstanding winding up petition.

The Employment Appeal Tribunal held that an insolvency practitioner could not be held to be "supervising" a company within the meaning of Regulation 8(7) until such time as they were acting as an Insolvency Practitioner within the meaning of section 388 Insolvency Act 1986 e.g. appointed a liquidator, provisional liquidator, administrator etc. An insolvency practitioner could not be said to be supervising the company at any time prior to that point.


Around the World

Ireland

The changes in the Personal Insolvency Regime in Ireland have had mixed results. The Personal Insolvency Act 2012 was passed in December 2012 but came into effect at various points during 2013. It is reported that the number of bankruptcies doubled in 2013, given that the regime is now far more favourable to bankrupts compared to the previous legislation. It is expected that the number will continue to grow in 2014. However, not everyone is happy with the new legislation. Hundreds of smaller debtors were hit by delays as elements of the legislation restricted access to Debt Relief Notices, available to those with debts of less than €20,000.

United Kingdom

R3, the trade body for insolvency professionals in the UK, has called for reform of the personal insolvency regime. It claims that the current regime does not provide sufficient protection for either creditors or debtors. It states that, given that interest rate rises are looming on the horizon, action needs to be taken by the Government now to ensure that the regime can deal with any increase in the number of individuals entering insolvency. R3's proposals include:
1) allowing the £700 bankruptcy administration fee to be paid in instalments rather than up-front;
2) increasing access to Debt Relief Orders by raising the financial limits on assets and debts from £300 and £15,000 to £2,000 and £30,000 respectively;
3) lengthening the standard bankruptcy from 1 year to 3 years to protect creditors; and
4) simplifying the Individual Voluntary Arrangements process to allow a more straightforward way to approve Proposals and removing the ability of creditors to amend Proposals.

United Kingdom

Regulation 7 of the Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE") has been amended by the Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 2014. The amendments, which come into force on 31 January 2014, will result in dismissals being automatically unfair if the sole or principal reason for the dismissal is the transfer, subject to the usual ETO reason.

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