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Cross Border Restructuring and Insolvency Update - June 2015

Re Sanko Steamship Co Ltd

In early 2012 a Japanese Company, Sanko Holdings Co Ltd (which owns and operates cargo ships), entered into a contract for carriage with Glencore Ltd. The vessel carrying Glencore's cargo was delayed en route for three months, resulting in a claim by Glencore for its losses. In the meantime, Sanko entered into insolvency proceedings in Japan for the purpose of implementing a reorganisation plan. The Japanese proceedings were recognised under the Cross Border Insolvency Regulations 2006. Following a change in circumstances of the Japanese proceedings the court considered whether recognition should continue in the UK. 

The Second Applicant, Mr Tabata, a Director of the company, was appointed as Trustee for the purposes of the reorganisation. Glencore submitted claims in the reorganisation for its financial losses but Mr Tabata rejected them, resulting in Glencore lodging petitions to challenge Mr Tabata's decision. In the summer of 2014 the vessel arrived in Falmouth and was the subject of Admiralty proceedings. An order was made for the vessel to be sold and for the proceeds in the sum of $3.85m to be paid into Court. Glencore filed a request for caution against the release of the funds and in November 2014 Sanko and Mr Tabata issued a Remission Application for an order that the funds be entrusted to Mr Tabata pursuant to S21(2) CBIR. On 2 December 2014 the Japanese Court terminated the Japanese proceedings. Whilst Mr Tabata ceased to be Trustee, there were still payments due under the plan for which he took responsibility as Representative Director under Japanese law.

In a Recognition Application to the Companies Court in London Mr Tabata asserted that he should continue to be afforded recognition under article 17(4) for the purposes of the Remission application so that he could see the reorganisation plan through to completion. Article 17(4) states that articles 15, 16, 17 and 18 do not "prevent modification or termination of recognition if it is shown that the grounds for granting it… have fully or partly ceased to exist". Mr Tabata's submission was on the basis that the main proceedings had only partly ceased to exist, Article 17(4) gave the Court a discretion to terminate recognition. Glencore, on the other hand, asserted that Mr Tabata could not have continued recognition as a foreign representative where there were no foreign proceedings to be recognised, as they can only exist "in the atmosphere of a foreign proceeding". The Court dismissed the recognition application, favouring Glencore's natural interpretation of the language within article 17(4) in accordance with "commercial common sense".

Given the ruling terminating recognition the Court held that Mr Tabata had no locus to apply under Article 21(2) because there was no foreign proceedings or foreign representative to request the remission of funds.

However, the Court held that the funds should be held in a US dollar account in the joint names of the parties' solicitors. This was on the condition that Glencore: 1) gave an undertaking that an application would be made to the Japanese Court within 42 days for the preservation of funds pending determination of the petitions, and 2) provided a cross-undertaking in damages. This was considered the just course of action as the circumstances had changed "materially" since the application was issued and the Japanese Court was the forum that the parties had chosen to hear the dispute. 

USDAW and another v WW Realisation 1 Ltd (in liquidation), Ethel Austin Ltd and another

The Court of Justice of the European Union (CJEU) has considered when collective redundancy requirements apply under EU law in the context of the Administration of high street retail stores Woolworths and Ethel Austin.

The Union of Shop, Distributive and Allied Workers ("USDAW"), together with Mrs Wilson, an employee of Woolworths and member of the USDAW, brought claims before the Liverpool and London Central Employment Tribunals against the two companies on behalf of thousands of workers who had been dismissed on grounds of redundancy. They sought protective awards on grounds that the consultation requirements under the Trade Union and Labour Relations (Consolidation) Act 1992 ("TULRCA") had not been adhered to. TULRCA implements the UK's obligations in respect of collective redundancies under Directive 98/59, and S188(1), which provides that the duty to consult is triggered "where an employer is proposing to dismiss as redundant 20 or more employees at one establishment with a period of 90 days or less".

The Employment Tribunals denied protective awards to several thousand employees from smaller branches of the retailer on the basis that they had worked in stores with fewer than 20 employees and each store was to be treated as a separate "establishment" under Article 1(1)(a)(ii) of the Directive.

USDAW appealed to the Employment Appeal Tribunal ("EAT") in May 2013 on grounds that the term "establishment" within the Directive should be construed as relating to the whole of the business rather than individual stores. To hold otherwise, they submitted, would produce "unjust and arbitrary" results. They also sought to rely on the vertical direct effect of Directive 98/59 as the Secretary of State for Business would be liable for the payment of the protective awards where the employer was unable to pay. The Secretary of State sought to rely upon the previous judgments in Rockfon (C-449/93) and Athinaiki Chartopoiia (C-270/05). In Athinaiki Chartopoiia, the CJEU had previously confirmed that an "establishment in the context of an undertaking" may have a "distinct identity". Thus, the Secretary of State asserted that "establishment" means the unit to which workers are assigned to carry out their duties, rather than the employer as a whole.

Surprisingly, the EAT upheld the appeal, finding that the words "at one establishment" in section 188(1) of TULRCA were incompatible with Directive 98/59. The Secretary of State appealed, but the Court of Appeal stayed the proceedings and referred several questions on the meaning of "establishment" and the application of article 1(1)(a)(ii) to the CJEU. 

On 5 February 2015, Advocate General Wahl opined that the meaning of "establishment", which is not defined in Directive 98/59, must be interpreted in an "autonomous and uniform manner in the EU legal order", and thus agreed with the interpretation of establishment in Athinaiki Chartopoiia. Therefore, the UK was not precluded from providing for a duty to consult where 20 or more workers are dismissed in a particular establishment, rather than across the whole undertaking. It is for the referring Court of Appeal to decide, in light of the specific facts of the case, whether the Woolworths and Ethel Austin stores concerned were separate "establishments". 

We await the judgment of the Court of Appeal in this regard. However, it is suspected that the Court will overturn the EAT's decision that the words "at one establishment" in section 188(1) of TULRCA should be interpreted to allow multiple establishments in an undertaking, thus denying protection to thousands of employees but providing much longed-for clarification for employers. 

Short Stories

Proposed amendment to German Insolvency Code

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Small Business, Employment and Enterprise Act: Directors' Conduct Overseas

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