The Australian Court of Appeal refused an appeal against a winding up order made in relation to Legend in Australia where Chapter 11 proceedings were on foot in the United States.
Legend International Holdings Inc ("Legend"), registered in Delaware in the United States, were unsuccessful in defending a claim brought by the IFF which resulted in an award of $12.35 million plus interest. As payment was not received, the IFF filed a Winding Up Petition against Legend in Australia.
At the hearing of the Winding Up Petition, the trial judge found that Legend's Centre of Main Interest was in Australia. Although Chapter 11 proceedings were on foot in the United States, the trial judge found that this did not restrain him from making the Winding Up Order and therefore wound the company up under s583 Corporations Act 2001.
Legend appealed to the Australian Court of Appeal on the basis that the trial judge had erred when placing Legend into Liquidation, as s581 of the Corporations Act, which states that Australian courts must 'act in aid of, and be auxiliary to' courts of prescribed countries, including the US, meant that the Court should have refused to place Legend into Liquidation.
Legend also brought the Court's attention to the difference between the insolvency regimes in Australia and the US. Winding up a company in Australia is aimed at the realisation and distribution of the company's assets for the benefit of creditors, whereas Chapter 11 focuses on the reorganisation and continued trading of the company. Legend argued that a Winding Up Order would conflict with and impede the US Court's conduct of the Chapter 11 proceedings.
The Court of Appeal rejected Legend's arguments, stating that "very clear words would be required by Parliament to justify a conclusion that an Australian court was obliged to refrain from exercising a discretionary power under the Corporations Act to wind up a company simply because the company had applied for bankruptcy in the US under Chapter 11", and such words were not found in s581. The Court of Appeal held that the trial judge's decision was not wrong, commenting that US proceedings were on foot but were in the early stages, with no plan for reorganisation put forward. As such, there was nothing to suggest that creditors would be better off by not winding up Legend in Australia.
Further, the court stated that a Winding Up Order made in Australia would not be incompatible with the US proceedings, which was apparent by the US judge adjourning the further status conference to take place after the Australian appeal had taken place. It was also noted that whilst the Court has a duty to act in aid of the US proceedings, no such request had been made by the US Bankruptcy Court.
The court also noted that it was not uncommon for there to be dual insolvency administrations where international companies are involved, in fact Chapter V of the Model Law expressly contemplates it.
As such, the appeal was denied, and the Liquidation of the company allowed to continue in Australia.