Fibria Celulose -v- Pan Ocean Co. Ltd  EWHC 2124 (Ch)
The High Court held that it has no power to order a stay or restrain the presentation of a contractual termination notice on an insolvent company.
Pan Ocean Co. Limited ("POCL") was a shipping company incorporated in South Korea that entered in to a contract with Fibria S/A ("Fibria") in 2011 for the carriage of goods. The contract contained a provision for either party to terminate the contract on the insolvency of the other (commonly known as an "ipso facto" clause). The contract also stated that any dispute arising out of the contract should be governed by English law and provided for arbitration to take place in London in the event that it was necessary.
In June 2013 POCL was placed in to insolvency proceedings in the Republic of Korea and an Administrator was appointed. The Administrator subsequently obtained an order from the English High Court recognising the Republic of Korea proceedings as foreign main proceedings pursuant to Article 17 of the Cross Border Insolvency Regulations ("CBIR"). Following recognition Article 20 CBIR provides that there was an automatic stay on the commencement or continuation of proceedings.
Following recognition Fibria wrote to the Administrator stating that it wished to terminate the contract. The Administrator replied, stating that the clause in question was void under Korean law and he was able to elect to terminate or maintain the contract, which he considered to be a profitable contract for POCL's benefit. Due to the financial value of the contract the Administrator confirmed that he would elect to continue it.
Fibria applied to the English High Court for permission under Article 20 (6) CBIR to commence an arbitration seeking a declaration that it was entitled to terminate the contract.
The Administrator applied under Article 21 (1) CBIR for an order that Fibria was not entitled to terminate the contract. Additionally, the Administrator applied under Articles 21, 25 and 27 CBIR inviting the English Court to submit a letter of request to the Korean Court seeking their opinion as to whether the ipso facto clause was void and unenforceable under Korean Law. The application for a declaration that Fibria was not entitled to terminate was on the basis that to make such a declaration would constitute "appropriate relief" within the meaning of Article 21 (1) CBIR.
The Court considered that serving a termination notice would not constitute the commencement or continuation of proceedings and as such the stay granted under Article 20 CBIR did not affect the actions that could be taken by Fibria.
The Court held that it was not entitled to make the declaration sought by the Administrator under Article 21. Warren LJ stated that, given termination rights were freely capable of exercise in an English insolvency, it would be absurd for the Court to make a declaration for a foreign insolvency when it would not be entitled to do so in relation to a domestic insolvency. In any event he did not consider that such a declaration would represent "appropriate relief".
Having heard expert testimony on the effect of Korean insolvency law, which confirmed that a Korean Court would consider any termination notice served would be ineffective to determine the contract, it was considered that it would not be necessary or appropriate to make an order restraining the serving of a termination notice. Nor was it necessary for the English Court to have an opinion of the Korean Court as to the effect of Korean law.
This case provides helpful clarification as to how an English Court will treat "ipso facto" clauses under the CBIR, as many jurisdictions, including the United States, consider "ipso facto" clauses to be invalid. It also provides confirmation that the relief that an English Court is able to grant pursuant to Article 21 CBIR is limited to that which it would be able to grant in domestic insolvency proceedings.
Re Hibu Finance  EWHC 370 (Ch)
The English High Court has confirmed that it has jurisdiction to make orders relating to scheme meetings concerning the Hibu Group of companies. The group included Spanish and United States subsidiaries.
The Hibu Group produced traditional print business directories but concluded that part of its business was no longer viable. As such the Group proposed to undertake some financial restructuring in order to allow it to focus on digital marketing services.
The principal company, incorporated in England and Wales, had been placed in to Administration. None of the other subsidiaries had been placed in to insolvency proceedings. The English company, along with the Spanish and one of the United States subsidiaries, (together "Borrowers") were borrowers under a finance facility ("Finance Facility") which contained a clause stating that it was governed by English law, and that it was subject to the non-exclusive jurisdiction of the English Courts. The primary obligations under the Finance Facility were guaranteed by each group company and, as between those guarantees, there were cross guarantees.
The English company along with the seven subsidiaries (Group Companies) applied jointly to the English High Court for orders convening scheme meetings for each company to permit them to proceed with their proposed scheme of arrangement and therefore the proposed restructuring of the business. The Court had to consider whether it had the power to make the orders in the terms requested.
As a matter of law the English Court has jurisdiction to make orders convening scheme meetings where it would also have jurisdiction to make a winding up order in relation to the company. This was not an issue in relation to the English company; however, to be able to make an order in relation to the Spanish and United States subsidiaries the court would need to be satisfied that these had "sufficient connection" with the United Kingdom.
In considering whether the Spanish and United States subsidiary had sufficient connection the Court held that it was relevant that English law governed the rights of the Borrowers under the Finance Facility, and that it was relevant that their rights under the Finance Facility would be affected by the scheme of arrangement. Given the terms of the guarantees and cross guarantees each of the lenders under the Finance Facility had an actual or contingent claim against each of the Group Companies and would rank pari passu with every other lender in the event of an insolvency in that company.
Accordingly the Court considered that the clause confirming that the Finance Facility was subject to English jurisdiction provided additional evidence of sufficient connection with England. Further, the EU Judgments Regulation provides that parties, one or more of whom is domiciled in an EU Member State, are able to agree which Court should have jurisdiction to settle any disputes. This too was good evidence of sufficient connection with England.
Finally, the Court would not be prepared to exercise its jurisdiction unless it was satisfied that the orders to be made would have some purpose, i.e. that they would be recognised in Spain and the United States. On examination of the evidence the Court was satisfied that the Rome Regulation and the US Bankruptcy Code would allow for the recognition of the orders in Spain and the United States respectively, and therefore made the orders on the terms requested.
This case provides further clarity that where orders for scheme meetings are sought from the English Court, the Court will need to be satisfied that the company in question has both sufficient connection with the jurisdiction and that it will be possible for the scheme of arrangement to be given effect to should it be approved.
Japanese Creditors demand payment… In Bitcoins!
The Creditors of Mount Gox (the world's largest Bitcoin exchange), which went offline in February 2014, have reported that it has lost track of 850,000 bitcoins. A bitcoin is a decentralised virtual currency. The Japanese court subsequently launched bankruptcy proceedings. A dissident group of creditors has stated that they do not consider payment in cash to represent an adequate return and have requested repayment in bitcoins. Creditors state that due to transaction fees, reconverting the coins to cash will significantly reduce their value and, as such, the bitcoins remaining in the exchange should be distributed unconverted. To date all settlements in Japanese Bankruptcy proceedings have been in cash, and it will be a landmark decision if the creditors secure payment in bitcoins.
Gowex admits fraud and enters insolvency
The CEO of Spanish wifi provider Gowex recently admitted to falsifying the company's accounts for 4 years. The company has confirmed that it will file for bankruptcy protection. Gowex had committed to providing increased connectivity and hotspots in public locations in a variety of spaces globally, and there is now a real question over whether these contracts will be fulfilled. If found guilty of fraud, the former CEO could face up to 10 years in prison.
Consultation for the continued provision of essential services to insolvent businesses
The UK Government has announced that it will consult on proposals to prevent companies providing essential services (currently utility companies) enforcing termination provisions against insolvent businesses. The proposals also include voiding so-called ransom clauses, where utilities companies seek to charge an increased price in order to continue their supply. The Government has indicated that it intends to extend the scope to cover suppliers of IT services. Currently insolvent businesses are often forced to close down as Insolvency Practitioners are unable to obtain essential services to allow the business to continue trading. The consultation closes on 8 October 2014.