Cross Border Restructuring and Insolvency Update - June 2017

Re Diffraction Diamonds DMCC [2017] EWHC 1368 (Ch)

A case of two companies, one incorporated in Dubai and the other in England, involved in a network of businesses producing contrived fancy colour diamond valuations were eventually wound up by English courts on the grounds of public interest.

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Re Dalnyaya Step LLC [2017] EWHC 756 (Ch)

This case involved an application for security for costs against Mr Nogotkov who is, or claims to be, the Liquidator appointed by a Russian court of Dalnyaya Step LLC ("DSL"). The claim was brought by parties known as Hermitage, seeking security for their costs for a hearing listed to take place over five days in November 2017, considering two applications: (1) Hermitage's application to set aside a Recognition Order obtained by Mr Nogotkov on 8 July 2016, recognising the Liquidation of DSL as foreign main proceedings in accordance with the UNCITRAL Model Law, on the grounds that the making of the order was manifestly contrary to public policy; and (2) Mr Nogotkov's s.236 Insolvency Act 1986 application, seeking the production of DSL's documents from Hermitage and a summons for each of the parties to attend for questioning. Hermitage resist this application on the basis that it relies on the recognition order which should itself be set aside.

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Short stories

European Union - Recast Insolvency Regulation comes into force

Regulation (EU) 2015/848 (the "Recast Insolvency Regulation") has come into force for any insolvency proceedings commenced on or after 27 June 2017. In line with EU Insolvency Regulation 1346/2000 (the "Original Insolvency Regulation"), the Recast Insolvency Regulation focusses on cross border recognition of Insolvency proceedings and, as a Regulation, it applies without the need for specific implementing legislation in each state.

Changes in the Recast Insolvency Regulation include adding further rules for group insolvencies, secondary proceedings and allowing for the recognition of more interim rescue proceedings. There are measures to prevent abuse of the COMI system, where COMI is changed prior to insolvency proceedings, as well as a new combined insolvency register across the EU. Please click to view our articles on cross border insolvencies [] and the potential effect of Brexit [].

Australian Insolvency reforms progress to House of Representatives

Changes to the Australian Insolvency regime continue to progress through the legislature as part of the Treasury Laws Amendment (2017 Enterprise Incentives No.2) Bill 2017. The amendments are intended to allow companies and directors protections whilst they informally restructure, rather than requiring potentially premature entry into formal insolvency proceedings. It is hoped this will increase the turn-around prospects of those companies.

The Bill introduces 'safe harbour' provisions to reassure and empower company directors to restructure providing their course of action is reasonably likely to lead to a better outcome for the company and creditors. It also prevents 'ipso facto' clauses from being enforced whilst a company is restructuring or in administration. These clauses terminate a contract on a specific event, often including restructuring, and the loss of key contracts is a considerable factor in companies being unsuccessful in being turned around.

Irish Supreme Court confirms third-party litigation funding remains unlawful

Following the relaxation of rules concerning champerty and maintenance (third-party litigation funding) in England and Wales and other jurisdictions, the recent case of Persona Digital Telephony Ltd v. The Minister for Public Enterprise has been used by the Irish Supreme Court to clarify the position in Ireland.

The Court confirmed that third-party litigation funding remains unlawful in the jurisdiction, and that any change in this position, whilst it may be appropriate, should be done through legislation rather than the Courts. As the Court noted, the legislative process will take some time and until this is complete, practitioners should be aware that any party bringing a claim in Ireland will need to be self-funded.

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