Cross Border Restructuring and Insolvency Update - March 2017

Budniok v Adjudicator, Insolvency Service [2017] EWHC 368 (Ch)

Chief Registrar Baister overturned the Adjudicator's decision in refusing to grant a Bankruptcy Order where the Debtor's COMI was an issue.

Mr Budniok, a German citizen who had recently moved to London, applied online for a Bankruptcy Order in England. After several requests for further information, the Adjudicator was not satisfied Mr Budniok's centre of main interests ("COMI") was in England and as such refused the application. Mr Budniok appealed.

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Vincent Aziz Tchenguiz & Ors v. (1) Kaupthing Bank HF (2) Johannes Runar Johannsson [2017] EWCA Civ 83

The English Court of Appeal dismissed an appeal that a claim could be pursued in the English courts whilst the defendant was also subject to winding-up proceedings under Icelandic insolvency law.

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Short stories

Singapore and Delaware courts adopt Guidelines for Communication and Cooperation between Courts in Cross-Border Insolvency matters

The Supreme Court of Singapore and the United States Bankruptcy Court for the District of Delaware have announced their intention to formally implement the guidelines for Communication and Cooperation between Courts in Cross-border insolvency matters. The guidelines detail the processes and procedures of cooperation and communication between courts across different borders involved in insolvency matters. The guidelines seek to improve efficiency in cases to minimise litigation costs and time.

The guidelines may be implemented by courts in a variety of jurisdictions, enabling those with similar proceedings to communicate and coordinate on the matter in their respective jurisdiction. They are next expected to be implemented in the US, UK, Australia and the BVI.

Supreme Tax Court Abolishes German Restructuring Privilege

In Germany, the cancellation of debt, a key element of most restructurings, tends to trigger a taxable income. The tax authorities had issued a decree (the "Tax Restructuring Decree"), which declared that upon the satisfaction of certain requirements and conditions, the cancellation of debt income would not be taxed. Restructurers were heavily reliant on this decree to avoid a significant tax liability in the course of their business.

The Federal Fiscal Court's Grand Senate however have now ruled against this decree on the grounds it requires a basis in law which currently it does not hold.

Hong Kong makes changes to corporate insolvency law

As of February 2017, Hong Kong courts may now set aside transactions at an undervalue within five years of the commencement of a company winding-up, provided the company was insolvent at the time or became insolvent as a result of the transaction. As well as Hong Kong companies, the law may also apply to foreign companies provided (i) the company had a substantial connection with Hong Kong (ii) there is a reasonable possibility the winding-up will benefit the applicant and (iii) a person in Hong Kong has a sufficient economic interest in the liquidation. If the conditions are satisfied, the foreign company may be exposed to full Hong Kong liquidation law.

This update was jointly written by Alan Bennett and Olivia Reader.

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