Cross Border Restructuring and Insolvency Update - May 2017

Marex Financial Limited v. Carlos Sevilleja Garcia [2017] EWHC 918 (Comm)

This recent decision on a jurisdictional challenge has provided greater clarity and potentially created a tortious cause of action where a debtor dissipates assets prior to judgment and subsequent freezing order.


In July 2013, Marex Financial Limited ("Marex") obtained judgment in excess of $5 million in a case against two companies registered in the British Virgin Islands ("BVI"): Creative Finance Limited and Cosmorex Limited. A freezing order was subsequently obtained, and in compliance with the disclosure required under this order, the Companies stated combined assets of $4,392.48. The Companies subsequently entered Liquidation in the BVI.

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In re Karhoo Inc, No 16-13545 (Bankr. S.D.N.Y. 2016)

Karhoo was a US incorporated company able to benefit from the Chapter 15 US bankruptcy code provision for foreign insolvency proceedings following UK Administration.

Karhoo was a taxi comparison app aiming to provide its users with access to minicabs and taxis. The Karhoo group (Karhoo) consisted of a holding company incorporated in the US, a US incorporated trading company (US Companies) and various companies incorporated in the UK (UK Companies). Karhoo entered into about 700 contracts with fleet owners and about 21 contracts with dispatchers in the cities in which it did business, including London.

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Short stories

Avoidance reforms to the German insolvency code

Recent amendments to the German insolvency code appear to have made it significantly harder for insolvency administrators to challenge transactions on the basis of intending to disadvantage creditors, commonly referred to as avoidance. The time period under which transactions can be challenged has been reduced from 10 years to 4 years, and the presumption that the other party knew about the illiquidity of the insolvent entity has been heavily restricted. These new amendments apply from 5 April 2017, and commentators await to see how these amendments will be interpreted by the relevant courts.

Puerto Rico files for bankruptcy

The Commonwealth of Puerto Rico filed for bankruptcy on 3 May 2017 under the Puerto Rico Oversight, Management and Economic Stability Act ("PROMESA"), legislation passed specifically by the US Congress to allow for this eventuality. The heavily indebted US territory filed under Title III of PROMESA, and will progress through a process similar to a Chapter 9 filing under the US Bankruptcy code. The US Supreme Court has appointed experienced New York Judge Swain to oversee the case, with filings indicating that Puerto Rico has debts of over $70 billion.

Portugal proposes major changes to corporate insolvency regime

As part of the Capitalizar programme, the Council of Ministers of Portugal has recently released proposed amendments to the corporate insolvency regime, with a view to them becoming effective on 1 July 2017. These reforms include a new Extrajudicial Business Recovery System ("RERE") to allow entities to negotiate with creditors, the option to appoint a mediator to assist with negotiations and clarification for the Special Revitalization Process ("PER"). The reforms also allow for electronic lodging of claim documents via the CITIUS system.

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

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