Foreign Debts and Insolvency- What Is The Status of Your Claim?

INSOLVENCY:   CROSS-BORDER CLAIMS

FOREIGN DEBTS AND INSOLVENCY- WHAT IS THE STATUS OF YOUR CLAIM?

The Cross-Border Insolvency legislation permits a foreign representative to commence an insolvency proceeding in Australia where the debtor is subject to a foreign proceeding. Difficulties surrounding cross-border insolvencies can result in risk and cost to businesses involved in international trade in goods and services. The legislation assists in the integration of national financial systems with the international financial system and assist to:

• provides access to Australian courts to a person administering a foreign insolvency proceeding
• allow foreign creditors the same rights as Australian creditors
• provide a legislative framework between courts and insolvency practitioners of different jurisdictions

The primary principles of the legislation are:

• the Federal Court of Australia will have jurisdiction in proceedings relating to individual debtors, and the federal court and state supreme courts will have jurisdiction where the entity involved is not an individual.
• a foreign representative of a foreign proceeding is obliged to identify and report on all foreign proceedings in respect of the debtor.

Foreign representatives and foreign creditors can apply to Australian courts. They are not taken to have submitted to an Australian court’s jurisdiction excepting the relevant application. Foreign creditors in effect have the same rights as Australian creditors.

The legislation provides that any application for recognition of a foreign proceeding must be accompanied by a statement identifying all foreign and Australian proceedings in respect of the debtor that are known to the foreign representative. There is an ongoing duty of disclosure.

If a proceeding is a foreign “main proceeding” the insolvency allows for a stay of the same scope and effect against the debtor as if the stay or suspension arose under the relevant Australian local legislation. If the Cross-Border Insolvency Act is inconsistent with the Bankruptcy Act, the provisions of the UNCITRAL (United Nations Commission on International Trade Law) legal framework or the Cross-Border Insolvency Act 2008 (Cth) will prevail.

When a foreign proceeding is recognized an Australian proceeding can still have limited extra territorial cross-border reach where necessary to other assets that should be administered in the Australian proceeding. For example, where a meaningful administration locally may have to include assets abroad, particularly when there is no foreign proceeding necessary or available in the state where the other assets are located.

The Australian courts are to cooperate to the maximum extent possible with foreign courts or foreign representatives and is permitted to communicate directly with them. Likewise, the trustee in bankruptcy or a registered liquidator shall, in exercising their functions, cooperate with The Australian courts. A voluntary administrator is also subject to the provisions.

The primary local legislation continues to be the Bankruptcy Act and Chapter 5 of the Corporations Act.

Koffels deal with cross-border transactions, tax, claims and litigation with a global network of experts to assist. We specialise in insolvency matters and have a proven track record the field.   Our in-house consultant Justice Ralph Zulman SC (retired) of the Supreme Court of South Africa was an author of The United Nations Commission on International Trade Law – UNCITRAL