Restructuring and insolvency alert email
On 30 June 2014, the English Court handed down a judgment which held that the scope of relief which can be granted under Article 21 of the Cross Border Insolvency Regulations 2006 upon recognition of a foreign proceeding is limited to relief which can be granted in respect of a domestic insolvency.
The judgment arose in connection with the Korean rehabilitation proceedings in respect of Pan Ocean Co. Limited (formerly STX Pan Ocean Co. Limited), one of the largest shipping companies in Korea.
Under the Korean rehabilitation procedure, there is an executory contracts regime, similar to that under Chapter 11, by which the debtor (acting by its administrator) may elect to assume or reject unperformed contracts. The effect of this is that, as a matter of Korean law, a party may not rely on an insolvency termination provision to terminate a contract following a rehabilitation filing, if that contract is assumed by the debtor.
The rehabilitation proceedings in respect of Pan Ocean had been recognised by the English Court as foreign main proceedings under the CBIR, and by numerous other jurisdictions. The relevant applications before the English Court raised the question of whether the Court could make an order under Article 21 which essentially gave effect to the Korean executory contracts regime, preventing a contractual counterparty from relying on an English law right of termination.
This issue turned on the interpretation of the words 'any appropriate relief' in Article 21. Article 21, entitled ""Relief that may be granted upon recognition of a foreign proceeding"" provides that: ""Upon recognition of a foreign proceeding, whether main or non-main, where necessary to protect the assets of the debtor or the interests of the creditors, the court may, at the request of the foreign representative, grant any appropriate relief, including..."". The ensuing list sets out a number of types of relief concluding with a provision referring to relief that may be available to a British insolvency officeholder under the law of Great Britain.
It was argued that the list of types of relief in Article 21 is not exhaustive and that the Court should apply a wide interpretation to the phrase 'any appropriate relief', especially given the safeguards afforded by Article 6 (public policy) and 22 (protection of creditors and other interested persons).
In the event, the Court was not persuaded that the words 'any appropriate relief' would allow it to grant relief which would not be available to it when dealing with a domestic insolvency. As such, because there is no executory contracts procedure under English insolvency law, the Court concluded that it could not make an order which would have (essentially) given effect to the Korean executory contracts regime.
In reaching this decision, the English Court adopted a different approach to that adopted by the US and Canadian courts: in the cases of Re Condor Insurance Co. Limited and Re Hartford Computer Hardware Inc., those courts applied aspects of foreign law which would not have been available under (relevant) domestic law.
Permission to appeal has been granted.Stephenson Harwood LLP acts for the Security Agent who is the assignee of the relevant contract.