UNCITRAL Model Law and the winding-up of a foreign insolvent company

Ackers (as joint foreign representative) v Saad Investments Company Limited; In the matter of Saad Investments Company Limited (in official liquidation) [2013] FCA 738

The power of the Court to modify the operation of the UNCITRAL Model Law on Cross-Border Insolvency.

In circumstances where there is no jurisdiction to wind up an insolvent foreign company in Australia, does the operation of the UNCITRAL Model Law on Cross-Border Insolvency Cross-Border Insolvency Act 2008 (Cth) allow for a domestic tax debt or penalty be collected in Australia before the estate is transferred to the jurisdiction of the foreign winding up.

Saad Investments Company Ltd (Saad) was a Cayman Islands company that owed unpaid Australian tax and penalties from its disposition of approximately 67 million shares in an Australian company.  In 2009 the Grand Court of the Cayman Islands made orders for Saad to be wound up.

The liquidators of Saad realised the Australian assets and intended to remit the proceeds of those realisations to the Cayman Islands for distribution to creditors of Saad. The only Australian creditor of Saad was the Commissioner of Taxation. A proof of debt was submitted by the Commissioner of Taxation with the Cayman Island liquidators.

In 2010, the Federal Court in Ackers  (as joint foreign representative) v Saad Investments Company Limited (in official liquidation) (a company registered in the Cayman Islands) [2010] FCA 1221 made orders under the Cross-Border Insolvency Act 2008 (Cth) and the UNCITRAL Model Law on Cross-Border Insolvency recognising Saad’s  ‘centre of main interests’ as the Cayman Islands and that the winding-up proceeding in the Grand Court of the Cayman Islands was the ‘foreign main proceeding’ .[1]
The effect of the orders would be to allow the whole amount of Saad’s remaining Australian assets to be remitted to the Cayman Islands, as its centre of main interests, where the Commissioner of Taxation could not prove for any distribution from its estate.[2]
The Commissioner for Taxation applied to have the orders varied so as to allow for Saad’s Australian assets to be distributed up to the pari passu amount that he would be entitled to receive as a dividend were he able to prove for the tax debts and penalties as an unsecured creditor in the foreign main proceedings. The Commissioner of Taxation submitted that Article 22 of the UNCITRAL Model Law, allows the court to modify the effect of recognising a foreign winding up proceeding so as to ensure adequate protection of creditors’ interests.
His Honour Rares J, held that the interests of the Commissioner of Taxation, as an unsecured creditor of Saad were not adequately protected under the orders at [42] “For these reasons, I consider that Art 22(1) gives the Court of the forum jurisdiction to make orders enabling the payment of taxation and penalty liabilities to be made from the debtor’s assets held by it or a foreign representative appointed under Arts 19 or 21 before those assets are removed from the local forum and sent to the debtor’s centre of main interests or elsewhere at the direction of the foreign representative”….. at [53] “2010 orders should be modified to permit the Commissioner to exercise, within a reasonable time, such rights as he may have to recover from Saad Investments’ assets in Australia up to the pari passu amount that he would be entitled to receive as a dividend were he entitled to be admitted to prove for the tax debts as an unsecured creditor in the Cayman Islands liquidation”.[3]
Commentary
This case illustrates that the operation of Article 22 of the UNCITRAL Model Law may have a substantial role in cross-border insolvency law so as to protect the interests of certain creditors.

As this decision provided for the protection of an Australian creditors interests in a foreign main proceeding, it is application may be used by other countries’ to protect their domestic creditors who might be adversely affected by having to prove in a foreign main proceeding located in Australia.

[1]Ackers  (as joint foreign representative) v Saad Investments Company Limited (in official liquidation) (a company registered in the Cayman Islands) [2010] FCA 1221, at [29], [42], [57]- [58].[2]Ackers  (as joint foreign representative) v Saad Investments Company Limited; In the matter of Saad Investments Company Limited (in official liquidation) [2013] FCA 738 at [39]

[3] Ackers  (as joint foreign representative) v Saad Investments Company Limited; In the matter of Saad Investments Company Limited (in official liquidation) [2013] FCA 738 at [53]

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1 Response

  1. May 27, 2014

    […] million of funds available in Australia for the claimed tax and penalties.  As set out in this CommBar matters case note, at first instance Rares J found in the Deputy Commissioner’s favour and did not allow the funds […]

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