The English courts have recently wrestled with the Cross Border Insolvency Regulations 2006 (“CBIR”) in a case about the lifting of the automatic stay on proceedings against Korean company STX Offshore & Shipbuilding Co Ltd
In the present case (Re International Bank of Azerbaijan OJSC) the English High Court found itself dealing with the application of Azerbaijan’s largest bank for an order recognising restructuring proceedings in Azerbaijan as main proceedings under the CBIR and imposing an administration moratorium in the UK.
The bank’s head office was in Baku and it was authorised and regulated by the financial markets’ supervisory authority in Azerbaijan. It was making losses due in part to the fall in oil prices and in March 2017 it had defaulted on loan obligations. Voluntary restructuring proceedings were opened in Azerbaijan and a stay of execution was imposed on proceedings in Azerbaijan for 180 days whilst attempts were made to restructure the bank’s indebtedness. Concerned about the risk of enforcement in England (as many loan agreements were governed by English law), recognition of the proceedings was sought in England under CBIR.
CBIR implements the UNCITRAL Model Law on cross-border insolvency (“Model Law”). The court needed to review the provisions of the Model Law to first assess whether recognition could be granted and then decide if it would grant an administration moratorium.
The court was satisfied that all the relevant requirements of the Model Law were met to allow the proceedings in Azerbaijan to be recognised as foreign main proceedings and that it was appropriate to do so.
They then turned to the issue of whether to impose an administration moratorium.
The effect of the recognition was to impose a stay equivalent to the making of a winding-up order in England. However, the proceedings in Azerbaijan were not liquidation proceedings. The court considered that a liquidation-type stay was inappropriate where the foreign insolvency proceeding was not a liquidation but, as in the instant case, a “debtor in possession” rescue procedure.
The court had the power under article 22 of the Model Law to modify or terminate the reliefs that could be granted under the Model Law provided it was satisfied the interests of the creditors and other interested persons, including the debtor were adequately protected.
The court therefore had power to modify the liquidation stay by imposing an administration moratorium as per the terms of paragraph 43 Schedule B1 of the Insolvency Act 1986. The court considered that was the appropriate course of action.
It is open to creditors or other persons affected to apply to the court to modify or set aside the relief granted and it remains to be seen if this will happen.
This case shows how the court might approach questions of recognition and requests such as application of the administration moratorium. It reflects what appears to be a purposive and helpful approach by the courts to applications under the CBIR.