International insolvency outside the EU: contract under English law and we’ll see you right.

Before the twenty-first century there was a clear and undoubted rule in international insolvency known as the Gibbs rule (Antony Gibbs & Sons v La Société Industrielle et Commerciale des Métaux (1890) 25 QBD 399). Whatever recognition or other co-operation we might be prepared to grant foreign insolvency proceedings, if an obligation was governed by English law and otherwise valid, its validity could not be affected by any act of foreign courts or authorities proceeding under their own insolvency law.

There is no doubt that this is no longer the case for EU insolvencies: the EU Insolvency Regulations of 2000 and more recently 2015 have clearly put paid to any such exceptionalism. But what of non-EU insolvencies? Since 2006 there has been some question whether the simple Gibbs rule might have been affected by the UNCITRAL-based CBIR (Cross-Border Insolvency Rules), which now give the English courts considerable scope to replicate in England the effects of a foreign insolvency proceeding in a debtor’s own COMI (centre of main interests, essentially where its business was run from). Progressive and academic opinion (the latter as usual generally aping the former) consistently suggested that the answer ought to be Yes, on the basis that modified universalism in insolvency needed to become more global and less narrowly jurisdictional.

Today, however, Hildyard J, in a careful judgment in Bakhshiyeva v Sberbank of Russia & Ors [2018] EWHC 59 (Ch), a case on the dry subject of paper issued by a Baku bank, gave the answer No. The bank, OJSC, with connections to the Azeri state, was highly insolvent. It went into Chapter 11-style reconstruction in Azerbaijan, successfully applying to have the proceeding recognised in the UK under the CBIR. A vote of an overwhelming number of creditors, valid under Azeri law, agreed a complex debt-for-government-bonds-and-new-lower-debt arrangement under which OJSC would then continue trading. Two financial institutions, one English (Templeton) and one Russian (Sberbank), holding English-law-governed debt issued by OJSC, held out. They took no part in the vote, though as a matter of Azeri law they were bound by it.

The question was, could the English court prevent these two minority creditors bloody-mindedly enforcing their rights in full against the bank once the moratorium created by the Azeri proceedings was over? As stated above, the answer was No. Whatever one might think of the Gibbs rule, it was too solidly anchored to have been removed by the side-wind of the CBIR. Nor should it be bypassed by, for example, admitting that the debt still existed but then reducing it to something like the grin on the Cheshire cat by preventing its enforcement against the assets of the debtor.

There is much to be said for Hildyard J’s solution, both on grounds of legal certainty and also because Parliament has occasionally stepped in in other areas, but not this one, to prevent abuse of international creditors’ rights (notably, in enforcing statutory debt relief for poor countries against vulture funds and the like).

It may, moreover, be important not only for bondholders — who will obviously be opening discreet magnums of champagne this evening — but for other creditors, including maritime ones. Charter claimants and bunker suppliers whose rights are governed by English law will now, it seems, be able to watch smugly from the sidelines while shipping companies go into reconstruction, waiting for the proceedings to end before pouncing, catlike, on the very same companies, seizing their London accounts and arresting their vessels for the full amount of their claim as soon as they venture far from home. Commerce red in tooth and claw, you might say: but then that’s how it’s always been in shipping.


Liens on sub-freights. Where do they need to be registered as a charge?

The Singapore High Court decision in Duncan, Cameron Lindsay v. Diablo Fortune Inc  [2017] SGHC 172 provides a cautionary tale for shipowners about the need to register a lien on sub freights as a charge, and where this should be done.

The shipowners let their vessel on bareboat charter to a company incorporated in Singapore, under which they were given a lien on all cargoes, sub-hires and sub-freights belonging or due to the charterers or any sub-charterers and any bill of lading freight for all claims under the charter. Following default in payment by the charterer, the owners notice of lien to a sub charterer which employed the vessel in a pooling arrangement. The bareboat charter was subject to English law and provided for London arbitration.

The charterer’s liquidator contended that the lien was void against them for want of registration under s.131(1) of the Singapore Companies Act. The shipowners contended that as the charter was subject to English law, it was the UK Companies Act 2006 that applied to the registration of charges and whose provisions applied only to companies incorporated in England, Wales, or Scotland, but not to a company incorporated abroad. The Singapore High Court held that as the company was incorporated in Singapore, the requirements of s 131 of the Singapore Companies Act applied regardless of the law governing the creation of the charge or the location of the property.

A distinction needed to be made between the law governing the initial validity and/or creation of the security interest and the law governing the priority of such interests and the distribution of assets in the insolvency of the company. The latter issues are resolved by the law of the state in which the insolvency proceedings are commenced. The invalidity of a charge as against a liquidator due to non-registration is one such issue.

The court then considered whether the lien was a charge within the meaning of s131 and followed the English authorities cited by the Liquidator to the effect that a lien on sub freights give rise to an equitable assignment by way of charge and may be void for want of registration against a liquidator and creditors of the company. The lien on sub freights possessed the characteristics of a floating charge and amounted to a charge on a book debt under s131.

Shipowners, therefore, need to be aware of the insolvency law of their time charterer’s place of incorporation and its law regarding registration of charges.

OW Bunkers (again). Interpleader and maritime liens in Canada.


The collapse of the OW Bunker group in late 2014 has led to a series of interpleader claims in different jurisdictions in which competing claims to the deposited funds have been made by the physical bunker suppliers and ING Bank, the assignee of OW. An interpleader claim has recently been heard by the Federal Court of Appeal in Canada in ING Bank NV and Others v Canpotex Shipping Services Ltd and Others 2017  FCA 47. It concerns the effect of funds deposited by the time charterer and the  potential liability of the vessel under a maritime lien.

In 2014 OW UK supplied bunkers in Vancouver to two vessels on charter to Canpotex. Following the collapse of the OW group, competing claims for payment for the bunkers supplied were made by the physical supplier, Petrobulk, and ING Bank as the assignee of OW UK’s receivables. Canpotex interpleaded and obtained an order that the of OW UK’s invoice be paid into the US trust account of its solicitors, which payment would be treated as a payment into court. The interpleader covered only Canpotex’s liability.

Canpotex subsequently added the shipowners as plaintiffs to its statement of claim and sought a judgment as to whether Petrobulk or ING was entitled to all or part of the trust fund and a declaration  that following payment out any and all liability of both Canpotex and the shipowners was extinguished. In July 2015 Russell J heard the claims against the trust funds, (2015 FC 1108). There was a dispute about which terms governed OW UK’s supply of the bunkers to the vessel: the OW Group standard terms; or Schedule 3 of the OW Fixed Price Agreement. Both terms provided for the variation of the contract where the physical supply of the fuel was undertaken by a third party, but were worded differently.

Russell J found that there had been an oral agreement to apply the latter terms and the consequence was that Canpotex became jointly and severally liable under the contracts made between OW UK and Petrobulk.  Upon payment of that purchase price to Petrobulk, Canpotex would come be under no obligation, contractual or otherwise, to pay any amount representing the purchase price for the marine bunkers to OW UK or the Receivers. He then ordered Petrobulk be paid out of the trust fund and that ING be paid the mark up due to OW UK and that Canpotex’s and the shipowners’ liability in regard to the bunker delivery should be extinguished, as well as any and all liens.

The Federal Court of Appeal has overruled the decision. Interpleader proceedings had to be conflicting claims over the same subject matter which were mutually exclusive. The contractual claims against Canpotex advanced by OW UK and by Petrobulk were such claims, but Petrobulk’s assertion of a maritime lien was not a conflicting claim, and was a claim against the shipowners, and not against Canpotex.  If OW UK was contractually entitled to payment of the trust funds, that would extinguish Canpotex’s contractual liability, but Petrobulk’s maritime lien claim would remain alive. The Judge had been wrong to extinguish the shipowner’s liability for that claim and had also wrongly admitted oral evidence as to the terms of the spot bunker purchases. The terms applicable were those found in the OW Group standard terms and the case was returned to the judge for reconsideration.

If the judge finds that OW UK is contractually entitled to payment of the trust funds, this raises the prospect of ING recovering in full under the OW UK invoices from the trust fund established by Canpotex, and of Petrobulk doing likewise through its maritime lien against the vessel, if the vessel can be arrested in Canada.



Recast European Insolvency Regulation kicks in next Monday.

Regulation (EU) 2015/848 of the European Parliament and of the Council of
20 May 2015 on insolvency proceedings (recast) [2015] OJ L141/19 entered into force on 26 June 2015,  and will apply to insolvency proceedings from 26 June

The main changes from the European Insolvency Regulation (Regulation (EC)
No 1346/2000) are as follows:
– Codification of how the centre of main interests (the “COMI”) is determined. There
will be a rebuttable presumption that the COMI is at the registered office, but this will not apply if there has been a move of the registered office during the three months prior to the opening of proceedings.
– Coverage of hybrid and pre-insolvency proceedings. UK schemes of arrangement are
excluded from the Regulation.
– A framework for group insolvency proceedings, where two or more companies in a
group of companies are insolvent, will be introduced.
– Secondary proceedings are no longer limited to liquidation proceedings where a
company has an establishment. “Establishment” is now defined as “any place of operations where the debtor carries out a non-transitory economic activity with human means and assets”. The relevant time for assessing an establishment will be either the time of the opening of the secondary proceedings or, alternatively, the three month period prior to that. The insolvency practitioner in the main proceedings may now provide undertake to treat local creditors as they would be treated under secondary proceedings.
– New linked registers of insolvency proceedings will be established in each member state by 26 June 2018, to be linked via a central European e-justice portal by 26 June 2019.

Trustees, beneficiaries and purchasers — good news all round

Good news from the Supreme Court last week for commerce: in particular, those purchasing assets from trustees. In Akers v Samba Financial Group [2017] UKSC 6 ASa Saudi businessman, held shares on trust for a company, SICLA: he disposed of the shares to Samba in satisfaction of a debt. Assuming Samba were in good faith, you might have thought there was no problem: they would take free of the trust. But SICLA was insolvent: and the liquidator sought an end-run round the rule of equity’s darling by invoking s.127 of the Insolvency Act 1986. This prohibits disposition of the assets of an insolvent company (including beneficial interests in trust property), and allows their claw-back, with only a judicial discretion to protect the alienee and no general good-faith purchaser protection. The Supremes refused to allow this attempted circumvention. Dispositions within s.127 implied dispositions by the company, not dispositions of the company’s (equitable) property by a trustee purporting to vest it in a third party. Result: purchasers, provided they are in good faith and without notice, can happily thumb their noses at alleged trust beneficiaries, even insolvent ones. Quite right too.

But there was also good news for beneficiaries. In the present case the trust was a Cayman trust; however, the shares, being shares in Saudi companies registered in Saudi Arabia, were situated in Saudi Arabia. Now, Saudi law doesn’t accept the existence of trusts. Nevertheless their Lordships made it clear that under the Hague Convention embodied in the Recognition of Trusts Act 1987, the English courts would recognise the trust (although under Art.11(d) of the Convention the question whether a purchaser of the shares took free of it would fall to be decided by the lex situs, Saudi law). We all thought that was probably the case anyway; but it’s nice to have confirmation of one’s prejudices, especially if (as here) they are sensible ones.

No rehabilitation for Hanjin?



On 13th December 2016, Samil PriceWaterhouseCoopers (Samil PWC) submitted to the Seoul Central District Court an inspection report putting Hanjin’s appraised going concern value at only 80 billion won and expressing the view that Hanjin has very little going concern value. It is likely that by the end of February the rehabilitation process will come to an end and Hanjin will be declared bankrupt.

OW Bunkers — picking up the pieces

The result of the OW Bunkers litigation in the UK Supreme Court, PST Energy 7 Shipping LLC v OW Bunker Malta Ltd [2016] UKSC 23; [2016] A.C. 1034 (noted here in this blog) is that shipowners having taken bunkers from bankrupt suppliers OW may still potentially face the prospect of being made to pay twice — once to OW because they supplied them, and once to the original sellers to OW because at the relevant time they still owned them. The argument that the original sellers somehow gave up their rights by consenting to onsale by OW is attractive but not cast-iron. The important issue now, however, is how to avoid a similar debacle in the future. Steamship Mutual have advised a change in the terms of contracts. They say: “We recommend Owners review their existing contract wordings to make clear that should their direct counterpart become insolvent, in the bunker supply context or otherwise, that payment to the party down the chain (e.g. the physical supplier) shall be permitted and discharge the debt to the insolvent party.”

With respect, we have some doubts as to whether this will necessarily work. Such an arrangement might well fall foul of the anti-deprivation principle in English insolvency law, which says that where there is an accrued debt owed to an insolvent, any provision depriving the insolvent of the right to collect that debt in the event of subsequent insolvency is presumptively ineffective: see the summary by Lord Collins in Belmont Park Investments Pty Ltd v BNY Corporate Trustee Services Ltd [2011] UKSC 38, [2012] 1 A.C. 383 at [100].

A more effective strategy might be an acknowledgment in the contract of sale that in so far as the bunkers sold are not at the time of delivery owned by the seller, then any right of action is held on trust for the actual owner. Such a provision, not being triggered on insolvency, seems to us more likely to survive scrutiny. But only time will tell.

Korean rehabilitation proceedings. Tricky English law issues may be resolved in English proceedings.

Ronelp Marine Ltd vs. STX Offshore & Shipbuilding Co Ltd : [2016] EWHC 2228 (Ch)

In May 2016 rehabilitation proceedings were commenced against STX, a South Korean shipbuilding company, and in June 2016 the English court recognised these as the foreign main proceeding under the 2006 Cross Border Insolvency Regulations (the ‘CBIR’) which give the force of law to the UNCITRAL Model Law on Cross Border Insolvency.

At the time of the rehabilitation proceedings, there were already actions afoot against STX in the English Commercial Court under guarantees it had provided in respect of five shipbuilding contracts entered into by its Chinese subsidiary Dalian, which were subject to English law and jurisdiction. In 2014 the contracts had come to an end with Dalian’s entry into Chinese insolvency process under which the Chinese office holder had issued a notice stating that the ships would not be built. STX raised two defences which involved complex issues of English law. First, it was alleged that the contracts were vitiated by illegality in that there had been a sideletter which intended to mislead third parties as to the true price paid under the contracts. Second, the contracts did not entitle the Buyers to damages but confined them simply to the return of instalments plus interest and since Dalian has received no instalments, it was not in breach of any obligation, which raised difficult issues relating to the interaction of contractual remedies and common law remedies for repudiatory breach.

Under the UNCITRAL Model Law, article 20.1(a) provides for a stay of actions subject to courts power under art. 20.6 to modify the stay on such terms as it thinks fit, provided the court is satisfied that interest of creditors and other persons interested are adequately protected. Article 21 provides that the Court has power to grand discretionary relief including any relief under paragraph 43 Schedule B1 of the Insolvency Act 1986.

The buyers applied to the court to exercise its discretion to allow the proceedings already commenced in England to continue. Their sole object was to obtain an adjudication of the claim, with a view to presenting the outcome to the Korean Rehabilitation Court. It was accepted that any judgment obtained from the Commercial Court could not be enforced against STX and that the conversion of the claim into a judgment could not alter the priorities within the Korean insolvency. The Buyers would continue to have an unsecured claim, but one that would be verified and quantified by the Commercial Court, which it was up to the Korean Rehabilitation Court to adopt or reject.

Norris J found himself in a similar position to that of Briggs J in Cosco Bulk Carrier: Ltd v Armada Shipping SA [2011] EWHC 216 where he was concerned with competing claims to sub-freights of the shipowner pursuant to a lien on sub freights and the time charterer, a Swiss Company subject to Swiss liquidation. The resolution of that dispute involved a consideration of competing views, expressed at first instance (and once in the Court of Appeal) on the one hand and in the Privy Council on the other hand, about the juridical nature of a lien on sub-freights. Briggs J had there exercised his discretion to allow the English arbitration proceedings brought by the shipowners against the sub-charterers to continue.

Accordingly Norris J. exercised his discretion to lift the stay and to allow the English proceedings to continue, given that otherwise the Korean Rehabilitation Court would have to grapple with these difficult issues of English law in assessing the buyers’ claims against STX under the guarantee.

Arrest of ships and insolvency – Canadian courts apparently confirm orthodoxy

Last Friday Sigurdson J in the British Columbia Supreme Court recognised the Korean Hanjin bankruptcy proceedings under the UNCITRAL Model Law and banned further arrests of Hanjin vessels should they visit Vancouver or other BC ports. Importantly, however, he left existing arrests in place. We have not seen the text of his decision (though it is referred to here and here (£)): but it seems to reflect orthodoxy. Assuming an in rem claim against a vessel does not arise out of a maritime lien, under the orthodox rules of Admiralty in England and Canada it survives insolvency if brought before the inception of insolvency but not if brought afterwards (see Re Aro Co Ltd [1980] Ch 196 and The Oriental Baltic [2011] 1 SLR 487). Where the bankruptcy is foreign the relevant time is that of its recognition. Hence there seems nothing surprising about this determination.

Hanjin in the Far East

Creditors of bust Korean shipping line Hanjin are feverishly looking for jurisdictions where they may be able to arrest Hanjin ships; the company itself, and the insolvency authorities in Korea, one of the most arrest-unfriendly jurisdictions in the world, are trying to stop them.

An interesting suggestion here (£) comes from Ivan Ng of Stephenson Harwood in Hong Kong that that jurisdiction may be a safe haven. This is a bit surprising. Traditionally the view of the common law, which applies in Hong Kong to the exclusion of the UNCITRAL Model Law on Cross-border Insolvency, has been that while the common law may recognise and help foreign insolvency proceedings, it won’t take away the substantive secured status that arrest in Admiralty gives the claimant. But the suggestion is that all this has changed. This based on a Singapore decision of Aedit Abdullah JC in the Singapore High Court about four weeks ago, namely Re Taisoo Suk (as foreign representative of Hanjin Shipping Co Ltd) [2016] SGHC 195, in which, apparently also on the basis of the common law, he did prohibit arrests of Hanjin vessels.

No doubt Hanjin will take comfort at all this. But their joy may be short-lived. The Singapore decision is controversial, and is in any case an interim ex parte one, due to come to a full hearing in early November. Don’t bank on its being upheld. Also remember that at least one fairly recent Hong Kong decision, The Convenience Container [2007] 3 HKLRD 575, seems to uphold the strict common law view.

Watch this space: we live in interesting times.