We have been sending Client Updates since 2007 concerning the decision of the Australian High (Supreme) Court in Sons of Gwalia Ltd v Margaretic. Specifically, the High Court held that the damages claims of shareholders of insolvent companies for fraud and misrepresentation should be treated pari passu with the claims of all other unsecured creditors, rather than being treated as subordinated to unsecured claims as is the case in the U.S.

There continues to be numerous issues surrounding the “creditor/investor” debate in fund’s litigation. There have been a number of cases of particular note. First of all Citco Global v Y2K Finance where a winding up petition was brought on two basis. First of all, alleged improper redemption payments made by the fund prior to the suspension of redemptions.

Western Union v Reserve International The BVI Commercial Court, which was established last May, has handed down an important decision on the status of a redeemed shareholder and the application of Section 197 of the Insolvency Act 2003 to the investor’s status. In summary, the redeemed shareholder was viewed as an unsecured creditor and, as such, able to petition for the liquidation of the company in which they were previously a shareholder and to rank alongside other, third party, unsecured creditors.

The United States’ Bankruptcy Court for the District of Delaware has recognised the liquidation of a Cayman company, Saad Investments Finance Company (No5) Limited (“SIFCO5”) (an SPV established to operate as an investment company), as a “foreign main proceeding” under Chapter 15 of the United States’ Bankruptcy Code.

Recognition of the liquidation as foreign main proceedings provides for an automatic stay of proceedings with respect to any assets of SIFCO5 within the United States, amongst other things.

New ground was broken last December in the British Virgin Islands when what is believed to be the first scheme of arrangement procedure under the BVI Business Companies Act, 2004 (BCA) was completed.

In the scheme of arrangement Amber Petroleum Ltd (Amber) completed a successful reverse takeover of AIM-listed AfNat Resources Limited (formerly Lithic Metals and Energy Limited) (AfNat) under section 179A of the BVI Business Companies Act, 2004 (BCA).

Dubai's announcement on 25 November 2009 that it would seek a standstill (the "Standstill Announcement") on the debt of Dubai World, a Government of Dubai holding company, whose principal business activities include the master developers Nakheel and Limitless, port operator DP World, and investment house Istithmar, caused a considerable impact across world markets and widespread comment amongst the world media.

Following the Standstill Announcement a number of significant events and further announcements have taken place, principal amongst these have been:

In an Opinion issued on December 2, 2009 in the Washington Mutual, Inc. ("WaMu") Chapter 11 case, the Delaware Bankruptcy Court held that Bankruptcy Rule 2019 clearly applies to "ad hoc committees," regardless of how they might try to disclaim collective action. As a result, the members of an informal group of WaMu bondholders must now provide detailed information concerning their holdings, including a history of when they bought and sold their bonds and the prices paid. Perhaps more importantly, the Opinion packs a second bombshell.

In the chapter 11 proceedings for ION Media Networks, a distressed fund (Cyrus) purchased second lien debt and then employed what the Court characterized as "aggressive bankruptcy litigation tactics as a means to gain negotiating leverage." In a November 24, 2009 Memorandum Decision, Judge James Peck of the United States Bankruptcy Court for the Southern District of New York stopped Cyrus in its tracks, holding that the Intercreditor Agreement (ICA) between the first lien and second lien lenders would be enforced to deny Cyrus (i) the ability to assert that certain assets were outside of th

On 15 September 20091 the judge responsible for the Lehman bankruptcy proceedings in the United States held that Metavante Corporation (“Metavante”) could not rely on Section 2(a)(iii) of the ISDA Master Agreement to suspend payments to Lehman Brothers Special Financing, Inc. (“LBSF”). Specifically, Judge Peck held that the safe harbour provisions in the US bankruptcy code protected a non-defaulting party’s contractual rights to liquidate, terminate or accelerate swaps and to net termination values but did not provide a basis to withhold performance under a swap if it did not terminate.

The facts behind Mr. Justice Lewison’s recent judgment in Stanford (STANFORD INTERNATIONAL BANK LIMITED [2009] EWHC 1441 (Ch)) have no direct connection with either the British Virgin or Cayman Islands but lawyers there do have particular reason to note the more general principles around the seemingly vexed but important issue of COMI in the context of multi-jurisdictional insolvency.