How would your business be impacted if one of your critical suppliers entered insolvency proceedings? What losses could you suffer, and how would you maintain continuity of supply?
Recent high profile collapses such as Carillion have highlighted this issue, with counterparties suffering significant disruption upon its failure. In the context of increasing financial uncertainty – not least because of Brexit – companies should take a hard look at their supply chain in order to assess and mitigate counterparty risk.
A recent English Court of Appeal judgment has resolved some doubts regarding the use of adjudication procedures in insolvency.
What Is the "Rule in Gibbs"?
The rule in Gibbs is a long-established common law principle in which the Court of Appeal determined that a debt governed by English law cannot be discharged or compromised by a foreign insolvency proceeding(Anthony Gibbs and Sons v La Société Industrielle et Commerciale des Métaux (1890) 25 QBD 399). The rule in Gibbs remains a fundamental tenet of English insolvency law.
Why Does the Rule in Gibbs Matter?
Hong Kong’s Financial Secretary Paul Chan said last week that there were plans to introduce a bill this year into the city’s Legislative Council to put in place a long-awaited and much needed corporate rescue procedure for Hong Kong.
In a brief but significant opinion, the United States District Court for the District of Delaware reversed a decision by the United States Bankruptcy Court for the District of Delaware and allowed more than $30 million in unsecured, post-petition fees incurred by an indenture trustee ("Indenture Trustee").1 In reversing, the District Court relied upon a uniform body of Court of Appeals opinions issued on the subject.
On 18 December 2018 the English Court of Appeal held in the case of OJSC International Bank of Azerbaijan that the rule in Gibbs is still a fundamental tenet of English insolvency law and not to be sidestepped by the Cross-Border Insolvency Regulations.
Facts
The facts in summary are these:
In yet another example of the Dubai International Financial Centre (DIFC) making its company and insolvency law even more versatile, the DIFC has introduced a mechanism which will operate in a similar manner to a scheme of arrangement under English law. The law came into effect on 12 November 2018.
Key terms
In September 2018 the Dubai International Financial Centre Authority (“DIFCA”) announced that it proposes to replace its current insolvency law with a new law to update the insolvency regime in the Dubai International Financial Centre (“DIFC”) and that it has launched a consultation in relation to the same.
Why are changes proposed?
In the recent decision of Michael J Lonsdale (Electrical) Limited v Bresco Electrical Services Limited (In Liquidation) [2018] EWHC 2043 (TCC), Fraser J found that parties cannot resolve their disputes by means of adjudication where a company in liquidation and its counterparty both claim a pre-liquidation entitlement to payment of money by the other.
Over the Bank holiday weekend, the UK government announced that it intends to introduce new legislation to implement certain measures (detailed below) as soon as parliamentary time permits.