Case Note: PUSHING THE LIMITS OF JUDICIAL ASSISTANCE IN CROSS-BORDER INSOLVENCIES

• Citation: (2008) 20 SAcLJ 784
• Date: 01 December 2008
• Author: TEO Guan Siew1 BCL (Oxford), LLB (Hons) (National University of Singapore); Assistant Registrar, Supreme Court of Singapore
• Published date: 01 December 2008

In re HIH Casualty and General Insurance Ltd [2008] 1 WLR 852

Cambridge Gas v Navigator Holdings [2007] 1 AC 508

The recent House of Lords decision of In re HIH Casualty and General Insurance Ltd and the opinion by the Privy Council in Cambridge Gas v Navigator Holdings can be seen as significant steps towards greater collaboration between courts in the context of cross-border insolvencies, although it will be argued the former more so than the latter. This note critically analyses the decisions, including through a somewhat traditional common law conflict of laws perspective. Our local court also has not too long ago showed signs favourable to universalism in insolvency administration, and it remains to be seen how Singapore case law will react to these developments, hopefully with the aid of some legislative amendments.

I. Introduction

1 A local creditor of an insolvent foreign company can no longer take comfort in the certainty that the company’s assets within jurisdiction will be distributed in accordance with the country’s own statutory regime in the event of a winding up. In aid of insolvency proceedings somewhere else, the local court may well remit those local assets to the foreign jurisdiction to be dealt with by a system with materially different rules of distribution and priorities. Conversely, a

shareholder of a locally incorporated company must be alert to the possibility that judicial assistance of reorganisation efforts of the company taking place abroad may extend to stripping him of his title to the shares he owns, even if he did not personally submit to the jurisdiction of the courts of that foreign country. Such is the wide purport of two recent decisions emanating from the highest courts in the UK.2 The degree of the courts’ co-operation, when placed beside a more territorially-oriented perception of insolvency proceedings, may appear striking. Are these significant moves towards the goal of universalism in insolvency administration? Probably, although it will be suggested that one decision, In re HIH Casualty and General Insurance Ltd (“Re HIH”)3, has a greater impact in this regard than the other, Cambridge Gas Transportation Corp v Official Committee of Unsecured Creditors of Navigator Holdings plc (“Cambridge Gas”).4 And the decision in Re HIH, particularly the speech of Lord Hoffmann, is not only desirable in its ratio of promoting a unified insolvency process but is further to be welcomed in helping to, subtly at any rate, show how the analytical treatment of cross-border insolvency cases can fit relatively nicely within the traditional common law conflict of laws framework. By comparison, the Cambridge Gas ruling, though seemingly radical at first glance and on its express terms, may on its proper analysis be nothing more than a product of the combination of an application of ordinary conflicts rules on recognition of foreign judgments and the peculiar nature of shareholding in company law. It will be interesting to see how our local courts respond to these foreign developments when the appropriate case comes along, although their ability to whole-heartedly embrace the pursuit of universalism is likely to be handicapped unless there are to be some legislative amendments forthcoming.

II. A different look at Cambridge Gas

2 It is always more exciting to keep the more interesting and significant to be discussed later, and so it is to Cambridge Gas that we first address our minds. Four European businessmen had decided to invest in a shipping venture, and had borrowed from the New York bond market in order to finance the purchase of some gas transport vessels. With the business quickly turning out to be a flop, they petitioned for Chapter 11 relief in New York. The complication lay in the way the business was structured: the ships were owned by a group of Isle of Man companies incorporated by the businessmen, with Navigator Holdings plc (“Navigator”) at the top of the chain. Navigator in turn was held through a web of companies in other offshore

jurisdictions, the most important of which for our purposes was Cambridge Gas Transport Corp (“Cambridge”), a Cayman company which owned about 70% of Navigator and which was a wholly-owned subsidiary of a Bahamian company, Vela Energy Holdings Ltd (“Vela”). A reorganisation plan was confirmed by a court in New York for the assets of Navigator to be taken over by the creditors, and the way to do so was to vest the shares in Navigator in the creditors’ representatives. In order to carry this out, the New York court sent a letter of request to the High Court of Justice of the Isle of Man for assistance in implementing the plan. Following that, the creditors’ committee petitioned the Manx court for an order vesting the shares in their representatives, which was resisted by Cambridge principally on the ground that the order from New York cannot be binding against it since it had never submitted to the jurisdiction of the US court.

3 To someone familiar with the conflict of laws rules on recognition of foreign judgments, Cambridge’s argument appears to be a perfectly sensible one: if it had not submitted and was not present in the US, the New York court order simply could not affect Cambridge’s rights in the shares, at any rate if it is regarded as a judgment in personam.5 If it were a judgment in rem, then still less can it be recognised because it would be a foreign judgment adjudicating on property situated outside the jurisdiction of the foreign court.6 To get out of this seeming impasse, Lord Hoffmann, in acceding to the request and divesting Cambridge of the title to its shares, adopted the perhaps radical track of declaring that the New York order is neither a judgment in rem nor in personam. According to him, insolvency proceedings merely provide the mechanism for collective execution against the debtor’s property and do not entail an adjudication of rights.

4 While probably to some a questionable proposition,7 Lord Hoffmann appears to have been very much influenced by proceduralist theories of insolvency law which see its role as merely that of constructing an effective collective procedure to give maximum effect to pre-insolvency rights: it is not concerned with substantively how rights should be allocated, a question totally deferred to pre-insolvency laws of obligations, property and so on.8 As such, there is, as it were, no fresh

adjudication of rights that takes place. But to the opposing school who advocates a redistributive role of insolvency law, 9reorganisation of existing rights as well as the constitution of new ones is inherent in the insolvency process, such that it seems heretical to suggest that an order from a winding-up court is not an adjudication as to rights. Moreover, even from the purely proceduralist view, such an order can surely be argued to nevertheless involve judicially affirming and giving effect to, post-insolvency, rights that were acquired prior to liquidation’s onset. An improvement in approach could have been to accept that notwithstanding that these orders made in foreign insolvency proceedings are judgments determining rights, they are nevertheless a uniquely different type of judgments that calls for a different basis of recognition and enforcement than the usual rules of private international law. Even so, it obviously cannot be the case that in deciding whether foreign liquidation proceedings should be recognised, the court merely proceeds based on the need for international comity and a blanket approach of promoting universality in insolvency proceedings, as the general tenor of Lord Hoffmann’s judgment would seem to suggest. To be sure, his Lordship did appear to have considered some relevant factors, such as whether the foreign order made was something which could just as easily have been obtained in the local court,10 and whether any prejudice to local creditors would be caused.11 In comparison, commentators have also interpreted previous English decisions as establishing that the recognition of foreign liquidations is generally dependent upon whether those proceedings took place in the place of incorporation of the company, although that is not regarded as the sole basis, with some propounding that the test should be whether there is a sufficiently substantial connection between the company and the jurisdiction in question.12 Yet, Navigator was not incorporated in

New York, and one would surely hesitate to suggest that New York was a place which had a substantial connection with the company.13

5 The better view would be to simply rationalise the decision as a case where Cambridge must be regarded as having submitted to the New York court’s jurisdiction. On this, there are two possibilities. First, Cambridge was a wholly-owned subsidiary of Vela, which, on the facts, had clearly submitted to the New York court by participating in the Chapter 11 proceedings and, in particular, making proposals in the reorganisation efforts. There are hints that this, and especially the fact that Cambridge and Vela further shared a common director, influenced Lord Hoffmann’s decision.14 But this restrictive interpretation does not respect the doctrine of separate legal personality, and the Privy Council did not go so far as to expressly lift the corporate veil. The second approach is to start by understanding the nature of shareholding. There is much debate as to what should be the appropriate legal conception of a share, in particular whether it is truly a form of personal proprietary right that cannot be expropriated15 or whether it is something much less and nothing more than a right to an income stream.16 But even if shares are treated as a form of property, they are a special type in that the incidents of ownership are intrinsically tied to the owner’s status as a shareholder. The shareholder is inherently bound by the company’s constitution and what the company does. If he wishes...