PROSAFE : Chaos or Common Sense.
It is reasonably rare to get a reported judgement in Scotland under the Cross Border Insolvency Regulations 2006. Such a decision was issued in PROSAFE in late September 2021. Practitioners will recall that the 2006 Regulations provide a basis for foreign insolvency proceedings to be recognised in Scotland. The 2006 Regulations of course incorporate the UNCITRAL Model Law into UK Law. In short, subject to any public policy exception, the model law provides a foreign proceeding shall be recognised as a “foreign main proceeding if it is taking place in the state where the debtor has the centre of its main interest” or “a foreign non-main proceeding if the debtor has an establishment…”.
A petition was brought before the Court of Session on behalf of PROSAFE SE and PROSAFE Rigs PTE Ltd. That petition sought to recognise ongoing moratorium proceedings in Singapore in connection with a Scheme of Arrangement there. The petitions were opposed by a creditor of PROSAFE (Cosco Shipping were the creditor) on the basis that the creditor claims were subject to English Law and therefore not subject to any enforceable cram down in Singapore; and therefore the Scottish courts should not interfere with the creditors’ ordinary rights.
The matter was an issue for the Scottish courts because it was said that an oil rig belonging to PROSAFE Rigs could shortly be brought into Scottish waters.
In a helpful discussion of the 2006 Regulations Lord Ericht confirmed that on the face of it the Singapore proceedings were proceedings that should be recognised by the Scottish courts. However, unlike the position advanced on behalf of the PROSAFE companies he did not think it was possible to separate the moratorium in Singapore from the proposed Singapore Scheme of Arrangement. Therefore, when it came to the remedies the Scottish courts should grant based on recognition, he was not at all convinced that it was appropriate to give effect to the moratoria in Scotland. That was primarily due to the “Rule in Gibbs”, an English common law rule which was again endorsed in Scotland. He held : “a debt under a contract whose proper law is the law of another jurisdiction may, for the purposes of Scots law, be discharged by insolvency proceedings in that other jurisdiction, but such proceedings will not, for the purposes of Scots law, discharge a debt where the proper law contract is not the law of the jurisdiction proceedings taking place……”. In other words, English law rights belonging to Cosco should not be avoided in Scotland because of the Singapore proceedings.
This is a helpful discussion of the 2006 Regulations and reminds practitioners that recognition availability is not a panacea. There are still limits on its utility. If the proper law of a contract claim is in another jurisdiction it may be necessary to have separate restructuring proceedings to ensure enforceability.
BBM Solicitors specialise in advising IP’s in both contentious and non-contentious matters (including transactional work). Contact: Eric Baijal (email@example.com).This briefing note is current as at 27 September 2021 and is our understanding of the position described at that date. Legal advice ought to be taken before relying on its terms (particularly to ensure the law has not changed).