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Melbourne University Law Review |
ROSALIND MASON[∗]
[Following a brief description of multi-state insolvency theories and the different types of jurisdiction exercisable by a court, this article examines jurisdiction in corporate insolvency within Australia. It begins with the constitutional context and then addresses geographical jurisdiction, jurisdiction to prescribe conduct, and jurisdiction to adjudicate between parties. It briefly touches upon the notion of an inherent jurisdiction to adjudicate in liquidation and on jurisdiction for proceedings during the course of, rather than on the adjudication of, a liquidation. The discussion of jurisdiction to adjudicate in a multi-state liquidation in Australia addresses the winding-up of a foreign company under Part 5.7 of the Corporations Act 2001 (Cth), as well as topics such as forum non conveniens, lis alibi pendens, anti-suit injunctions, and the notion of discretion to exercise jurisdiction to wind up a company. The jurisdiction to provide aid and auxiliary assistance upon request from a foreign court is also touched upon briefly.]
The Court’s inherent jurisdiction, while broad, is not unlimited.[1]
Fundamental to the winding-up of a company that is insolvent is that otherwise justified claims will remain unsatisfied. The phenomenon of the failed HIH Insurance Group brought home to many people who may previously have had little interest in insolvency that ‘just’ claims may well go unrewarded. For example, parties with actions in negligence against otherwise impecunious policy holders were suddenly faced with the reality that their ‘someone should pay’ expectation would be unmet, because there was no-one who ‘could pay’. The combination of impecunious defendants and their insolvent insurers meant that claims would remain unrequited.
Yet the law, particularly in areas principally derived from statute, may contain lacunae that prevent applicants from receiving what they believe to be the ‘just desserts’ of a judgment in their favour. Drafters of legislation, in seeking to reify the wishes of the government and to ‘flesh out’ the bones of its policy, may choose words that do not cover the particular permutation or combination of facts that serendipitously evolved. Such a fate awaited Mr Lunn, apparently the sole traceable member of the Cardiff Coal Co (‘Cardiff’). Mr Lunn unsuccessfully sought the moribund, albeit solvent, private trading corporation’s winding-up as a Part 5.7 body under the Corporations Act 2001 (Cth) (‘Corporations Act’).[2]
While the case of Lunn [No 2][3] involved local proceedings in a corporate insolvency, it was not a multi-state insolvency, in the sense of dealing with facts arising in more than one state or law area.[4] Yet, as discussed below, the lack of this multi-state dimension was fatal to Mr Lunn’s application.[5] Gaps in the law may also arise where an insolvency crosses jurisdictional borders because the local legislators have not considered or have chosen not to address the ‘foreign’ implications of a multi-state insolvency.
The majority of companies in Australia derive their existence from the Corporations Act and as such, the provisions on external administrations to achieve their dissolution are also largely to be found in this statute. In the case of a multi-state insolvency, however, the statutory provisions are to be applied in the context of the (largely judge-made) principles of private international law. A range of laws may be relevant to determining issues in a corporate insolvency administration, as insolvency provisions may intersect not only with those regulating companies but also with laws on property, securities, and civil and criminal liability. Underpinning all of these are procedural laws which are often critical to the eventual outcome.
This article addresses local proceedings in a multi-state corporate insolvency, focusing specifically on liquidation. Following a brief description of multi-state insolvency theories, Part III classifies the different types of jurisdiction that a court may exercise. It then concentrates on jurisdiction in corporate insolvency within Australia, beginning with the constitutional framework and then addressing geographical jurisdiction, jurisdiction to prescribe conduct, and jurisdiction to adjudicate between parties. The last briefly touches on the notion of an inherent jurisdiction to adjudicate in liquidation and on jurisdiction for proceedings during the course of, rather than for the adjudication of, a liquidation. Parts IV and V provide a more detailed discussion on jurisdiction to adjudicate in a multi-state liquidation in Australia and address the winding-up of a foreign company under Part 5.7, as well as topics such as forum non conveniens, lis alibi pendens, anti-suit injunctions, and the notion of discretion to exercise jurisdiction to wind up a company. Finally, brief comments are made on the jurisdiction to provide aid and auxiliary assistance upon request from a foreign court.
Analysis of multi-state insolvency (specifically bankruptcies or liquidations with multi-state dimensions) has traditionally been undertaken using the two theoretical extremes of ‘universality’ and ‘territoriality’. These terms are often used interchangeably with the terms ‘unity’ and ‘plurality’; however the distinct (though connected) issues require separation.[6] ‘Unity’ and ‘plurality’ relate to jurisdiction and the number of courts which have jurisdiction to open insolvency proceedings over a debtor. ‘Universality’ and ‘territoriality’ relate to the multi-state effects[7] of the insolvency proceedings.[8]
Under the principle of ‘unity’, there is one set of insolvency proceedings in respect of the one debtor, while ‘plurality’ means that there are multiple sets of proceedings in progress concurrently in different states. ‘Universality’ refers to the extraterritorial effect of one set of proceedings in every other jurisdiction, while ‘territoriality’ refers to the limitation of the effects of a set of proceedings to its place of origin.[9]
‘Territorialism’ addresses choice of forum by permitting a court to exercise jurisdiction over any debtor that satisfies local insolvency law requirements. Choice of law ‘follows the forum’, in that the law of the forum applies to all aspects of the insolvency. The strictly territorialist approach claims no extraterritorial reach to a local insolvency order. Thus, each state which accords itself jurisdiction over a debtor has authority to administer the debtor’s estate within its jurisdiction. However, there are few states that adhere to the strict territorialist approach.
‘Universalism’ involves two aspects. First, the ‘active’ aspect means that an insolvency proceeding, opened in the insolvent debtor’s domicile, place of incorporation or seat, claims to comprise all the assets of the debtor, including those located in other states. Second, the ‘passive’ aspect means that, if an insolvency proceeding is opened abroad in the insolvent debtor’s domicile, place of incorporation or seat, it will be given full local effect in each state that has adopted the universalist approach.[10]
Choice of forum under the universalist approach is based on the debtor’s country of domicile or, in the case of a company, its place of incorporation or seat. The doctrine accepts the universal extraterritorial effect of an insolvency adjudication made in such a forum. The law of the forum then governs the insolvency administration, including its foreign effects.[11] As with territorialism, choice of forum is therefore likely to be outcome-determinative because of the differences in states’ insolvency laws.[12]
Scholars have proposed various models that modify these theoretical extremes, some of which can be found in current state or convention practice. The qualifications often involve concurrent proceedings, which recognise home state[13] insolvency administrations to a greater or lesser degree. In a multi-state insolvency, judicial orders are typically required in more than one state in order to control the debtor’s assets. These concurrent proceedings may take the form of ordinary civil litigation,[14] enforcement of foreign judgments obtained during the principal administration, specific aid and assistance for a foreign principal administration, or separate insolvency administrations.
Concurrent insolvency administrations often comprise liquidation adjudications that purport to be the ‘main’ administration[15] and similar adjudications in other jurisdictions with lesser claims to significance in the debtor’s affairs. These ‘non-main’ administrations typically take one of two forms. First, such proceedings may primarily be intended to aid the main administration and therefore will not amount to a sequestration of the debtor’s assets. For example, they involve a local moratorium on creditor action and assistance to the foreign administrator in realising local assets. Second, local liquidation administrations may be instituted, albeit ones which recognise the main administration and cooperate to a greater or lesser extent with it.
Various terms are used for these forms of non-main administrations. In American terminology, the former are known as ‘ancillary proceedings’ and the latter are ‘parallel proceedings’.[16] English and Australian case law,[17] on the other hand tend instead to use the term ‘ancillary’ for local non-domiciliary (non-main) bankruptcy or liquidation administrations. Insolvency-related proceedings brought to assist a foreign administration, not being a local bankruptcy or liquidation, do not have an established nomenclature.
‘Modified universalism’ accepts the central premise of universalism — that there should be a single administration which collects and distributes assets on a worldwide basis. However, modified universalism alters this by reserving to the local forum the discretion ‘to evaluate the fairness of the [foreign home state] procedures and to protect the interests of the local creditors.’[18] In the exercise of its discretion, the local forum is to consider whether ‘deferring to’ the single foreign home state administration would alter parties’ entitlements or offend the forum’s public policy.[19] It is undertaken when a foreign administration is claimed as the home state administration such that local proceedings should be stayed and all property and claims should be dealt with by the foreign office-holder. Local proceedings are therefore merely auxiliary proceedings. Where the discretion is exercised against assisting the foreign home state administration, then a local insolvency administration may be instituted. Local insolvency law will therefore apply.[20]
‘Cooperative territorialism’ is a system in which each state administers the assets over which it has jurisdiction[21] as a separate estate, distributing them under local insolvency law. None of the proceedings are principal, ancillary or auxiliary; rather each constitutes a separate administration.[22] The system, however, acknowledges the multi-state dimension by providing for cooperation in the administration of the separate estates.
‘Secondary bankruptcy’[23] — or to use a broader term which would be applicable to companies as well as individuals, ‘secondary insolvency’[24] — is currently practised in various forms. Under municipal law, it is mandated in statute[25] and judge-made law,[26] and it also appears in various multilateral conventions and international solutions.[27] Until recently, scholars have typically described the phenomenon, rather than proposed it as a theory placed within the frameworks of universalism and territorialism.[28]
In a secondary insolvency system, insolvency administrations proceed concurrently in each state in which a debtor has a substantial presence.[29]
In common with modified universalism, it recognises a home state main administration with which other states cooperate. However, it differs in that the local proceedings are ancillary liquidations[30] rather than auxiliary proceedings.[31] Local assets are realised and distributed to locally secured and priority claims.[32]
Any remaining assets are then remitted to the primary administration for distribution.[33]
These theories from multi-state insolvency literature assist with providing the insolvency law context for issues which are also dealt with in private international law scholarship on matters of jurisdiction. The following Part outlines the jurisdictional framework within which specific issues concerning company liquidation are subsequently addressed.
The term ‘jurisdiction’ encompasses both geographical jurisdiction and subject matter jurisdiction.[34] Geographical jurisdiction delimits the area with which a relevant connection (such as physical presence or the carrying on of business) with one or more of the parties is to be established. Geographical jurisdiction also defines the area within which the court’s judgments will prima facie be enforced or have direct or automatic effect.[35]
Subject matter jurisdiction, a court’s authority to deal with disputes, itself comprises two elements: the jurisdiction to prescribe conduct and the jurisdiction to adjudicate between particular parties. Jurisdiction to prescribe — or ‘substantive jurisdiction’ — is satisfied where a court ‘has jurisdiction over the conduct complained of, in light of the nature of the conduct’.[36] Jurisdiction to adjudicate, or ‘personal jurisdiction’, is ‘the power a court has over a person because he or she is amenable to being served with the court’s initiating process in accordance with its rules.’[37] It comprises several categories of proceedings, each with its own special rules that, if met, enable the court to adjudicate between the particular parties. In order to hear a matter, a court must have both jurisdiction to prescribe and adjudicatory jurisdiction.
The constitutional allocation of legislative powers between the Commonwealth and state Parliaments has affected the legislative history of, and courts with jurisdiction over, personal bankruptcy and corporate liquidation in Australia. The colonial constitutions granted legislative authority in general terms to colonial (now state) Parliaments to pass laws for the ‘peace, order and good government’ of particular geographical areas (subject to certain powers of the Imperial Parliament).[38] Upon federation, legislative authority was redistributed between the Commonwealth and the states. ‘Bankruptcy and insolvency’[39] was one of the specific powers granted to the Commonwealth to be exercised concurrently with the states.[40]
The colonies’ personal bankruptcy and insolvency laws[41] continued in existence until being made otiose by comprehensive Commonwealth bankruptcy legislation.[42] Although the grant of power to the Commonwealth to legislate on ‘insolvency’ was wide enough to extend to the liquidation of companies,[43] the English approach of including the regulation of corporate insolvency in the general corporations’ legislation was followed in Australia. Thus, the colonies — and later, the states — continued to legislate on the winding-up of trading companies and other associations in various Companies Acts.[44]
The Australian Constitution granted the Commonwealth limited concurrent power over corporations, specifically to make laws with respect to ‘foreign corporations, and trading or financial corporations formed within the limits of the Commonwealth’.[45] Despite the constitutional limitations imposed by the words ‘trading’, ‘financial’ and ‘formed’, a move towards uniform corporate regulation in Australia began in 1961 through essentially standard state legislation.[46] An attempt was made in 1989 to legislate federally for Australia-wide comprehensive companies’ regulation. However, this was struck down as unconstitutional by the High Court.[47]
As a consequence of this lack of a Commonwealth power ‘to enact a comprehensive corporations law’,[48]
the Commonwealth, states and the Northern Territory negotiated a national scheme of cooperative legislation. In 1990, the states and the Northern Territory introduced their own statutes applying federal legislation passed for the Australian Capital Territory to regulate companies, grant national regulatory powers to the Australian Securities Commission (now the Australian Securities and Investments Commission (‘ASIC’)) and cross-vest jurisdiction between the federal, state and territory courts.[49]
In 1999, the cross-vesting scheme[50] was held by the High Court to be constitutionally invalid insofar as it attempted to cross-vest state jurisdiction in the federal courts.[51] Soon afterwards, another High Court decision[52] raised concerns about the continued viability of the cooperative scheme insofar as it involved Commonwealth officers and authorities (for example, the Director of Public Prosecutions or ASIC) performing functions conferred under state law. Subsequently, based on this decision, a challenge was made to the capacity of ASIC to incorporate companies under state law.[53] After a period of significant uncertainty that adversely affected national commerce and foreign investment, agreement was finally reached between the various governments to put national corporations’ regulation on a firmer constitutional foundation. Through state referral of powers to the Commonwealth,[54] in addition to the Commonwealth’s pre-existing constitutional powers, comprehensive federal legislation was passed in the form of the Corporations Act and the Australian Securities and Investments Commission Act 2001 (Cth) (‘ASIC Act’).[55]
Corporate insolvency law is contained in federal legislation and, while the cooperative scheme with all states referring the relevant powers to the Commonwealth is in operation, one Commonwealth Act applies across a single national jurisdiction.[56] The Act confers civil jurisdiction,[57] as well as vesting and cross-vesting criminal jurisdiction,[58] in the relevant federal, state and territory courts. The courts with primary jurisdictional competence under the Corporations Act are the Federal Court and the state and territory Supreme Courts.[59] State and territory lower courts may determine certain civil claims, such as debt recovery and monetary compensation matters, subject to their general jurisdictional limits as to the amounts and value of property with which they may deal.[60]
The geographical area of competence of federal courts depends on the terms of the statute conferring the jurisdiction.[61] The Corporations Act applies to all of Australia’s states and internal territories. Certain chapters, including Chapter 5 (external administrations),[62] apply according to their tenor in relation to all natural persons, bodies corporate, unincorporated bodies and acts and omissions ‘outside this jurisdiction’, which includes places outside Australia.[63] Certain sections specify their territorial application. For example, of possible relevance during a multi-state liquidation, s 186 states that ss 180–4 (officer liability) do not apply to an act or omission by a director or other officer or employee of a foreign company unless there is one or more specified jurisdictional connection.[64]
The territorial boundaries of the state and territory courts,[65] when acting in corporations matters remain unaffected. However, there is precedent for the Supreme Court of South Australia to sit outside the geographical territory of Australia in a corporate insolvency case.[66] It arose out of the liquidator’s overseas investigations into the collapse of Bond Corporation Holdings Ltd, subsequently renamed Southern Equities Corporations Ltd (‘SEC’). In England v Smith,[67] the English Court of Appeal granted the assistance requested by the Supreme Court of South Australia. It ordered an English resident to attend before a Master of the Supreme Court of South Australia sitting in England and to be examined in accordance with Australian law and procedure.[68]
Jurisdiction to prescribe conduct is satisfied where a court has substantive jurisdiction (that is, jurisdiction over the conduct complained of due to the nature of the particular conduct).[69]
In corporate insolvency matters, the jurisdiction to prescribe conduct is vested in the Federal Court and state and territory Supreme Courts. Following the referral of the states’ corporations powers to the Commonwealth, the Corporations Act enacted a single federal jurisdiction in such matters, including external administration of companies. As federal courts have ‘exclusive jurisdiction’ in bankruptcy,[70] many of the issues which arise in personal insolvency matters[71] are not of concern in corporate insolvency because jurisdiction may be exercised concurrently by the relevant federal, state and territory courts.
Jurisdiction in liquidation involves a wide range of matters with which a court may be involved in a winding-up context. In Gould v Brown, Brennan CJ and Toohey J noted that the ordering and conduct of examinations of directors constituted the exercise of judicial power.[72] Even though the functions of courts in the judicial management of the property of bankrupts may involve a large element of discretion, they have nevertheless been upheld as a proper exercise of their judicial powers.[73]
Jurisdiction to adjudicate between parties is determined according to the category of dispute to be resolved. Three categories have been identified: actions in personam, actions in rem and a category for proceedings that do not fall within either of the foregoing.[74]
The most important category is the action in personam. This is brought against a person essentially to compel them to do a particular thing or to cease to do something. A judgment in such an action only binds the parties, and their privies, to the action.[75] At common law, jurisdiction to adjudicate in a particular action in personam requires valid service of the originating process on the defendant or the defendant’s submission to the court’s jurisdiction.[76]
Service within the court’s geographical jurisdiction is typically by actual physical service on the defendant.[77] This is an example of power theory[78] underpinning adjudicatory jurisdiction:
The root principle of the English law about jurisdiction is that the judges stand in the place of the Sovereign in whose name they administer justice, and that therefore whoever is served with the King’s writ and can be consequently compelled to submit to the decree made, is a person over whom the Courts have jurisdiction.[79]
In certain circumstances, the plaintiff may obtain leave to serve a defendant by local substituted service. This may occur where the applicant can establish that personal service is impracticable and other means of service, such as by post, or by leaving the relevant document with a third party, are likely to bring the document to the respondent’s attention.[80]
Statutory extensions to this jurisdiction, dating back to the Common Law Procedure Act 1852, 15 & 16 Vict, c 76, provide for service out of the jurisdiction ‘where, speaking generally, there is some link between the forum and the subject matter involved.’[81] In Australia, the rules of the High Court, Federal Court, and the state and territory Supreme Courts permit service of process outside the jurisdiction.[82] Leave prior to service may be required. Where it is not, the court considers the manner of service where the plaintiff seeks to obtain judgment by default.[83]
The second category of dispute is that of the action in rem.[84] This involves jurisdiction over a thing (res), typically in the context of admiralty, as well as property interests therein.[85] Jurisdiction to adjudicate is based on the presence of the res within the court’s geographical jurisdiction.[86]
This jurisdiction permits the court to determine title, rights or claims to the res and its resulting judgment is binding against the whole world.[87]
Although jurisdiction in bankruptcy has been described as being a form of in rem jurisdiction over the property comprising the divisible ‘estate’,[88] others have placed it in a category of proceedings that neither fall within actions in personam nor actions in rem, but rather are the subject of special jurisdictional rules.[89]
The major subcategories are proceedings in individual bankruptcy and corporate liquidation,[90] matrimonial proceedings, probate and administration actions, and proceedings in lunacy.
These proceedings involve matters of status and, accordingly, they potentially affect a party’s relations with others.[91] Therefore, for example, bankrupt status affects one’s capacity to manage a corporation or to incur credit;[92]
marital status may affect one’s capacity to (re)marry; and mental competence may affect one’s capacity to contract. Another common theme to several of these proceedings is their impact on the administration of a person’s property or estate.[93]
As Louis Jacques Blom-Cooper stated:
[Bankruptcy] is neither wholly in personam nor wholly in rem. It is therefore considered that bankruptcy jurisdiction cannot be based entirely upon theories relating to other branches of Private International Law with regard to jurisdiction.[94]
Special statutory jurisdictional rules apply to indicate whether a court will order the bankruptcy or liquidation of an insolvent debtor.[95]
These rules are subject to the court’s discretion to decline to exercise its jurisdiction over a foreign debtor. They are also subject to the court’s statutory discretion when exercising the jurisdiction to decline to make such an order.[96]
The special rules on adjudicatory jurisdiction in liquidation are described below.[97] Meanwhile, two preliminary issues are discussed: the possibility of an inherent jurisdiction in liquidation and jurisdiction in respect of matters during the course of a liquidation.
Occasionally, judges have made reference to the possibility of courts having inherent jurisdiction to wind up a company. It is not surprising that there is no comment on an inherent jurisdiction to bankrupt an individual debtor’s estate[98] because of the significant impact of such an order on the debtor and on a range of other parties’ interests. There has been some discussion of inherent jurisdiction in relation to corporate insolvency, perhaps because the origins of general company law are linked with the law of partnerships.
Prior to the Joint Stock Companies Winding Up Act 1844, 7 & 8 Vict, c 111, unless incorporated by specific statute or charter, companies were deed of settlement companies and were treated as enlarged partnerships.[99] Partnership law therefore applied to their winding-up, which largely comprised the taking of accounts between partners and the adjustment of the rights of contributories.[100]
Modern winding-up law recognises the interests of members (and officers) in the winding-up process — something which is not relevant to bankruptcy law for individual debtors. Modern partnership law[101] entitles every partner, on the dissolution of a partnership, to apply to the court to wind up the business and affairs of the firm. This legislative history may have influenced some courts’ willingness to look beyond the ‘procedural codes’ of statute in the case of winding up a company to administer justice between all interested parties.
There are two comparable situations in which a Supreme Court may act to appoint an external administrator of an entity or property. The first derives from the Supreme Court Acts and the second from a Supreme Court’s inherent jurisdiction.
The state and territory Supreme Courts have authority under the various Supreme Court Acts to appoint a receiver where the court considers it ‘just or convenient’ to do so.[102] As the ‘court will not appoint a receiver otherwise than at the instance of a party who is before the court’,[103] the court must already be exercising jurisdiction over a dispute between the plaintiff and the company. This discretionary power to appoint a receiver arises ‘where it is practicable and the interests of justice require it.’[104] The main situations where it may be invoked are:
1 where the plaintiff’s security is enforceable (and a private appointee would have limited powers);
2 where the plaintiff’s security is in jeopardy;[105]
3 where the plaintiff is seeking to protect other property in the possession of the company;[106] and
4 where a receiver is sought by way of equitable execution to obtain payment of a judgment debt.[107]
The Federal Court may also appoint a receiver by interlocutory order in any case in which it appears to the court to be just or convenient so to do.[108] An instance where this occurred in the context of a respondent company’s questionable solvency is the case of Mercator Property Consultants Pty Ltd v Christmas Island Resort Pty Ltd.[109] Circumstances considered relevant by the court included: evidence that the major asset of the company, its casino licence, was in danger of being revoked; the strong possibility that the company’s affairs were being conducted for the benefit of the major shareholders rather than the company as a whole; and the existence of debts, including unpaid wages, in excess of $2 million owed to creditors.
Under succession law, a Supreme Court may exercise inherent jurisdiction to appoint receivers in the administration of deceased estates. Where there is local property, but the legal personal representative is outside the jurisdiction, a Supreme Court, in the exercise of its inherent jurisdiction, may appoint a receiver of the local assets in order to protect the property from deprivation and loss.[110]
A receiver may also be appointed over assets outside the jurisdiction if there is no foreign administrator.[111]
Nevertheless, in a number of cases, courts have refused to achieve the same outcomes as a liquidation through court-appointed receivers or through schemes of arrangement.[112]
In Re Swallow Footwear Ltd,[113]
Roxburgh J reviewed the appointment of a receiver and manager upon the application of an unsecured creditor in respect of a non-judgment debt. His Honour held that the order was made without jurisdiction, and that it amounted, in effect, to an irregular substitute for an order to wind up the company.[114] Courts will not approve a scheme of arrangement that purports to exclude or replace the winding-up procedures laid down in the corporations legislation.[115]
The view that jurisdiction to make liquidation orders derives solely from statute is supported by the limited circumstances in which courts have invoked their inherent jurisdiction. They arise when it is necessary for the court or tribunal in question to be able to manage its activities appropriately.[116] Inherent jurisdiction is limited to circumstances where it is necessary to ensure convenience and fairness in legal proceedings, to prevent steps being taken that would render judicial proceedings inefficacious, and to prevent abuse of process.[117] For example, where liquidators have already been appointed upon substantive jurisdictional grounds, courts have given directions to liquidators as part of their inherent jurisdiction to supervise and guide the activities of their own officers.[118]
According to Martin Dockray, inherent powers arise at common law, independently of the statutes that create the substantive jurisdiction of the courts.[119]
The relationship between inherent jurisdiction and substantive jurisdiction, derived from statute, has been described by Menzies J of the High Court as follows:
Inherent jurisdiction is not something derived by implication from statutory provisions conferring particular jurisdiction; if such a provision is to be considered as conferring more than is actually expressed that further jurisdiction is conferred by implication according to accepted standards of statutory construction and it would be inaccurate to describe it as ‘inherent jurisdiction’, which, as the name indicates, requires no authorizing provision.[120]
So far as actual decisions on an inherent jurisdiction to order a liquidation are concerned, the matter has arisen both in respect of local and foreign companies. In Re Kalblue Pty Ltd,[121] a case concerning a local company, Young J held that the former general law remedy of winding-up available to courts exists where it is ‘just and equitable’ that a company be wound up. His Honour also relied upon Supreme Court Act 1970 (NSW) s 23, which states that the Supreme Court ‘shall have all jurisdiction which may be necessary for the administration of justice in New South Wales’. The case concerned Kalblue Pty Ltd (‘Kalblue’), which had been struck off the register by the administrative action of the Australian Securities Commission. The liquidator of another company, W J McNamara Pty Ltd (‘McNamara’), wished to challenge a transaction by which Kalblue purportedly obtained some security over McNamara’s assets. If this were successfully challenged, then the assets would be available to satisfy the creditors of McNamara. The Commission appeared before the court to oppose the application to reinstate the registration of Kalblue unless it was placed under some sort of management, the controllers of Kalblue now being out of the jurisdiction. In the circumstances, there was no applicant who satisfied the requirements of Corporations Law s 462.[122]
Young J stated that Part 5.4 of the Corporations Law did not operate as a code in New South Wales. His Honour referred to a pre-1844 remedy that existed under the general equitable jurisdiction of the Court of Chancery to wind up companies. This was based on treating the companies as enlarged partnerships. ‘It is clear that the [Joint Stock Companies Winding Up Act 1844, 7 & 8 Vict, c 111] did not abolish the former general law remedies, though after the Act it would be seldom that there would need to be resort to such remedies.’[123]
Subsequently, in Horwath Corporate Pty Ltd v Huie,[124] a case concerning a local unit trust, one of the questions raised was whether the trust may be wound up as a Part 5.7 body under Corporations Law s 583. In passing, Young J again referred to the circumstances surrounding the 1844 legislation:
Although one can argue with [the] proposition [in J O’Donovan, McPherson: The Law of Company Liquidation (3rd ed, 1987) 2, that liquidation can take place only pursuant to, and in accordance with, the terms of the relevant statute], logically it does seem to accord both with the historical practice of Courts of Equity and with the authorities such as they are. …
There does not appear to be any reported case before the English Joint Stock Companies Winding Up Act 1844, when many companies adopted the structure of a deed of settlement with the property held by trustees, where there was a winding up of the enterprise by the court. However, it may be that more extensive research will find some, or it may be the answer was that because of the rule that all ‘shareholders’ should be parties it was just impractical to bring such proceedings.[125]
Despite Kalblue, Master Bredmeyer of the Supreme Court of Western Australia in Western Interstate Pty Ltd v Deputy Federal Commissioner of Taxation, considered that Corporations Law ss 462(5) and 459P(5) — both of which stated that ‘[e]xcept as permitted by this section, a person cannot apply for a company to be wound up in insolvency’ — have ousted any inherent jurisdiction to wind up a local company.[126] Subsequently, in Re Botar-Tatham Pty Ltd, Young CJ in Eq noted these changes to the Corporations Law, yet repeated his views on inherent jurisdiction under the Supreme Court Rules 1970 (NSW).[127]
There have also been a few references to inherent jurisdiction in cases concerning foreign companies where they are not registered locally and it is unclear whether they are carrying on business locally. As such, if companies do not qualify as Part 5.7 bodies, to which the liquidation provisions of Part 5.7 may apply,[128] then the question of any other basis for jurisdiction to wind them up becomes critical. In Davidson v Global Investments International Ltd, Acting Master Chapman held that the ‘jurisdiction to wind up a company is a purely statutory one’[129] under the corporations legislation. Accordingly, because the particular foreign company was neither registered nor carrying on business locally, the Supreme Court of Western Australia lacked jurisdiction to order its winding-up. No other law would vest the necessary jurisdiction in the Court on the facts as they were presented.
This is to be contrasted with a passing comment by Young J in Re New Cap Reinsurance Corporation Holdings Ltd, in the context of an application to appoint a provisional liquidator to an unregistered foreign company which carried on business within the jurisdiction:
I put aside the probability that this court may have some inherent power to appoint a provisional or final liquidator in respect of the assets of a foreign corporation which is not a Part 5.7 body. I merely mention this in case it be thought that I had excluded this possibility.[130]
Lunn [No 2][131] also concerned an application for winding-up under Corporations Act s 583, although it required determination of whether it was a Part 5.7 body, not based on it being a foreign company, but rather on whether it was a registrable Australian body.[132] Cardiff was incorporated in 1863 under its own incorporation Act prior to the general Companies Act 1874 (NSW) which introduced incorporation of companies by registration. Cardiff had been dormant for many years, but in 1989, proceedings were instituted which resulted in the appointment of a receiver in 1996. At that stage, it appeared that no directors were validly in office, although there were considerable assets resulting from a sale of land. It also appeared that Mr Lunn was the only member who could be traced. Although the circumstances were such that the Supreme Court of New South Wales accepted that a case had been made out for winding up Cardiff on the ‘just and equitable ground’, it was necessary to consider whether the Court had jurisdiction to do so.[133]
The Court held (for reasons that will be discussed below)[134] that it had no jurisdiction to make the order under Corporations Act s 583 as Cardiff was not a Part 5.7 body. It also concluded that no other provision in the Corporations Act conferred jurisdiction upon the Supreme Court of New South Wales or any other ‘Court’ (as defined by that Act) to make a winding-up order in respect of Cardiff.
A further ground argued by Mr Lunn was that a court of equity may, in the exercise of its inherent jurisdiction, wind up or dissolve corporations. Barrett J noted that, while a court might dissolve an unincorporated joint stock company through the exercise of general equitable jurisdiction, now reflected in the Partnership Act 1892 (NSW), it would, in such circumstances, in effect be dissolving a bond ‘that the parties themselves [had] created.’[135] His Honour went on to say:
But once Parliament has caused such a company or body of proprietors to be incorporated as ‘one body politic and corporate’, a new and separate bond is superimposed by the legislature and it is for the legislature alone to provide the means of putting an end to the perpetual succession it thereby creates.[136]
His Honour distinguished the Kalblue decision, noting that the court in that case was making ‘an order of the kind clearly envisaged by the legislation in respect of a body squarely within its contemplation, even though the order had not been sought by anyone competent under the legislation to seek it.’[137] Barrett J concluded that:
The Court’s inherent jurisdiction, while broad, is not unlimited. In particular it does not permit the Court to do things which, expressly or by necessary implication, parliament has precluded. …
Conscious as I am that this outcome is unsatisfactory for Mr Lunn as apparently the sole traceable member of a corporation in respect of which a case for winding up on the just and equitable ground has been shown, I regret that no winding up order can be made.[138]
Cardiff was finally wound up pursuant to ss 469 and 470 of the Companies (New South Wales) Code (as continued in force by the Corporations (New South Wales) Act 1990 (NSW)) and based on circumstances existing before 1 January 1991, that made it just and equitable for the company to be wound up.[139]
In the case of an involuntary insolvency administration, the threshold issue is whether a court will make an order for the winding-up of a company and simultaneously appoint a liquidator. The special jurisdictional rules for such proceedings are discussed in more detail in the next Part[140] and do not apply to proceedings discussed here, which concern litigation arising during the course of an insolvency administration.
Collective insolvency administrations often involve court proceedings. Some are matters for which the insolvency is merely incidental, whereas others are necessarily linked with a liquidation.[141]
Incidental matters include the debtor’s pre-insolvency rights and liabilities, the validity of which should be differentiated from questions of the impact of insolvency law on those rights and interests.[142]
The preservation and realisation of property may raise issues of the validity of creditors’ alleged ‘security’, the proper ownership of property held by debtor-related parties, and the validity of devices such as Romalpa clauses, resulting trusts, constructive trusts and equitable liens. The adjudication on claims may require determination of their validity under contract, tort, or industrial law.
In an early 19th century English case, Halford v Gillow, Shadwell V-C stated:
the jurisdiction in bankruptcy has authority to deal only with that which is the bankrupt’s estate; but has no power to determine what is the bankrupt’s estate. If the question be a legal one it must be tried at law; and if it be an equitable one, it must be decided in this Court. But when you have determined what is the property of the bankrupt, the whole administration of it falls under the jurisdiction of the Court in bankruptcy.[143]
Thus Ralph Brubaker refers to a bifurcation of jurisdiction in respect of bankruptcy matters in English law between: (1) bankruptcy jurisdiction over the property comprising the divisible estate and its administration for the benefit of the bankrupt’s creditors; and (2) the jurisdiction to determine whether property belonged in the bankrupt’s estate. The latter required an ordinary suit in the appropriate court.[144]
Those proceedings for which an insolvency administration is a prerequisite are diverse and may occur at any stage in the administration. In a liquidation, proceedings that may arise solely because of the insolvency administration include summons to examine directors and others associated with a company about its examinable affairs.[145] The preservation and realisation of the divisible property may result in litigation initiated by the liquidator to claw property back into the estate through setting aside voidable transactions[146] or to claim compensation from company officers for insolvent trading. Even in the distribution phase, the court may be called upon to resolve disputes over proof of claims or priority of payments.[147]
If the court has jurisdiction to make an order commencing a local liquidation, then jurisdiction to initiate proceedings during the course of the administration should follow.[148] It may well be that the respondent in such proceedings is outside the jurisdiction — for example a director to be summonsed for examination — whereas the insolvent company is clearly subject to the jurisdiction and hence to being wound up locally.[149] The local court has jurisdiction to issue the summons and it becomes a matter of local practice and procedure whether to permit service of the summons outside the jurisdiction.[150]
In the case of company liquidations, an Australian court, exercising jurisdiction under the Corporations Act, has adjudicatory authority to wind up a company incorporated within Australia.[151] The jurisdictional requirements for a company incorporated outside the jurisdiction are not as clear as those for bankruptcy proceeding. In the case of the involuntary winding-up of insolvent foreign companies, there is no specific section in the Corporations Act.[152]
An Australian court has jurisdiction under the Corporations Act to wind up a foreign company under Part 5.7 (the central provision being s 583), and under s 601CL(14) where a registered foreign company is already being wound up in its place of origin. It may arguably also make a winding-up order under s 581 as a result of a request from a foreign court for assistance.[153]
Under Part 5.7, the jurisdiction of an Australian court to wind up a foreign company requires:
(i) its local registration under Chapter 5B; or
(ii) the fact that it carries on business in Australia under s 21.[154]
The relevance of local registration under Chapter 5B lies in the exhaustive s 9 definition of a ‘Part 5.7 body’:
(a) a registrable body that is a registrable Australian body and:
(i) is registered under Division 1 of Part 5B.2; or
(ii) is not registered under that Division but carries on business[155] in this jurisdiction and outside its place of origin; or
(b) a registrable body that is a foreign company and:
(i) is registered under Division 2 of Part 5B.2; or
(ii) is not registered under that Division but carries on business in Australia; or
(c) a partnership, association or other body (whether a body corporate or not) that consists of more than 5 members and that is not a registrable body.
In Lunn [No 2], the Supreme Court of New South Wales found that Cardiff was a ‘registrable body’ and a ‘registrable Australian body’.[156] As it was in fact not registered, it was necessary to consider whether it carried on business and, if so, in which jurisdiction or jurisdictions. Barrett J held that ‘[o]n the whole and in light of the specifications of s 21, the better view must be that, as it has assets which are apparently being administered by the receiver, it does carry on business.’[157] However, Cardiff did not carry on business ‘outside its place of origin’,[158] being New South Wales, and so it did not satisfy any of paras (a), (b) or (c) of the definition. If in fact Cardiff had been a multi-state corporation, then it may well have been wound up under Part 5.7.[159]
The issue of whether a company has been carrying on business in Australia has been the subject of a number of recent cases. Australian Securities and Investments Commission v International Unity Insurance (General) Ltd,[160] involved an application under s 583 to wind up International Unity Insurance (General) Ltd (‘International Unity’), a subsidiary of a Solomon Islands company. International Unity was found to be ‘a foreign company not registered under Division 2 of Part 5B.2 of the Act and a corporation that has carried on business, but has now ceased to carry on that business, in Australia.’[161] Lander J held that ‘a company does not cease to be a Part 5.7 body when it ceases to carry on business at least for the purposes of s 583’.[162] In particular, his Honour noted that the application to wind up International Unity relied in part on the ground in s 583(c)(i) that the Part 5.7 body had ceased to carry on business.[163]
The question of the effect of a foreign company having ceased to carry on business was also considered by McMurdo J in Australian Securities and Investments Commission v Edwards,[164] which concerned a number of companies alleged to be operating unregistered managed investment schemes. One of the companies, Carsworthy Ltd (‘Carsworthy’), was incorporated outside Australia. Although it was a foreign company and a registrable body, it was not registered under Division 2 of Part 5B.2 and thus, to qualify as a Part 5.7 body, it had to carry on business in Australia.[165] Carsworthy’s business was to operate a scheme, the so-called ‘Car Club’. Its conduct involving a Mr Robinson was found to satisfy the Luckins v Highway Motel (Carnarvon) Pty Ltd[166] definition of ‘a succession of acts designed to advance some enterprise of the company pursued with a view to pecuniary gain’.[167] However, the scheme no longer operated and there was no evidence that the company still carried on business in Australia.
Unlike International Unity, the application for winding-up did not rely upon the ground that Carsworthy had ceased to carry on business in Australia (s 583(c)(i)) but that it was just and equitable that it should be wound up (s 583(c)(ii)). The court held that, whichever ground was relied upon, Carsworthy was a Part 5.7 body for which a winding-up order could be made. As McMurdo J stated:
Once a registrable body that is a foreign company becomes registered under Div 2 of Pt 5B.2 or carries on business in Australia, it becomes a Pt 5.7 body which is thereafter susceptible to an order for winding up, regardless of whether it subsequently becomes deregistered or ceases to carry on business in Australia. Once it becomes a Pt 5.7 body it has effectively submitted to the jurisdiction conferred by the Act for its winding up.[168]
Such an interpretation of the definition of a Pt 5.7 body is clearly beneficial to the operation of Pt 5.7. The contrary interpretation would enable a foreign company, which carried on business here illegally by being unregistered, to avoid an order for winding up in Australia by ceasing its business here just ahead of a winding up application. Especially where an expressed circumstance for winding up is the cessation of business in Australia, it is difficult to see that such a limitation upon the operation of Pt 5.7 was intended.[169]
Both International Unity and Edwards were considered recently in Campbell v Gebo Investments (Labuan) Ltd.[170] This case concerned a company, LifeWealth 8 Ltd (‘LifeWealth’), which was incorporated under a Malaysian federal statute and not registered in Australia. An application was brought to set aside an order appointing a provisional liquidator of the company on the basis that it was not a body in respect of which the court had jurisdiction under the Corporations Act to make the order.
The applicants argued that both International Unity and Edwards were wrongly decided because of a ‘misplaced emphasis on the reference in s 583(c)(i) to the power to make a winding up order where the body “has ceased to carry on business in this jurisdiction”.’[171] This was argued to overlook
the fact that one species of Part 5.7 body is a foreign company registered under Div 2 of Pt 5B.2. Once so registered, a foreign company remains a Part 5.7 body whether or not it carries on business in Australia. In the case of a Part 5.7 body not so registered, the applicants emphasise, carrying on of business in Australia is an essential ingredient of the Part 5.7 body status.[172]
Nevertheless, Barrett J determined that LifeWealth ‘may become the subject of a winding up order under s 583 if it has, at any time, carried on business in Australia. The jurisdiction to appoint a provisional liquidator rests on the same foundation.’[173] Moreover, s 582(3) (winding-up of a dissolved foreign company)
clearly recognises that the carrying on of business within the jurisdiction at the time of the making of the winding up order under that section is not an essential component of the power to make the order. And, particularly in light of s 601CL(14), s 582(3) cannot be regarded as confined to bodies registered under Div 2 of Pt 5B.2.[174]
Further, Barrett J stated that he was not of the opinion that the decisions of the courts exercising coordinate jurisdiction were plainly wrong and so as a first instance judge deciding a matter under a Commonwealth statute creating a national scheme of regulation, he should follow the decisions of International Unity and Edwards:[175]
I accept that the link coming from a concluded course of carrying on business is sufficient in principle, and as a matter of statutory interpretation, to make available the s 583 jurisdiction for reasons given in the two cases [International Unity and Edwards]. It cannot be accepted that a foreign company that has carried on business in Australia, with all the consequences that that entails (including, in most cases, incurring debts payable to Australian residents) is put beyond the reach of Australian winding up simply by retreating to its homeland. If, in reality, it has left no legacy requiring administration in Australia (assuming grounds for winding up are shown), any application for a winding up order is likely to be refused on discretionary grounds. But if matters cognisable in an Australian winding up have been left behind, the jurisdiction to wind up is, in my view, ongoing: cf Banque des Marchands de Moscou (Koupetschesky) v Kindersley (1950) 66 TLR (PT 1) 1147. I respectfully adopt and endorse, in particular, the statements in [41] of McMurdo J’s judgment in ASIC v Edwards.[176]
Even if these technical statutory requirements are satisfied, questions arise on whether some additional jurisdictional connection is required from the perspective of private international law principles. The authorities have until recently been unclear on whether the connecting factors go to the existence of jurisdiction or whether they are relevant to the exercise of such jurisdiction (that is, the declining thereof).[177]
Re Norfolk Shipping Line Pty Ltd[178] concerned a company incorporated in Norfolk Island for the purpose of providing a shipping service between Sydney, Lord Howe Island, Norfolk Island and New Zealand. Its only asset was a ship situated in Auckland Harbour at the time of hearing. It had never been registered in New South Wales as a foreign company, nor did it have an office in that jurisdiction. At all material times, its affairs had been administered in New South Wales by its agent, a New South Wales company. Apart from loans from shareholders, the company owed approximately $1 million to creditors in New South Wales.
As the company had no office or place of business in New South Wales, the question arose as to whether it was carrying on business there. The Supreme Court of New South Wales held on the facts that it was carrying on more than isolated transactions and, in all the circumstances, it was pursuing activities with a view to pecuniary gain in New South Wales,[179] and thus the company was held to have been carrying on business in New South Wales.[180] Accordingly, the Court had jurisdiction insofar as the company was required to be registered.
Nevertheless, Young J questioned whether additional links to the jurisdiction were required before he had power to wind up the Norfolk Island company. Reference was made to English[181] and Australian[182] cases and, although they referred to similar, not identical legislation, the Court held that:
The law as to whether assets negligible or not are absolutely required as a basis of jurisdiction is not yet certain. It may be that a Judge in this Court could say that so long as there is some commercial advantage in making a winding up order in New South Wales, an order may be made. On the other hand, no case has gone further than … requiring ‘negligible assets’ in the jurisdiction.[183]
Given that there were no assets in New South Wales, Young J expressed doubts as to whether he had jurisdiction in the matter. Finally, his Honour justified the appointment of a provisional liquidator on the basis of the Commonwealth cross-vesting legislation with Norfolk Island.[184]
Richard Fisher argues that all that is required to establish jurisdiction to wind up a foreign company is the satisfaction of the statutory requirements of registration or business activity within the jurisdiction:
Once that connection [carrying on business] is established, the Court may exercise the same powers and is subject to the same constraints as though it were considering an application to wind up a company incorporated or taken to be incorporated under the Law.[185]
In 1937, John Bray[186] stated that with the enactment of a specific provision to wind up an unregistered company,[187] an implied power to do so no longer existed and the whole extent of the power to wind up foreign companies was contained in that section. Yet, 40 years later, as Bray CJ in Re Kailis Groote Eylandt Fisheries Pty Ltd [No 3],[188] his Honour referred to a provision in the Companies Act 1962 (SA)[189] for winding up foreign companies, defined as those ‘incorporated outside the State’,[190] and commented:
Undoubtedly this company is such a company. It by no means follows, however, that this Court has jurisdiction to wind it up. Clearly it cannot, under the ordinary rules of private international law, order any company in the world to be wound up. There must be a sufficient nexus with [the forum]. …
[Counsel’s] argument treats the absence of local assets as a matter going to discretion rather than to jurisdiction. I do not so regard it.[191]
In the chapter on ‘Private International Law’ in the fourth edition of McPherson: The Law of Company Liquidation,[192] reference was made to the arguments by Richard Fisher[193] (based on legislative change since the earlier Australian and English cases) and Ron Harmer[194] (that registration or the carrying on of business indicates the foreign company has submitted to the local jurisdiction and that presence or absence of assets goes to discretion rather than jurisdiction) that nothing more was required to establish jurisdiction:
However, this area still awaits a decision by a bold Australian spirit who is prepared to go further than Re Norfolk Island Shipping Line Pty Ltd. Although it may be argued that Australia takes a broad approach to matters of jurisdiction [under the doctrine of forum non conveniens], it is submitted that a local winding up order will be refused unless certain other factors are also present, even where statutory conditions are fulfilled.[195]
The requirement of a sufficient connection with the jurisdiction has also been noted in Australian private international law texts.[196]
Yet, recent case law indicates this is no longer required. Such a position is consistent with the Australian approach to forum non conveniens.[197]
The question was noted, but left unanswered, in Kintsu Co Ltd v Peninsular Group Ltd,[198] where Santow J at first instance commented that as the defendant was both registered as a foreign company and had assets and creditors in New South Wales, whether it had sufficient connection with the jurisdiction of New South Wales under private international law principles did not arise as a live issue.[199]
In Edwards, McMurdo J referred to the suggestion in an earlier edition of McPherson: The Law of Company Liquidation that there are other essential conditions of the court’s jurisdiction beyond the statutory requirements.[200] His Honour distinguished the earlier cases on the basis that they did not prescribe a nexus between the company and the place governed by the statute, whereas the Corporations Act contains a nexus in the definition of the Part 5.7 body, holding that:
Once it is determined that a foreign company is a body so defined, there is jurisdiction to order its winding up upon proof of a relevant ground. Matters such as the presence or otherwise of assets or creditors within this jurisdiction are relevant considerations to the exercise of the discretion to order winding up, but they do not go to jurisdiction. That is how they were characterised by Young J in Re Norfolk Island Shipping Line Pty Ltd (1988) 6 ACLC 990; (1988) 14 ACLR 229 and by Santow J in Re The Peninsula Group Ltd (1998) 16 ACLC 985 at 991–992; (1998) 27 ACSR 679 at 686.[201]
As commented above on the jurisdiction to adjudicate between parties in a liquidation, special statutory jurisdictional rules apply to whether a court will order the liquidation of an insolvent debtor.[202] These rules are subject to the court’s discretion to decline to exercise jurisdiction in the case of a foreign debtor and to the court’s statutory discretion when exercising the jurisdiction to decline to make such an order.
Subject to any necessary adaptation, pursuant to Part 5.7 of the Corporations Act, a foreign company which is a Part 5.7 body may be wound up in accordance with Chapter 5.[203] In fact, a Part 5.7 body may be wound up even if it is being wound up, or has ceased to exist, in its place of incorporation.[204]
The circumstances in which a foreign company may be wound up are listed in s 583(c), and include its dissolution and its ceasing to carry on business in Australia.[205] Perhaps the most common situation in which a winding-up order is made occurs where a company is unable to pay its debts. This inability to pay debts is deemed by s 585 to occur, inter alia, where there is failure to comply with a statutory demand[206] or an unsatisfied execution or other enforcement of an Australian or foreign judgment.[207]
In Peninsular Group Ltd v Kintsu Co Ltd,[208] the New South Wales Court of Appeal considered the impact of the introduction of the detailed statutory demand provisions of Part 5.4 on Part 5.7 — in particular s 585(a) and its reference to noncompliance with a demand. The Court held that the comprehensive terms of ss 583 and 585 meant that the Part 5.4 provisions did not apply where a party sought to wind up a body other than a company, such as a foreign company, under Part 5.7.
The significance of a winding-up under Part 5.7 was central to a s 480 application for the release of a liquidator appointed under s 583 in Re Wayland as Liquidator of ABC Containerline NV (in liq).[209] ABC Containerline NV (‘ABC’) was incorporated under the laws of Belgium, where it was ordered to be wound up on 5 April 1996. Prior to that time, ABC had been carrying on business in Australia, albeit as an unregistered foreign company. On 21 June 1999, an order was made by the Supreme Court of New South Wales pursuant to s 583 to wind up the company and to appoint a liquidator. Even though the winding-up was concurrent with a prior administration in ABC’s place of incorporation, Barrett J held it was not an ancillary administration as it would have been if the order had been made pursuant to s 601CL(14).[210]
During the course of the local liquidation, an investigation of potential claims against a third party had been undertaken; however, it appeared that the Judge-Commissioner in the Belgian administration had decided not to pursue it. Since there appeared to be no local assets, the liquidator sought release under s 480. While 17 Australian creditors had lodged proofs of debt with the Belgian trustees, the local liquidator had received no proofs of debt and appeared not to have identified any contributories.[211]
Prior to the liquidator’s release, the Court required the local creditors to be notified of the s 480 application, as well as a brief advertisement of the application to alert other creditors (if any) within the jurisdiction. It noted that the effect of the release was a form of absolution conferred by s 481(3).[212]
On the nature of the winding-up, Barrett J held:
Although the winding up ordered by this court is, in reality of [an] ancillary kind, it is not, by the terms of the winding-up order (or any legislative provision), made subsidiary to the Belgian administration. The liquidator appointed by this court is subject to the full range of duties and responsibilities attaching to the office of liquidator, subject to any direction that the court itself may see fit to make: see Re Hibernian Merchants Ltd [1958] Ch 76; [1957] 3 All ER 97. As a general principle, therefore, the local liquidator should proceed in the manner stated by Lowe J in Re Australian Federal Life and General Assurance Co Ltd [1931] VLR 317 at 320; (1931) 37 ALR 291:
The purpose of the ancillary winding up is to secure the local assets, and the rights of the local creditors; and the duties of the liquidators accordingly are to collect the local assets, to settle a list of the local contributories and also, it would seem, to determine the claims of local creditors.
The fact that Mr Wayland’s appointment was procured, in substance, by the Belgian trustees in bankruptcy (in that they caused ABC to make the application for the winding-up order) does not mean that he is, or may regard himself as, merely an instrumentality of or assistant to those trustees. As a liquidator appointed by this court, he is an officer of the court and makes decisions which are, in effect, made under the authority of the court itself: Duffy v Super Centre Development Corp Ltd [1967] 1 NSWR 382.[213]
In a multi-state insolvency, a debtor may well have connections with a number of states and differing insolvency, and other laws may provide an incentive for creditors to seek an insolvency administration in more than one forum. In considering the manner in which jurisdiction should be exercised where there are concurrent insolvency administrations, the doctrines of forum non conveniens and lis alibi pendens are also relevant, as they help regulate the manner in which courts may defer to proceedings in another state. Anti-suit injunctions have also been a feature of the commercial litigation arising out of significant multi-state insolvencies. Finally, insolvency jurisdiction has the fundamental element that a bankruptcy or liquidation order is a matter of discretion for a court and, in certain circumstances, has been declined.
The doctrine of forum non conveniens is concerned with the exercise, rather than the existence, of jurisdiction.[214] The successful plea of forum non conveniens — where on first principles the forum has jurisdiction, but declines to exercise it — may arise in two types of cases.
The first is where the defendant is outside the jurisdiction and the plaintiff must seek leave of the court to serve out of the jurisdiction.[215] The onus is then on the plaintiff to show that, although the defendant is not present, the local forum is not a ‘clearly inappropriate forum’.[216] An insolvency example of where leave of the court may be required to serve a summons outside the jurisdiction is where a liquidator seeks to examine company directors who are outside the jurisdiction. In Fiorentino v Irons,[217] the Federal Court granted extempore an Australian liquidator leave to serve a summons to attend an examination upon a person residing outside Australia. As the material before the Court satisfied the requirements of the relevant rules on originating process, orders were made to serve a summons personally upon an examinee in England.[218]
The second may arise in proceedings for a stay. In such proceedings, a defendant who has been served either within the jurisdiction or outside it, without the need for prior leave of the court,[219] bears the onus of proof to establish that the forum is clearly inappropriate.[220]
Under the approach taken in Voth v Manildra Flour Mills Pty Ltd,[221] an Australian court, which otherwise has jurisdiction, may decline to exercise it if it considers itself to be a ‘clearly inappropriate forum’ for the determination of a dispute.[222] In Voth, the High Court chose not to follow the English approach in Spiliada Maritime Corporation v Cansulex Ltd,[223] where the House of Lords had considered which was the ‘more appropriate forum’.[224] That is, under the English approach, a stay is granted
where the court is satisfied that there is some other available forum, having competent jurisdiction, which is the appropriate forum for the trial of the action, ie in which the case may be tried more suitably for the interests of all the parties and the ends of justice.[225]
Describing the impact of the Spiliada test in England upon multi-state insolvency, Ian F Fletcher notes that the forum non conveniens cases dealt with international litigation between directly interested parties, whereas insolvency proceedings are collective in nature with a ‘broader spread of interests and policy considerations’:[226]
Nevertheless, the welcome infusion of a more magnanimous, and internationally sensitive spirit of approach towards the exercise of international jurisdiction by English courts, from the highest level downwards, … could not fail to exert some influence upon the mode of decision when questions concerning the exercise of insolvency jurisdiction arise in subsequent cases.[227]
In Re Harrods (Buenos Aires) Ltd [No 2],[228] the court applied the Spiliada test and declined to exercise jurisdiction to wind up a company (albeit not in insolvency).[229] According to Fletcher, although the material considerations would be different in the context of an insolvent company, ‘the spirit of openness and objectivity with which the question of appropriate venue was addressed [in the Harrods case] could well serve as a basis for useful development in the future.’[230]
In determining appropriateness, the Australian and English approaches apply the same connecting factors listed by Lord Goff in Spiliada which relate to the legal and substantive relationships existing between the dispute and the state.[231]
So, a different outcome would only be likely to occur under these two approaches where the court considers another forum to be more appropriate, even though the local forum is not clearly inappropriate.
An example to highlight the difference between the Australian and English approaches would be where a creditor’s winding-up petition is presented in the company’s place of incorporation, although the company’s headquarters are in another state. Under the Australian forum non conveniens approach, the place of incorporation would not be determinative, and so the court may exercise principal jurisdiction unless it considers itself to be a ‘clearly inappropriate forum’. However, applying the English approach in Spiliada, parties may seek to prove that another state is a ‘more appropriate forum’, such as the place of its centre of management control.
In Re a Company (No 00359 of 1987),[232] an application was made to wind up a foreign company in England where the only local asset and possible benefit to creditors derived from actions against the directors, which only became available upon liquidation of the company. In the course of his judgment, Gibson J stated: ‘It is also appropriate for the court to consider whether any other jurisdiction is more appropriate for the winding up of this admittedly insolvent company.’[233] Other jurisdictions considered were Liberia, with which the company appeared to have had nothing to do after its incorporation there, and Greece. The connections with Greece were that the company’s single asset, a bulk carrier, flew the Greek flag and various notices under credit facilities were required to be sent to the company care of an address in Greece. The High Court was satisfied that the company had a sufficiently close connection with England where, amongst other things, it had carried on business,[234] and there were no other jurisdiction more appropriate for the winding-up of the company, which plainly ought to be wound up.[235]
The English Court of Appeal again considered whether there was a ‘more appropriate forum’ in Re a Company (No 003102 of 1991); Ex parte Nyckeln Finance Co Ltd,[236] finding England was the more appropriate forum in which to wind up the company. The winding-up process in Guernsey, Channel Islands, the place of incorporation, was considered by the Court to be outmoded and Portugal was not an appropriate jurisdiction since, although the company had assets there, it had no other connection with the country.[237] The English jurisdiction was held to be appropriate on the basis that the individual who ran the company was present and resident in England and the petitioner was also present in England.[238]
The fact that there may be concurrent insolvency proceedings and that these may be treated as principal and ancillary proceedings may affect the question of the most appropriate forum. In Re Wallace Smith Group Ltd,[239] Nugee DJ stated that the question of whether there was a ‘more appropriate jurisdiction’ cannot be an essential factor in determining jurisdiction to wind up a foreign company.[240] There are cases in which the local court will make a winding-up order, which is ancillary to a winding-up in the place of incorporation and, in such a case, it cannot be said that local court was the more appropriate jurisdiction.[241] His Honour viewed appropriateness as a matter for the exercise of the discretion to make the order rather than to exercise jurisdiction.[242]
In the Bank of Credit & Commerce International Group insolvency, the English liquidation of Bank of Credit & Commerce International SA (‘BCCI’) was held to be ancillary to the Luxembourg adjudication in the place of incorporation. In dealing with an application by a group of creditors soon after BCCI was placed in provisional liquidation, and before the petition to wind it up was decided, Browne-Wilkinson V-C held:
The second delicate aspect is the relationship between this court and the court of Luxembourg. BCCI is incorporated in Luxembourg, which prima facie is the court where the prime winding up proceedings, if it ever gets that far, will have to be conducted as being the law of the country of incorporation. Some suggestions have been made that in some way it is inappropriate that that should be the primary administration were a winding up order to be made. That is not a view with which I concur in any way. There is nothing to indicate that the court of Luxembourg would be in some way regarded as inappropriate, if otherwise under the general law that is the right court to administer the matter.[243]
The Australian forum non conveniens approach provides a broad basis for jurisdiction, under which an Australian court, which otherwise has jurisdiction, may decline to exercise that jurisdiction if it considers itself to be a ‘clearly inappropriate forum’ for the determination of a dispute. This expansive approach to the exercise of jurisdiction is consistent with the decisions in International Unity,[244] Edwards[245] and Campbell v Gebo Investments (Labuan) Ltd[246] regarding the jurisdiction to adjudicate upon the winding-up of the various unregistered foreign companies.[247]
Concurrent proceedings indicate the potential relevance of the doctrine of lis alibi pendens to the exercise of jurisdiction in a multi-state insolvency. A court may order a stay on local proceedings where proceedings have already commenced and are pending in a foreign forum and the interests of justice would not be well served by having two courts in different jurisdictions giving judgment in the same case.[248]
In Henry v Henry,[249] a matrimonial proceedings case, the majority of the High Court of Australia held that application of the Voth[250] test of ‘clearly inappropriate forum’ was intended to avoid simultaneous proceedings in different countries with respect to the same controversy. It is ‘prima facie vexatious and oppressive, in the strict sense of those terms, to commence a second or subsequent action in the courts of this country if an action is already pending with respect to the matter in issue.’[251]
Correspondence of subject matter is an important issue where proceedings are pending in another jurisdiction. Henry involved identical parties and the same subject matter (the parties’ marital relationship), whereas different claims were being made in the United States and New South Wales in CSR Ltd v Cigna Insurance Australia Ltd.[252] Where the issues are not the same, the test is not whether the Australian court is a ‘clearly inappropriate forum’ for the litigation of the issues involved in the Australian proceedings, but rather whether, having regard to the controversy as a whole, the Australian proceedings are vexatious or oppressive (in the Voth sense of those terms).[253]
The possibility of concurrent bankruptcies or liquidations has long been recognised in insolvency law and managed through primary and ancillary administrations, rather than staying a local proceeding.[254]
A leading bankruptcy case on this issue is Re Artola Hermanos; Ex parte Châle.[255] The debtors were members of a partnership with its head office in Paris. The firm was declared bankrupt in Paris under the laws of France and a syndic appointed under the provisions of the Code de Commerce to administer the estate.[256] There were considerable debts and assets in England, where the court appointed the official receiver as an interim receiver. The English Court of Appeal upheld the appointment, expressing doubts as to the standing of the syndic before the Court,[257] as well as stating that the prior foreign bankruptcy was no ground to stay the local proceedings.[258]
Fry LJ described three potential approaches to concurrent bankruptcy proceedings.[259] First, each forum is to administer the assets locally situated within its jurisdiction.[260] Second, every other forum should yield to the forum of the domicile, acting only as accessory in aid of the forum of the domicile.[261] Third, the forum of the country in which the debtor has assets, and in which a court first adjudicates him or her bankrupt (whether or not it is the forum of the domicile), is entitled to claim foreign assets.[262]
Of the three possibilities, Fry LJ rejected the third and, of the other two, appeared to prefer the approach of concurrent territorial administrations, as ‘it may be that [its] inconveniences are less than the inconveniences of any other course’.[263] Commentators have agreed upon this as the correct approach and have identified the reluctance of the courts to decline jurisdiction.[264]
Yet in an Australian case, Radich v Bank of New Zealand,[265] a local sequestration order was set aside where there was a concurrent New Zealand bankruptcy. It was argued that there were juridical advantages in instituting a local bankruptcy in order to bring local after-acquired movable property into the estate.[266] Nevertheless, the Federal Court refrained from exercising jurisdiction, even though the statutory grounds were satisfied to establish jurisdiction. It found that recognition of the foreign order and assistance to the foreign trustee achieved the required outcome.[267]
Similarly, in corporate insolvency, there are often concurrent proceedings with primary and ancillary liquidations. Exclusive jurisdiction is not accorded any particular state in respect of winding up companies.[268] Section 582(3) of the Corporations Act states that a winding-up may occur under Part 5.7 even though the foreign company is being wound up elsewhere or has ceased to exist under the laws of its place of origin.[269] A winding-up order under Corporations Act s 601CL requires a winding-up order to have commenced or been completed in the registered foreign company’s place of origin. Any winding-up granted by way of assistance under Corporations Act s 581 must necessarily follow an external administration being instituted in another jurisdiction.
In Re Bank of Credit & Commerce International SA [No 10],[270] a critical issue in the distribution of local assets was the significance of the local liquidation being ancillary to the liquidation in the place of incorporation. Scott V-C, who undertook an extensive review of the authorities, held that:
Where a foreign company is in liquidation in its country of incorporation, a winding up order made in England will normally be regarded as giving rise to a winding up ancillary to that being conducted in the country of incorporation.[271]
Where a stay based on lis alibi pendens is sought in insolvency proceedings, it is not a simple matter to identify whether an identical issue or controversy is being litigated in different states. On the one hand, it could be argued that all proceedings arising out of the debtor’s insolvency administration are part of the same controversy — that is, to do with the bankrupt or liquidated status of the debtor.[272] Thus, the local court should stay any local proceedings if the foreign proceedings would be recognised locally.[273]
On the other hand, it could be argued that the particular proceedings do not concern the same controversy. Many of the multifaceted issues that arise during a local administration concerning assets, creditors, company officers and others (and which involve local insolvency and other laws) may not be the subject of litigation in the foreign insolvency proceedings. This squarely raises the issue discussed in Henry and CSR about what comprises ‘the controversy as a whole’.[274]
Insolvency adjudications are in a unique category, different to other civil and commercial judgments. Such an adjudication initiates a complex procedure that arguably has an inherent integrity through the unity of the debtor’s estate being realised and distributed. In the administration, the private rights of debtors and creditors vis-a-vis each other are transformed into participatory rights in a collective process, which also takes into account state interests. The complex interaction of a range of laws during an administration and the embedding of insolvency law in a state’s commercial, financial and societal culture underpin the unique character of insolvency adjudications. A potential unifying factor to identify the extent of the controversy is involvement by the principal liquidator representing the interests of the debtor’s estate.
The High Court in CSR stated that:
The counterpart of a court’s power to prevent its processes being abused is its power to protect the integrity of those processes once set in motion. And in some cases, it is that counterpart power of protection that authorises the grant of anti-suit injunctions.[275]
Anti-suit injunctions are sought to restrain litigants from continuing with litigation in another jurisdiction.[276] In insolvency proceedings, this has arisen not so much in respect of the threshold winding-up petition, but rather where there have been related proceedings during the course of the local (or foreign) insolvency administration.[277]
For example, where an insolvency administration is instituted locally, a court may grant an anti-suit injunction to prevent a person from seeking to obtain the sole benefit of certain foreign assets through foreign proceedings.[278] A creditor may seek to prevent a liquidator from issuing proceedings to set aside a voidable transaction in another jurisdiction. In Barclays Bank plc v Homan,[279] several banks sought an injunction in England to prevent the administrators from taking recovery action in the US. The English Court of Appeal refused the injunction and upheld the primary judge’s decision that where the foreign proceedings were not vexatious or oppressive, it was for the foreign court to decide whether or not it was the appropriate forum.
A local liquidator may seek to prevent a creditor from issuing proceedings in a foreign court. New Cap Reinsurance Corporation (Bermuda) Ltd v Chase Manhattan Bank [No 2][280] concerned an insurance company which was incorporated in Bermuda and, while not registered in Australia, was carrying on business in New South Wales and Victoria. The Supreme Court of Bermuda had appointed a provisional liquidator over New Cap Reinsurance (Bermuda) Ltd on the application of the Bermudan Registrar of Companies, and the Supreme Court of New South Wales had appointed a local provisional liquidator over the company.[281] The Bermudan provisional liquidator sought to restrain creditors from pursuing an action in Bermuda which challenged the provisional liquidator’s request to the Bermudan court for aid from the Australian court.[282]
The court’s power to grant anti-suit injunctions derives both from its inherent jurisdiction and its equitable jurisdiction. The inherent power to grant an anti-suit injunction is to be exercised when the administration of justice demands it — for example where it is necessary to protect the court’s own proceedings and processes.[283] A court’s equitable jurisdiction includes the power to make orders to restrain unconscionable conduct or the unconscientious exercise of legal rights — for example, because they are vexatious or oppressive.[284] In the latter case, the local court must first apply the Voth test to decide if it is not a ‘clearly inappropriate forum’ to determine the matter in issue before considering whether to grant an anti-suit injunction or to require the applicant to seek a stay of the foreign proceedings.[285] The courts exercise the power to grant anti-suit injunctions with caution for reasons of comity. This applies whether the injunction is sought in the exercise of the inherent or equitable jurisdiction.[286]
It is uncertain whether a foreign liquidation order will operate as a local stay on dealings with the debtor’s assets, either by the debtor itself or by the debtor’s creditors. In fact, in Mercantile Credits Ltd v Foster Clark (Australia) Ltd, the High Court commented that: ‘One of the strongest reasons there can be for making a winding-up order is that thereby one of a number of creditors will be stopped in an attempt to get more than his proper share out of assets that are insufficient to satisfy all.’[287]
Injunctive relief in the context of insolvency was recently sought in Re Independent Insurance Co Ltd,[288] in which a letter of request was directed by the High Court of Justice of England and Wales to the Supreme Court of New South Wales under Corporations Act s 581.[289] The plaintiff company and its provisional liquidators applied ex parte for a declaration recognising a petition to wind up the company presented to the foreign court in June 2001, as well as recognising the appointment of the provisional liquidators. In addition, they sought orders that, unless leave was granted by the foreign court and subject to such terms as it may impose,
the continuation or commencement of any action or proceeding against the Company or its property in Australia shall be restrained while the joint provisional liquidators are appointed to the Company or after a winding up order has been made in relation to the Company.[290]
Barrett J noted that the Court was being asked
to award remedies that are general equitable remedies. This is in line with cases in which the equitable remedy of appointment of a receiver has been granted by a court exercising auxiliary jurisdiction in support of a foreign insolvent administration: see, eg Re A Debtor (Order in Aid No 1 of 1979) [1981] Ch 384; Dick as Trustee in Bankruptcy v McIntosh [2001] FCA 1008. … Such provisions [ss 581(2)(a) and 581(3)] do not augment the jurisdiction except in a geographic sense.[291]
The claim for injunctive relief was being advanced apart from any lis inter partes and sought ‘an order expressed to be binding on the whole world in the manner of legislation’.[292] Barrett J noted that Australia had not yet enacted laws adopting recognised international measures for the administration of cross-border insolvencies, although it referred to well-advanced moves to incorporate the UNCITRAL Model Law[293] into Australian law. In that context, Barrett J concluded:
In the meantime, in a case such as the present involving a corporate insolvency in the United Kingdom, the only special jurisdiction this court has is that conferred by s 581 of the Corporations Act. And, insofar as that section empowers the court to deploy its general equitable jurisdiction in aid of a United Kingdom court in a way that territorial limitations would otherwise not allow, the jurisdiction is to be exercised in accordance with principles of general application.[294]
Although the order as requested in general terms was not made, Barrett J emphasised that, by virtue of s 581, the Court had jurisdiction to restrain the initiation or continuation of any specific proceedings against the company or affecting its property, as well as jurisdiction to stay certain proceedings.[295]
Even when exercising its jurisdiction to make a liquidation order, an Australian court may determine not to make the order. The Corporations Act states that the court ‘may’ make the sequestration or liquidation order upon proof of the statutory requirements.[296] Section 467 of the Corporations Act is worded permissively so that a court is not required to make an order merely upon proof of a ground for winding-up.[297]
This discretion to refuse an order is not necessarily exercised merely because the company has no property.[298] Alternatively, the court may, having made a liquidation order, order a stay of those proceedings.[299]
In Re New England Brewing Co Ltd[300] a petition was presented to wind up a New South Wales company which was registered as a foreign company in Queensland. Subsequently, a winding-up order was made in the place of its incorporation. The evidence disclosed that there were local creditors in Queensland and matters requiring investigation during a winding-up.[301] Apart from this, the Supreme Court of Queensland saw no reason to incur the extra expense of a Queensland liquidation. It would only be an ancillary administration and there was no reason to suppose that the New South Wales liquidator would not adequately carry out his duties under the Companies Act 1961 (NSW).[302] Accordingly, Lucas J decided to exercise his discretion against making a winding-up order at that stage.[303] The petition was adjourned to a date to be fixed in case circumstances were disclosed during the liquidation which would appear to justify a local ancillary liquidation.[304]
As already foreshadowed, courts may exercise jurisdiction in a multi-state corporate insolvency through the mutual aid and assistance provisions of the Corporations Act.[305] Section 581(2) of the Corporations Act states:
In all external administration matters, the Court:
(a) must act in aid of, and be auxiliary to, the courts of:
(i) external Territories; and
(ii) States that are not in this jurisdiction;[306] and
(iii) prescribed countries;
that have jurisdiction in external administration matters; and
(b) may act in aid of, and be auxiliary to, the courts of other countries that have jurisdiction in external administration matters.
A distinction is drawn between the degrees of cooperation afforded to courts in ‘prescribed countries’ and those in other countries. The former are listed in Corporations Regulation 2001 (Cth) reg 5.6.74 as: Jersey; Canada; Papua New Guinea; Malaysia; New Zealand; Singapore; Switzerland; the United Kingdom; and the United States of America.
Under s 580, ‘external administration matter’ means a matter relating to:
(a) winding up, under this Chapter, a company or a Part 5.7 body; or
(b) winding up, outside Australia, a body corporate or a Part 5.7 body; or
(c) the insolvency of a body corporate or of a Part 5.7 body.
The Federal Court in Joye v Beach Petroleum NL held:
any step taken by a liquidator in getting in the assets of the corporation is a step taken in the winding up; and this is so whether or not the step taken involves litigation aimed at recovery of the assets. If litigation is necessary, the conduct of that litigation is, in our view, a ‘matter’ that ‘relates to’ the ‘winding up’.[307]
The notion of ‘external administration matter’ was further explored in Re AFG Insurances Ltd,[308] where the Supreme Court of New South Wales declined to issue a letter of request to a foreign court seeking aid and assistance in respect of a voluntary administration. The applicants sought recognition of the status and authority of the voluntary administrators and their agents to act on behalf of the company and an order that proceedings not be commenced or continued against the company in England, except by leave of the Supreme Court of New South Wales or the administrators. The judgment referred to the effect of the s 580 definition of ‘external administration matter’,[309] especially para (c) (‘the insolvency of a body corporate or of a Part 5.7 body’), and s 581(4) (courts that have jurisdiction in an ‘external administration matter’[310]). Barrett J held:
A Pt 5.3A administration is not a regime imposed by or arising from an order of this court or any other court. No court has the general superintendence or control of such an administration. … No particular court covers the field, although in a practical sense one may come to do so just because all applications happen to be made to it.
This makes me think that, in the administration context (much more, perhaps, than in the case of a winding up ordered by the court), a foreign court can be regarded as acting in aid of or as auxiliary to this court only where this court has become seised of a particular proceeding relevant to the administration and the full and effective exercise of this court’s jurisdiction will be assisted by some ancillary order of a foreign court.[311]
In the subsequent case of Re AFG Insurances Ltd (admin apptd),[312] the Supreme Court of New South Wales made declarations that the company had become subject to voluntary administration on a certain date and that the two administrators had been appointed on the same day. In such circumstances,[313] the Court was prepared to request the English court make such orders, as it would be open to the Court to make those orders within the latter’s jurisdiction.[314]
Arguably, a court may make a winding-up order under s 581 as a result of a request from a foreign court for assistance. In New Cap Reinsurance Corporation (Bermuda) Ltd v Chase Manhattan Bank [No 2],[315] the provisional liquidator of a Bermudan company successfully sought the appointment of an Australian provisional liquidator to the company which was not registered as a foreign company but had been carrying on business in Australia. It did so in order that:
an Australian provisional liquidator could locate and get in Australian assets and corporate records, make investigations and take other steps to protect the company’s Australian assets, and deal with the company’s bankers (The Chase Manhattan Bank in Sydney) whom [the provisional liquidator] had attempted to contact without success.[316]