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In Stichting Shell Pensioenfonds v Krys and another, Shell, in proceedings in the Netherlands, obtained a pre-judgment order attaching certain assets of Fairfield Sentry Ltd (Fairfield) an investment company incorporated in the British Virgin Islands (BVI). The attachment order related to funds held in an account in a Dublin bank by Fairfield's administrative agent.
The attachment order did not, as a matter of Dutch law, give any proprietary interest in the funds but would preserve the funds so they would be available to satisfy a judgment obtained in Dutch proceedings in the future. In effect, and following Fairfield's liquidation ordered by the BVI court, this would give Shell priority over Fairfield's assets that it would not otherwise get in the liquidation and would mean that it was likely to be repaid in full whereas creditors in the liquidation would recover only a dividend.
Shell submitted a proof of debt in Fairfield's subsequent liquidation. The liquidators rejected it and sought an anti-suit injunction restraining Shell from pursuing its proceedings in the Netherlands and seeking release of the attachment order.
At first instance the BVI High Court held that it would not, as a matter of principle, prevent a foreign creditor from resorting to its own courts. The Court of Appeal allowed the liquidator's appeal and granted an anti-suit injunction. It held that having lodged a proof of debt in the liquidation, Shell was subject to the jurisdiction of the BVI court and should not be allowed to avail itself of the Dutch court's jurisdiction to obtain a priority to which it was not entitled under the statutory rules of distribution applying in the BVI. Shell appealed.
The Privy Council upheld the Court of Appeal's decision. It held that on the making of a winding up order, a company is divested of the beneficial ownership of its assets which are then subject to a statutory trust for their distribution in accordance with the rules of distribution provided by statute. This applied to world-wide assets. Although the attachment order was obtained prior to the liquidation, no proprietary interest in the fund had been created and the attachment order was directly inconsistent with the mandatory scheme resulting from the winding-up order in the BVI.
The Privy Council held that although it does not purport to interfere with any foreign court, it can act personally upon a defendant (which has submitted to the jurisdiction) by restraining it from commencing or continuing proceedings in a foreign court where justice required it and where the foreign proceedings were contrary to equity and good conscience. This includes where the proceedings were calculated to violate the statutory scheme of distribution.
Shell had submitted to the jurisdiction of the BVI court in lodging the proof of debt in the liquidation and by taking part in the ant-suit injunction proceedings. By lodging the proof of debt, Shell had submitted to the statutory scheme for distribution of the insolvent company's assets, pari passu with other creditors. Although lodging the proof did not, in itself, preclude the creditor from taking proceedings outside the liquidation, it did preclude any attempt to gain direct access to the insolvent's assets in priority to others.
The Privy Council also rejected the argument, against the background of the case, that there was a distinct principle that an anti-suit injunction could not be issued against a foreign litigant to prevent it resorting to the courts in its own country.
Things to consider
This case follows hot on the heels of the Privy Council's decision in Singularis Holdings Ltd v PricewaterhouseCoopers and is yet another example of the issues surrounding the jurisdiction and intervention of foreign courts in insolvency proceedings.
The case also highlights the BVI Court's willingness to step in to protect the statutory scheme of distribution and confirms that the act of lodging a proof of debt in a liquidation is taken to be a submission to that jurisdiction.
This may therefore leave some foreign creditors in a quandary as to how to proceed - whether to pursue proceedings in their own, home, court and take on the inherent risk of such proceedings or whether to submit to the jurisdiction of the liquidation and its courts and wait to receive the benefit of whatever dividend becomes available in that insolvency.