Contributors
Are the courts of England and Wales establishing themselves as a flexible forum for cross-border enforceability? Here, we consider this question in light of two recent High Court decisions: Re Silverpail Dairy (Ireland) Unlimited Co. [2023] EWHC 895 (Ch) (Silverpail) and Invest Bank PSC v El-Husseini & Ors [2023] EWHC 2302 (Comm) (Invest Bank).
Silverpail saw the High Court of England and Wales (EWHC) recognise a scheme of arrangement proposed under the Irish examinership procedure, in a landmark post-Brexit ruling clarifying how Irish cross-border restructurings are likely to be dealt with going forward.
In Invest Bank, the EWHC ruled that a foreign monetary judgment, no longer enforceable in Abu Dhabi, could nevertheless be enforced in England.
Silverpail – reciprocity between UK and Irish insolvency procedures
Here, the EWHC granted an urgent application to recognise a scheme of arrangement relating to an Irish dairy manufacturer, made pursuant to a letter of request from the Irish High Court (IHC) under section 426 of the Insolvency Act 1986. This requested the EWHC to recognise an order in which the IHC had confirmed an examiner's proposals for Silverpail's scheme of arrangement.
Section 426 facilitates court to court co-operation in relation to insolvency processes, by allowing the UK courts to apply overseas insolvency procedures to matters specified in a letter of request.
The IHC, being satisfied of Silverpail's survival prospects, sanctioned the examiner's scheme of arrangement. The proposals afforded Silverpail a tool by which it could deal with historic debts without unfair prejudice to its unsecured creditors. Of particular relevance to the EWHC were 19 unsecured creditors in England and Wales who were owed over €400,000 between them.
At the same time as sanctioning the scheme of arrangement the IHC issued letters of request to the EWHC and the High Court of Northern Ireland seeking assistance to apply Irish law and bind the creditors in those jurisdictions to the scheme.
The EWHC confirmed that the examinership procedure broadly corresponded to the UK process of administration for the purposes of section 426. Two days before this judgment, the High Court in Northern Ireland provided similar assistance to Silverpail.
There was no provision of English law to make the scheme of arrangement binding on English creditors as the Irish court wished. Instead, it was for the EWHC to consider potentially apply Irish law concerning a scheme of arrangement's effect on creditors to English creditors. While a court is not bound to give such assistance, it ought to, "unless satisfied there is some good reason not to do so".
Given the request and background and more specifically the fact unsecured creditors were being treated the same in both jurisdictions the EWHC confirmed they give the assistance required and apply the effect of Irish law on the English creditors.
Invest Bank v El-Husseini –an enforceable foreign judgment enforced in England
Although brought under section 423 of the Insolvency Act 1986, the implications of the Invest Bank decision reach further than issues of insolvency law.
Here, the Defendant Mr Husseini's potential liability stemmed from two personal guarantees given to Invest Bank in 2016. Invest Bank obtained final monetary judgements against him in the United Arab Emirates (UAE), of which around £19.6m remained outstanding at the commencement of the English section 423 proceedings which eventually culminated in a default judgment against the Defendant.
11 days before the English default judgment, there was a material change in UAE law which meant that the UAE monetary judgments were no longer enforceable in Abu Dhabi. Earlier this year, Invest Bank's attempt to get them enforced there was expressly refused.
The EWHC here considered whether Invest Bank had any statutory capacity to pursue and enforce its claim in England and Wales. It ruled that the UAE monetary judgments could be recognised and enforced in England, despite being unenforceable in Abu Dhabi.
The EWHC confirmed there is no common law rule meaning that a foreign judgment cannot, or should not, be enforced in England because it is not presently or fully enforceable in its original jurisdiction. In essence the EWHC determined there was a difference between cases that lack a conclusive or final outcome compared to cases where a final outcome has been made but there was an apparent bar to enforcement. Those enforcement decisions also post-dated the English default judgment, so the extent to which the EWHC's view would have differed had this refusal come earlier is unclear.
Where cases lack "finality" or "conclusiveness", creditors may find more difficulty in having cross-border judgements recognised in this way. However, the "mere fact" that the Abu Dhabi courts had declined to enforce did not deprive the UAE monetary judgments of finality, nor did the enactment of legislation in that locality prohibiting its enforcement there. This would be the case even where a legislative protection pre-dates the relevant liability judgment.
The defendants in Invest Bank asked how a debtor with no obligation to pay a judgment in an overseas jurisdiction could owe a greater obligation in a jurisdiction foreign to them. In the reverse, why should a creditor get a greater (enforceable) benefit here than where they got their judgment? While these arguments were considered, the EWHC said they did not translate into an impediment at common law. However, considering the importance of this decision, it seems likely that the issue may be revisited by the UK courts further down the line.
Ramifications of cross-border enforceability and reciprocity
Although both actions were brought via provisions of the Insolvency Act 1986, the decisions have implications beyond the context of insolvency. Invest Bank, in particular, has made a significant statement in considering the far broader common law question of whether a UK court may enforce a foreign judgment unenforceable in its home jurisdiction.
The shift towards flexibility in the UK courts may not therefore be limited to one type of proceedings or sector. In terms of timescales, the reciprocity between the EWHC and IHC in Silverpail was brought about by an urgent application for an order under section 426 – the binding and recognition processes ran in parallel, with less than a week between the IHC confirming the effective date of the scheme and the EWHC confirming its recognition. In contrast, the Invest Bank decision was part of a lengthy and ongoing proceedings, and may be considered further should the judgment be subject to appeal.
Is the UK courts' status as a venue for flexibility confirmed?
The courts of England and Wales have for some time been established as a forum for cross-border restructurings, not least because of the long-standing rule created by Antony Gibbs & Sons v La Société Industrielle et Commerciale des Métaux (1890) 25 Q.B.D. 399 (Gibbs), namely that the governing law of a debt dictates how it may be discharged. In insolvency proceedings, this has meant that schemes under foreign jurisdictions will not, without the consent of the creditor, discharge an English law debt.
In Re Hong Kong Airlines [2022] EWHC 3210 (Ch), the EWHC sanctioned a restructuring plan proposed by an airline to be implemented in parallel with a scheme of arrangement in Hong Kong. The plan did not deal with all of the airline's indebtedness and could not achieve a compromise in relation to any liability governed by Hong Kong law because it was a jurisdiction to which Gibbs applied. There was therefore a parallel scheme of arrangement due to be sanctioned by the Hong Kong courts in the same terms as the proposed plan (like Silverpail), save that it would not deal with the English law debt. Invest Bank did not consider Gibbs, presumably because the proceedings were brought in the EWHC by Invest Bank as creditor rather than by Mr Husseini in an attempt to cancel his obligation. In such circumstances, the rule in Gibbs applies such that unless a creditor submits to a foreign proceeding designed to bring about the cancellation of a debtor's obligation, that proceeding will discharge only those liabilities governed by the law of the jurisdiction in which the proceeding took place.
Another decision citing Gibbs which suggests the desirability of English law judgments in insolvency proceedings was Re Cimolai SpA [2023] EWHC 1819 (Ch). Here, the EWHC granted orders to convene creditors' meetings to consider restructuring plans proposed by Italian group companies set to implement the same proposals as those ordered in Italy by way of a "concordato preventive" (preventive restructuring). It is the first example of an English restructuring plan being used in conjunction with this process. Unlike the claims governed by Italian or EU member state law, the English creditor claims would not have been compromised by the concordato proposals due to the rule in Gibbs, unless the relevant claimants submitted to the jurisdiction of the Italian Court of Trieste for this purpose. As the financial difficulties experienced by the companies were to a significant extent due to English law derived contracts, this posed some difficulty in effecting a comprehensive restructuring. In this sense, the English governing law seemed to pose the answer as well as the issue: in granting the orders, the EWHC noted that there may be other jurisdictions which would recognise an English judgment, and in which it would be desirable for the group to carry on business.
The decision in Silverpail constituted the first of its kind for over 25 years, and established the value of section 426 in assisting cross-border insolvency cooperation. Its result seems a good outcome on all sides: the recognised scheme of arrangement was designed to enable a business experiencing financial difficulties to continue trading, and unsecured creditors in England and Wales were to be bound by the scheme and treated in the same way as unsecured creditors in Ireland.
It is worth noting that the cooperation demonstrated in the Silverpail decision may not be as readily available beyond UK-Irish cross-border insolvencies. Crucially, section 426 will be able apply to Irish insolvency processes because Ireland is a "relevant country" under section 426(11)(b), and the only EU member state to be designated as such.
The decision will be of particular relevance to those practitioners in offshore jurisdictions that fall within the "relevant country" criteria such as the British Virgin Islands, Cayman Islands and Hong Kong as an example of the EWHC's flexibility.
The same might not be said of the decision in Invest Bank, where proceedings have been ongoing since 2021 and there is a full hearing scheduled for next summer. Whether in this case or elsewhere, the question of recognition or enforcement in the UK courts of a judgment unenforceable in its foreign jurisdiction is likely to come before the UK courts again. The judge in Invest Bank himself acknowledged that he might be persuaded to grant permission to appeal, and saw the benefit of further discussion around the issue of enforceability of foreign judgment by reference to their local enforceability.
As the position on the enforceability of foreign judgments remains contentious, it is inevitably less secure. However, unless and until the Invest Bank decision is challenged successfully, the UK courts are likely to be viewed as a potential forum for enforcing foreign judgments that may not be locally enforced.
