FEDERAL COURT OF AUSTRALIA Backman v Landsbanki Islands hf [2011] FCA 1430 Citation: Backman v Landsbanki Islands hf [2011] FCA 1430 Parties: HALLDOR BACKMAN, HERDIS HALLMARSDOTTIR AND KRISTINN BJARNASON (AS FOREIGN REPRESENTATIVES OF LANDSBANKI ISLANDS HF) v LANDSBANKI ISLANDS HF File number(s): NSD 1802 of 2011 Judge: JACOBSON J Date of judgment: 7 December 2011 Catchwords: CORPORATIONS – Cross Border Insolvency Act 2008 (Cth) – Application for recognition of proceeding in Iceland as a "foreign proceeding" and as a "foreign main proceeding" Legislation: Cross Border Insolvency Act 2008 (Cth), ss 6, 8, 10, 11, 13, 17 and Sch 1. Federal Court (Corporations) Rules 2000 (Cth) Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law, GA Res 52/158, 52nd sess, 72nd plen mtg, Agenda Item 148, UN Doc A/52/649 (30 January 1998, adopted 15 December 1997), Arts 2, 4, 15, 16, 17, 20 and 21 Date of hearing: 7 December 2011 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 21 Counsel for the Plaintiffs: D Sulan Solicitor for the Plaintiffs: Clayton Utz Counsel for the Defendant: The Defendant did not appear IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1802 of 2011 BETWEEN: HALLDOR BACKMAN, HERDIS HALLMARSDOTTIR AND KRISTINN BJARNASON (AS FOREIGN REPRESENTATIVES OF LANDSBANKI ISLANDS HF) Plaintiff AND: LANDSBANKI ISLANDS HF Defendant JUDGE: JACOBSON J DATE OF ORDER: 7 DECEMBER 2011 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The Icelandic Proceeding as described in the Affidavit sworn by Halldor Backman on 7 October 2011 at paragraphs 21 and/or 25 ("Icelandic Proceeding") involving Landsbanki Islands hf ("Landsbanki") be recognised as a foreign proceeding. 2. The Iceland Proceeding involving Landsbanki be recognised as a foreign main proceeding. 3. Each creditor, or person claiming to be a creditor, of Landsbanki have liberty to apply on 3 days' notice. 4. In respect of Rule 15A.7 if the Federal Court (Corporations) Rules 2000 (Cth), the plaintiffs must: (a) send a notice of the making of orders 1 to 3 in accordance with Form 21 to each person in Australia whose claim to be a creditor is known to the plaintiffs; and (b) publish a notice of the making of orders 1 to 3 in accordance with Form 21 in The Australian newspaper. 5. The costs of this application be costs in the winding-up of Landsbanki. 6. The proceeding be adjourned to 1 March 2012 at 9.30am. 7. The parties have liberty to apply on 3 days' notice. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1802 of 2011 BETWEEN: HALLDOR BACKMAN, HERDIS HALLMARSDOTTIR AND KRISTINN BJARNASON (AS FOREIGN REPRESENTATIVES OF LANDSBANKI ISLANDS HF) Plaintiff AND: LANDSBANKI ISLANDS HF Defendant JUDGE: JACOBSON J DATE: 7 DECEMBER 2011 PLACE: SYDNEY REASONS FOR JUDGMENT (REVISED FROM TRANSCRIPT) 1 The plaintiffs are members of the winding up board of the defendant Landsbanki Islands hf ("Landsbanki"). They were appointed by the District Court in Iceland in circumstances referred to below. The plaintiffs have applied for the Icelandic proceedings which concerned the administration and winding up of Landsbanki to be recognised by this court as a foreign main proceeding. The application is made under Articles 15 and 17 of the Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law (the "Model Law") which has the force of law in Australia under ss 6 and 8 of the Cross-Border Insolvency Act 2008 (Cth ("Cross-Border Insolvency Act"). 2 The background to the application and the matters upon which the plaintiffs rely are set out in the helpful written submissions provided by counsel for the plaintiffs. Those submissions are drawn from the evidence to which I was taken this morning. The evidence discloses that Landsbanki was established as a government-owned corporation in 1883 and that it was privatised during 2003. It was a full service bank providing retail, corporate and investment banking services. Importantly it was incorporated in Iceland and had its registered office in Reykjavik where it conducted its business. The evidence of one of the plaintiffs, a Mr Halldor Backman, establishes that Iceland was the centre of Landsbanki's main interests. 3 Landsbanki ran into financial difficulties during the 'Global Financial Crisis'. In October 2008, the Icelandic Parliament passed emergency legislation to permit the reorganisation and winding up of the financial undertakings such as banks and other financial institutions. The Icelandic laws which govern the reorganisation and winding up of financial undertakings are contained in two Icelandic statutes. The first and most important for present purposes is Act No 161/2002 on Financial Undertakings (the "Financial Undertakings Act"). The second is the Icelandic Bankruptcy Act (Act No 21/1991) (the "Icelandic Bankruptcy Act"). 4 Apparently, as a result of the 'Global Financial Crisis', the Financial Undertakings Act was amended in October 2008 (by Act No 125/2008). The amendment authorised an authority entitled the Financial Supervisory Authority of Iceland (known by the acronym "FME") to take special measures to minimise the risk of harm to the financial markets. One of the measures taken by the FME was to appoint a resolution committee to take control of Landsbanki. Mr Sulan submitted that the role of the Resolution Board bears considerable similarities to the position occupied by a voluntary administrator appointed pursuant to the Corporations Act 2001 (Cth). 5 The Resolution Committee operated between October 2008 and April 2009. During that period there were a number of amendments to the Financial Undertakings Act which provided, inter alia, for a moratorium on claims by creditors of Landsbanki. The moratorium continued until quite recently, having been extended on a number of occasions. An amendment to the Financial Undertakings Act enacted in April 2009 (Act No 44/2009) provided for, amongst other things, the grant to the District Court of Iceland of the power to appoint a "Winding-up Board" to handle all aspects of the financial enterprises, reorganisation and winding up that are not specifically entrusted to the Resolution Committee. The effect of this was that for some time the Resolution Committee and the Winding-up Board operated in parallel within their respective spheres of duty. 6 The plaintiffs were appointed by the District Court to sit as the Winding-up Board on 29 April 2009. I have been taken to the order of the District Court of Reykjavik which provides for the appointment of the plaintiffs to serve as the Winding-up Board of Landsbanki. The role of the Winding-up Board is extensive. It includes handling claims of creditors as well as the various tasks listed in paragraph 30 of Mr Backman's affidavit sworn on 7 October 2011. The Resolution Committee has some residual powers which include serving as the Landsbanki Board of Directors, but its mandate is limited by the scope of the rules of the winding up proceedings and the obligations that are imposed on the Winding-up Board. This is explained in paragraph 27 of Mr Backman's affidavit. 7 Whilst the Resolution Committee has some residual powers, which include serving as the Landsbanki board of directors, the Resolution Committee will dissolve as of 1 January 2012 and Landsbanki will be controlled solely by the Winding-up Board. It is also important to note that after the present application was filed on 18 October 2011 the District Court in Reykjavik made an order on 22 November 2010 terminating the moratorium and subjecting Landsbanki to winding up proceedings. The decision of the District Court of Reykjavik is set out in annexure HB-7 to Mr Backman's affidavit. The decision states that the Resolution Committee submitted a request for Landsbanki to be subject to a winding up proceeding under Section B of Chapter XII of the Financial Undertakings Act subject to certain other matters referred to in the decision of the court. 8 It is important to note that the Icelandic winding up proceedings have been recognised as the 'foreign main proceeding' in the United States Bankruptcy Court for the Southern District of New York and by the Superior Court of Canada, Province of Quebec, District of Montreal. The order of the United States Bankruptcy Court was made on 14 January 2011. The order of the Superior Court of the Province of Quebec was made on 4 November 2010. 9 In each case it appears that the application was made by one of the members of the Winding-up Board on behalf of the board members. The provisions of Article 15(1) of the Model Law state that a foreign representative may apply to the court for recognition of the foreign proceeding in which the foreign representative has been appointed. Article 15(2) sets out certain procedural matters which must be satisfied, namely, that the application must be accompanied by certain certificates to which I will refer later. 10 Article 17 is the principal article of the Model Law which must be satisfied in order for a foreign proceeding to be recognised. Article 17(1) states four requirements which, if satisfied, have the effect that the foreign proceeding "shall be recognised". The first requirement is that the foreign proceeding is a proceeding within the meaning of Article (2)(a). That provision defines a 'foreign proceeding' as a collective judicial or administrative proceeding in a foreign state…pursuant to a law relating to insolvency in which the assets and affairs of the debtor are subject to the control or supervision by a foreign court for the purpose of reorganization or liquidation. 11 I am satisfied in the present case that these matters are satisfied for the following reasons: The plaintiffs were appointed by the District Court pursuant to the 2009 amendments to the Financial Undertakings Act. The evidence of that is contained in paragraph 21 of Mr Backman's affidavit. The plaintiffs are subject to the supervision of the District Court of Reykjavik. The evidence of that is contained in Mr Backman's affidavit at paragraph 23. The plaintiff's duties include handling claims and distributing moneys to creditors. The evidence of that is to be found in paragraph 30 of Mr Backman's affidavit to which I referred above. 12 It is therefore plain that the Icelandic proceeding is a collective judicial or administrative proceeding in Iceland pursuant to or relating to insolvency in which the assets and affairs of Landsbanki are subject to the control or supervision by the District Court for the purpose of reorganisation or liquidation. The evidence to which I was taken this morning indicates that there are likely to be only two possible outcomes. The first would be a form of a scheme of arrangement. This would correspond approximately to the regime which applies in the Corporations Act 2001 (Cth) for the entering into a deed of company arrangement. The other alternative is that the Landsbanki would be wound up in insolvency. 13 The second requirement of Article 17 is that the foreign representative applying for recognition is a person or body within the meaning of Article 2(d). That article defines a foreign representative to mean a person or body…authorized in a foreign proceeding to administer the reorganization or the liquidation of the debtor's assets or affairs or to act as a representative of the foreign proceeding. 14 The plaintiffs have been authorised by the District Court and are charged with a number of duties including administering Landsbanki's assets or affairs. Moreover, as I said above, they have been appointed as representatives of the foreign proceedings in applications in the US Bankruptcy Court in the Superior Court of Canada, Province of Quebec. I am, therefore, satisfied that the second requirement of Article 17 has been satisfied. 15 The third requirement of Article 17 is that the application meets the requirements of Article 15(2). These are the requirements to which I referred earlier that the application for recognition be accompanied by certain certificates. These certificates are a certified copy of the decision commencing the foreign proceeding and appointing a foreign representative and a certificate from the foreign court affirming the existence of the foreign proceeding and of the appointment of the foreign representative. I have been taken by Mr Sulan this morning to the relevant certificates which appear at annexures HB-6 and HB-7 to Mr Backman's affidavit. 16 The fourth requirement is that the application has been submitted to the court referred to in Article 4 of the Model Law. The effect of s 10 of the Cross-Border Insolvency Act is that the Federal Court of Australia is a relevant court for the purposes of Article 4. I am, therefore, satisfied that the fourth requirement has also been complied with. 17 The next step in the process is contained in Article 17(2). That article provides that the 'foreign proceedings' shall be recognised as a 'foreign main proceeding' if it is taking place in the State where the debtor has the centre of its main interests. For reasons referred to earlier I am satisfied that Iceland is the centre of Landsbanki's main interests. This was the subject of evidence from Mr Backman. Also Article 16(3) provides that in the absence of proof to the contrary the debtor's registered office or habitual residence in the case of an individual is presumed to be the centre of the debtor's main interests. I am therefore satisfied that, in accordance with Article 17(2) of the Model Law, the proceeding in the Icelandic District Court must be recognised as a 'foreign main proceeding'. 18 I am also satisfied that all of the procedural requirements required by the Model Law and the Cross-Border Insolvency Act, including in particular the provisions of s 13 of that Act, have been satisfied. 19 Article 20 of the Model Law provides that upon recognition of a foreign proceeding that is a foreign main proceeding: commencement or continuation of individual actions is stayed; execution against the debtors' assets is stayed; and the right to transfer, encumber or otherwise dispose of any assets of the debtor is suspended. 20 Article 21 goes on to provide that upon recognition of the proceeding the court may grant relief in terms which reflect the effect of an order for recognition stated in Article 20. It therefore seems to me to be unnecessary in the present circumstances to go on to grant the relief contemplated by Article 21(1)(a) and (1)(c). However, Article 21 also provides for the court to be empowered to grant other appropriate relief. This includes, as stated in Article 21(1)(g), the grant of "any additional relief that may be available to a registered liquidator". Article 21(1)(g) is to be read with ss 11 and 17(1) of the Cross-Border Insolvency Act. 21 Mr Sulan has asked me to make an order pursuant to those provisions that all powers available to liquidators appointed under the Corporations Act 2001 (Cth) be made available to the plaintiffs. I do not consider it is appropriate to make such an order at the present time, in particular, because the terms of the order are too wide. However, I think the appropriate course is to stand the matter over until March next year and, to the extent necessary, reserve liberty to apply in case the plaintiffs wish to seek relief in terms of Article 21(1)(g) in the light of circumstances which may arise between today and the date upon which the matter is next before the court. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson. Associate: Dated: 7 December 2011