Cross border insolvencies – Federal Court makes life easier for liquidators and creditors of New Zealand construction company

In Kellow, Re Advanced Building & Construction Ltd (In Liq) v Advanced Building & Construction Ltd (In Liq) (No 2) (Kellow) the Court considered whether an insolvency proceeding commenced in New Zealand should be recognised as a “foreign main proceeding” pursuant to the United Nations’ Commission on International Trade Law’s Model Law on International Trade Law (Model Law).

‘Recognition’ under the Model Law allows a Court, amongst other things, to make orders for the orderly and fair conduct of cross-border insolvencies. Such orders can facilitate cooperation between the courts of foreign states where debtor assets are located and provides for the coordination of concurrent proceedings.

Background

The matter of Kellow considered an originating application brought by the liquidators of Advanced Building and Construction Limited (in liq) (the Company) who sought recognition of the construction company’s liquidation in New Zealand as a “foreign proceeding” in Australia, pursuant to Article 15(1) and Article 17(1) of the Model Law.

The Court stated it was “undoubted” that the Model Law had force in Australia under section 6 of the Cross Border Insolvency Act 2008 (Cth) before turning to the ‘procedural’ and ‘status-based’ criteria used to assess whether a foreign proceeding can be recognised in Australia.

The Court found that the Liquidators’ application satisfied the ‘procedural’ requirements of the Model Law as it provided evidence that:

1. the Company’s liquidation in New Zealand was commenced by resolution of the Company’s creditors; and
2. the Liquidators were not aware of any other “foreign proceedings” against the Company, the appointment of any receiver, controller or managing controller, or any other proceedings under the Corporations Act 2001 (Cth) against the Company.

In terms of the more substantial and onerous “status-based” criteria, the Court’s main concern was whether a voluntary winding up in New Zealand amounted to a foreign proceeding within the meaning of Article 2 of the Model Law.

Article 2(a) of the Model Law defines a foreign proceeding as a ‘collective judicial or administrative proceeding in a foreign State, including an interim proceeding, pursuant to a law relating to insolvency in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganization or liquidation’.

Ultimately, the Court accepted that a voluntary winding up fell under the Article 2(a) definition.

The Court found that the voluntary winding up of a company was an administrative proceeding for the purposes of liquidation, citing Judge Goss of the United States Bankruptcy Court in Delaware in Re ABC Learning Centres Limited (2010) 445 BR 381 who observed that process was a “collective judicial or administrative proceeding” in which the liquidators are subject to the control and supervision of the Courts.[1]

This analysis, in conjunction with the fact the Company’s main interests were located in New Zealand, lead to the Court finding it appropriate to recognise the insolvency proceedings commenced by the liquidators in New Zealand as a ‘foreign main proceeding’ under Article 2(b) of the Model Law.

This ‘recognition’ ultimately resulted in the Court making orders to “equip the liquidators with the appropriate powers”[2] to further the administration of the Company’s affairs in Australia, including for:

1. a stay on enforcement proceedings against the Company and its assets;
2. the distribution of the Company’s assets located in Australia to the liquidators; and
3. conferring the powers normally available to a liquidator appointed under the Corporations Act 2001 (Cth) on the Liquidators.

Key takeaway

For 25 years the UNCITRAL’s Model Law has played an irreplaceable role in the development of a universalist framework for cross border restructuring and insolvency. Kellow again demonstrates the benefits of its adoption in Australia, which since 2008 has given creditors and insolvency practitioners in Australia, and in other jurisdictions, access to a consistent and cooperative framework for cross border insolvency.

As the effects of rising interest rates, inflation and shortages of both skilled workers and materials continue to be felt globally, especially in the construction industry, Kellow is a timely reminder of the certainty the Model Law can provide to creditors and insolvency practitioners by coordinating foreign proceedings, court applications and the collection and distribution of assets. The Model Law has and continues to provide better returns for creditors and increase the prospects for business rescue globally, providing an aspect of financial stability in an otherwise turbulent economic environment.

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Authored by:

Daniel Maroske, Director
Eliza Bulloch, Solicitor

[1] Kellow, Advanced Building & Construction Ltd (In Liq) v Advanced Building & Construction Ltd (In Liq) (No 2) [2022] FCA 781, 18.

[2] Ibid, 40.