17 May 2018
Foreign representatives may be required to pay security into court for their recognition applications under the Model Law on Cross Border Insolvency (Model Law). The measure is proposed to correct irregularities between proceedings conducted in multiple jurisdictions.
Foreign representatives administering the reorganisation or liquidation of a company may witness a shift in court practices in their future recognition applications under the Model Law by being required to pay into court an amount by way of security. The aim of this measure would be to ensure local courts are informed of any changes to the status of foreign insolvency proceedings or foreign representatives.
The proposal was made in obiter by Justice Rares in Board of Directors of Rizzo-Bottiglieri-De Carlini Armatori SpA v Rizzo-Bottiglieri-De Carlini Armatori SpA  FCA 153 at , which is but one of four proceedings in which the fate of Italian shipping fleet company, Rizzo-Bottiglieri-De Carlini Armatori SPA (Company), has hung in the balance, raising in its wake novel issues about the Cross-Border Insolvency Act 2008 (Cth) and the Model Law – the present case being no exception.
The bases of the trustees’ application for leave to intervene in the earlier recognition proceeding and for orders dismissing that proceeding were because there was a substantial change in the recognised foreign concordato preventivo and the status of the board (as plaintiff in the recognition proceeding). This substantial change occurred when the Italian Court’ made orders to dissolve those proceedings and appoint the trustees.
Rares J observed that the effects of the orders made by the Italian Court were to have already suspended the board’s powers and withdrawn its pre-existing status as debtor in possession of the company. This gave rise to what may be described as an irregularity on the ‘procedural’ balance sheet, with recognition orders in the local, Federal Court, remaining in force “even though”, as Rares J stated, “the jurisdiction of the foreign court has removed the very foundation of, or continuing justification for, the local court’s orders under the Model Law.”
Although Article 18 of the Model Law requires foreign representatives to inform the court of substantial changes to the status of recognised foreign proceedings and foreign representatives’ status, in principle, the grounds for the earlier recognition proceedings commenced by the board had ceased to exist. In practice, the board no longer had resort to funds of the debtor nor a sense of responsibility to draw the Federal Court’s attention to that relevant change.
Rares J observed at  that the situation highlighted a serious lacuna in the way in which Article 18(a) of the Model Law and Division 15A of the Federal Court (Corporations) Rules 2000 (Cth), operated.
To fill that lacuna his Honour suggested that it may be desirable to require foreign representatives to pay into the local court an amount of money by way of security or for the court to fix a period for stay orders. The first option would create an incentive for foreign representatives or their successors to notify the local court of any change in status to the foreign proceeding or foreign representative in order to recover the balance of the security held by the court. The second option would automatically vacate any orders relating to a recognition proceeding where they failed to be extended by the foreign representative, rectifying any irregularities across jurisdictions in the recognition of foreign proceedings, where the foundation for that recognition ceased to exist.
In the present case the Federal Court held, among other things, that the application to intervene in the earlier proceedings, to inform the court of the changes of the status of the foreign proceedings was apposite and the relief sought was appropriate.
Authors: Rebecca Niumeitolu & Geoff Farnsworth
 Division 15A sets out procedural requirements for applications under the Model Law.
Geoff Farnsworth, Partner
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Nathan Cecil, Partner
T: +61 2 8083 0429
Harry Kingsley, Partner
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Suzy Cairney, Partner
T: +61 7 3135 0684
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