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What jurisdictional issues arose in the Sanko Steamship dispute and what can lawyers learn from them? Andrew Shaw, a barrister at South Square Chambers, says the case illustrates the the importance of ensuring that any applications made under the Cross-Border Insolvency Regulations 2006 are heard while the foreign proceedings are still in progress.
Sanko Steamship Co Ltd and another v Glencore Ltd  EWHC 1031 (Ch)
The proceedings concerned a Japanese company, which had been engaged in insolvency proceedings in Japan for the purpose of effecting a reorganisation. Those proceedings had been recognised in England as the foreign main proceedings in respect of the company, but they had later come to an end. The company and its director applied, under the Cross-Border Insolvency Regulations 2006, SI 2006/100, Sch 1, art 17(4) (CBIR), for the continued recognition of the director’s status as foreign representative of the company, and, under CBIR, Sch 1, art 21(2), for payment to the company of the funds held in the English court, pursuant to orders made in the Admiralty Court in England, following the sale of the company’s vessel. An interested party had filed a request for a caution against the release of the proceeds in the sum of US$3.85m. The Companies Court, among other things, rejected the applicants’ submission that the main proceedings had only partly ceased to exist because the implementation of the reorganisation plan was ongoing. The fact that the plan had not been fully implemented did not serve to render the Japanese proceedings ongoing. Further, leaving the funds in court in England seemed likely to tolerate, if not encourage, delay, which was itself a hallmark of injustice.
The dispute between the parties originated in the late delivery of a cargo of silicon manganese to New Orleans in 2012. The cargo was being transported on the MV Sanko Mineral, a ship owned by The Sanko Steamship Co, Ltd (Sanko), a Japanese company. Glencore originally pursued a claim in relation to this late delivery in the US courts but shortly thereafter Sanko entered insolvency proceedings in Japan. Glencore therefore filed both secured and unsecured claims in the Japanese insolvency—these claims are currently the subject of proceedings before the Tokyo District Court. The Japanese insolvency proceedings were recognised under the CBIR by an order of Newey J dated 30 July 2012.
Following a claim by the Bank of Tokyo-Mitsubishi UFJ Limited (the bank), which held a mortgage over the MV Sanko Mineral (the vessel), the vessel was arrested in England and sold pursuant to an order of the Admiralty Court. As a result of its secured claim, Glencore entered a caution against the release of the sale proceeds and applied for permission from the Companies Court to commence an in rem claim against the vessel. Glencore took these steps to preserve the subject matter of its secured claim in the Japanese insolvency proceedings, pending the determination of that claim by the Tokyo District Court. Before the application to the Companies Court could be heard, Sanko applied to the Admiralty Court for Glencore’s caution to be struck out and for payment out of the remaining sale proceeds (the bulk of the sum claimed by the bank had already been paid out by consent).
Teare J heard this application and struck out Glencore’s caution on the ground that its cargo claim was contractually time-barred as a matter of English law—Glencore has been granted permission by the Court of Appeal to appeal against this finding. Teare J declined to give a view on whether the contractual time bar affected Glencore’s claims in the Japanese insolvency. Despite striking out Glencore’s caution, Teare J was unwilling to order payment out in circumstances where Glencore was pursuing a claim in the Japanese insolvency proceedings, which had themselves been recognised in England as foreign main proceedings under the CBIR, and where foreign representative of Sanko (the trustee) had applied for remission of the remaining sale proceeds to Japan under the CBIR. He therefore held that payment out would be subject to Sanko providing an undertaking that the funds would be held in a segregated US dollar account to the order of the Tokyo District Court or the further order of the Admiralty Court, pending any subsequent decision of the Companies Court on the trustee’s remission application. Sanko has been granted permission to appeal against this part of Teare J’s judgment.
Before the remission application came on, the Japanese insolvency proceedings were terminated. This led the trustee to apply under the CBIR, Sch 1, art 17(4) for continued recognition as a foreign representative under the CBIR in order that he could fulfil his residual obligations. Glencore opposed this application, as there was no longer a foreign proceeding to recognise. Glencore maintained a consequence of dismissing the recognition application was that the Companies Court did not have jurisdiction to order remission under the CBIR, art 21(2) as there would no longer be a foreign representative.
The issues before the Companies Court, therefore, ultimately concerned the treatment of the remaining sale proceeds of the vessel pending the determination of Glencore’s claims in the Japanese insolvency.
No—under the CBIR it is only foreign proceedings that are recognised, not foreign representatives, whose status under the CBIR is entirely dependent upon the recognition of the foreign proceeding in which they are authorised to act. The court held that while the CBIR, Sch 1, art 17(4) could support the construction argued for by Sanko—namely that recognition could be modified, even after termination of the underlying foreign proceedings—this was at odds with commercial common sense. CBIR, Sch 1, art 17(4) should therefore be construed such that if the foreign proceedings have ceased to exist, recognition should be terminated.
The court held that to hold the funds in England indefinitely could encourage delay. It therefore ordered that the funds in court should be paid out to the trustee unless Glencore were to provide:
If Glencore were to provide these undertakings, then the funds would be held in a joint solicitors’ account pending a decision of the Tokyo District Court on their preservation. This would provide ‘adequate protection’ to Glencore as required by CBIR, Sch 1, art 21(2).
The court considered that as the parties had chosen Japan as the forum in which claims in Sanko’s insolvency would be determined, it was under an obligation to recognise, respect and assist the proceedings before the Tokyo District Court by which Glencore’s insolvency claims were being heard. This informed the court’s finding that the question of whether or not the funds should be preserved pending the final determination of Glencore’s insolvency claims was a matter for a Japanese court.
In considering the remission application, the court considered it relevant that the foreign proceedings had been terminated. Given the dismissal of the recognition application, it is clear that termination of the foreign proceedings will result in a cessation of the relief available under the CBIR. A foreign representative should therefore ensure that any applications made under the CBIR are heard while the foreign proceedings are still in train and their standing to seek any such relief is clear.
Andrew Shaw carries out work across chambers’ core practice areas, with a particular emphasis on complex commercial disputes occurring within the context of cross-border insolvencies. In Sanko Steamship v Glencore, Andrew was junior counsel (with Tom Smith QC) for the respondent.
Interviewed by Kate Beaumont.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
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First published on LexisPSL Restructuring and Insolvency
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Stephen qualified as a solicitor in 2005 and joined the Restructuring and Insolvency team at Lexis®PSL in September 2014 from Shoosmiths LLP, where he was a senior associate in the restructuring and insolvency team.
Primarily focused on contentious and advisory corporate and personal insolvency work, Stephen’s experience includes acting for office-holders on a wide range of issues, including appointments, investigations and the recovery and realisation of assets (including antecedent transaction claims), and for creditors in respect of the impact on them of the insolvency of debtors and counterparties.
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