Why did the English court refuse a request to stay termination of contract under CBIR, art 21?

Why did the English court refuse a request to stay termination of contract under CBIR, art 21?

Why did the English courts in Pan Ocean Co Ltd refuse the South Korean administrator’s request to stay termination of contract triggered by insolvency under CBIR, art 21 and what will this decision mean in practice for foreign representatives seeking relief from the English courts?

Original news

Pan Ocean Co Ltd Re; Fibria Celulose S/A v Pan Ocean Co Ltd [2014] EWHC 2124 (Ch), [2014] All ER (D) 03 (Jul)

Pan Ocean Co Ltd (the company) was a shipping company incorporated under South Korean law which was in an insolvency process in South Korea. The insolvency was recognised under the Cross-Border Insolvency Regulations 2006, SI 2006/1030 (CBIR), as a foreign main proceeding. The company had a long-term contract with Fibria Celulose SA (Fibria), which was a Brazilian exporter of wood pulp. The company wished to continue that contract, but Fibria considered it onerous. The contract, which was governed by English law, conferred on Fibria the right to terminate it by reason of the South Korean insolvency process (commonly called an ipso facto clause).

The administrator of the company contended that the ability to terminate was not valid under South Korean law. Fibria contended that was incorrect and, at any rate, the position under South Korean law was irrelevant. The administrator contended that, pursuant to CBIR, the South Korean court had power to grant relief including an order that Fibria should not terminate the contract. He contended that the court had jurisdiction to make an order restraining Fibria from relying on cl28.1 of the contract, pursuant to the court's power under CBIR, art 21(1) to grant 'any appropriate relief'. Fibria submitted that the court had no such power and, alternatively, if such power existed, it should not be used.

How did the problem arise?

The company

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About the author:
Kathy specialises in restructuring and cross-border insolvency. She qualified as a solicitor in 1995 and has since worked for Weil Gotshal & Manges and Freshfields. Kathy has worked on some of the largest restructuring cases in the last decade, including Worldcom, Parmalat, Enron and Eurotunnel.