FEDERAL COURT OF AUSTRALIA

Tucker, in the matter of Aero Inventory (UK) Limited v Aero Inventory (UK) Limited [2009] FCA 1354

CORPORATIONS - Cross-Border Insolvency Act 2008 (Cth) - UNCITRAL Model Law on Cross-Border Insolvency, Article 19 - provisional relief pending decision on application for recognition of foreign proceeding - considerations relevant to grant of provisional relief

Cross-Border Insolvency Act 2008 (Cth), Schedule 1 (Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law), Article 19

IN THE MATTER OF AERO INVENTORY (UK) LIMITED (ABN 45 686 785 597)

JAMES ROBERT TUCKER, RICHARD HEIS AND ALLAN WATSON GRAHAM

IN THEIR CAPACITIES AS THE FOREIGN REPRESENTATIVES OF

AERO INVENTORY (UK) LIMITED (ABN 45 686 785 597) v AERO INVENTORY (UK) LIMITED (ABN 45 686 785 597)

NSD 1285 of 2009

LINDGREN J

20 NOVEMBER 2009

SYDNEY

IN THE MATTER OF AERO INVENTORY (UK) LIMITED (ABN 45 686 785 597)

THE COURT ORDERS THAT:

1.                  The application be returnable instanter.

2.                  Pursuant to Articles 19 and 21 of Schedule 1 of the Cross-Border Insolvency Act 2008 (Cth), until this proceeding is finally heard and determined or further order or unless with the plaintiffs’ written consent:

                (a)            No person may enforce a charge on the property of the defendant.

               (b)            If:

                                          (i)      property of the defendant is subject to a lien or pledge; and

                                        (ii)      property of the defendant is in the lawful possession of the holder of the lien or pledge;

then the holder of the lien or pledge

                                       (iii)      may continue to possess the property; and

                                      (iv)      cannot sell the property or otherwise enforce the lien or pledge.

                (c)            No owner or lessor of property that is used or occupied by, or in the possession of, the defendant, may take possession of the property or otherwise recover it.

               (d)            No proceeding in any court against the defendant, or in relation to any of its property, may be begun or proceeded with.

                (e)            No enforcement process in relation to property of the defendant may be begun or proceeded with.

3.                  In respect of Rule 15A.6 of the Federal Court (Corporations) Rules 2000 and pursuant to Rule 1.8:

                (a)            The plaintiffs send a notice of the filing of the application in this proceeding in accordance with Form 20 and a copy of the Originating Process to each Australian creditor known to the plaintiffs.

               (b)            The plaintiffs be not required to publish a notice of the filing of the application for recognition of a foreign proceeding in accordance with Rule 15A.6(1)(b); and

                (c)            Instead, the plaintiffs publish within 5 days of this order a notice of the filing of the application in this proceeding in accordance with Form 20, once in The Australian newspaper and once in the Australian Financial Review.

4.                  In respect of Rule 15A.3(4), the plaintiffs be not required to serve a copy of the Originating Process and other documents in accordance with Rule 2.7(1).

5.                  In respect of Rule 15A.4(2), the plaintiffs be not required to serve the Interlocutory Process in accordance with Rule 2.7(2).

6.                  The proceeding be stood over to Monday 30 November 2009 at 10.15 am for final hearing.

7.                  Liberty to apply on 24 hours’ notice.

8.                  Until further order, Annexures D and E to the affidavit of Damian John Templeton sworn 12 November 2009 remain confidential to the parties and their legal representatives.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.

REASONS FOR JUDGMENT

INTRODUCTION

1                     On 12 November 2009 I granted certain “relief of a provisional nature” under Article 19 of the UNCITRAL Model Law on Cross-Border Insolvency (Model Law).  The Model Law is to be found in Schedule 1 to the Cross-Border Insolvency Act 2008 (Cth) (the Act).  By s 6 of the Act, the Model Law, with the modifications set out in Part 2 of the Act, has the force of law in Australia.

2                     The reasons here recorded are the reasons why I granted the relief on 12 November 2009.  The orders then made (incorporating a subsequent substitution of “Templeton” for “Templeman” in order 8 to correct a clerical mistake or an error arising from an accidental slip) appear at the front of these reasons for judgment.

3                     Article 19 of the Model Law provides for the granting of provisional relief from the time of the filing of an application for recognition of a foreign proceeding under Article 15 of the Model Law until that application is decided upon. (References to Articles below are all references of the Model Law.)

4                     Included in the orders were directions which I made under Rule 15A.3(3) of the Federal Court (Corporations) Rules 2000 (the Rules) and under O 10 r 1 of the Federal Court Rules.

5                     The plaintiffs were appointed as joint administrators of the defendant by order of the High Court of Justice of England and Wales (Chancery Division, Companies Court) made on 11 November 2009 in proceeding No 20292 of 2009 (the UK Proceeding).  The defendant is a subsidiary of Aero Inventory Plc.  The defendant owns or controls property in Australia.

6                     The final relief that the plaintiffs will seek includes:

·                    recognition of the UK Proceeding as a “foreign proceeding” and a “foreign main proceeding” within the meaning of paras (a) and (b) respectively of Article 2;

·                    a declaration that the plaintiffs are “foreign representatives” of the defendant within the meaning of para (d) of Article 2; and

·                    orders preserving the defendant's assets in Australia under Article 21.

recognition of a foreign proceeding or a foreign main proceeding

7                     The relevant jurisdiction is conferred on this Court by s 10(b)(i) of the Act; and see Article 4.

8                     The matters that are required to be established if the UK Proceeding is to be recognised are found in various provisions in Chapter III of the Model Law, s 13 of the Act, and, subject to the Court’s power of dispensation, Div 15A of the Rules.  If certain matters are established, the foreign proceeding must be recognised unless recognition “would be manifestly contrary to the public policy of [Australia]”: Article 17(1) of Article 6.  The matters that must be established are as follows:

(a)        that the application is made by a “foreign representative” (defined in Article 2(d)) for recognition of a “foreign proceeding” (defined in Article 2(a)) in which the foreign representative has been appointed (Article 15(1));

(b)        that the application for recognition was accompanied by:

(i)         a certified copy of the decision commencing the foreign proceeding and appointing the foreign representative; or

(ii)        a certificate from the foreign court affirming the existence of the foreign proceeding and of the appointment of the foreign representative; or

(iii)       in the absence of (i) and (ii), any other evidence acceptable to the Court of the existence of the foreign proceeding and of the appointment of the foreign representative (Article 15(2) – Article 16 provides for certain supportive presumptions that the Court is entitled to make);

(c)        in order to be recognised as a “foreign main proceeding”, that the foreign proceeding took place in the State where the debtor has the centre of its main interests (Article 17(2)(a) and Article 2(b) – the concept of the “centre of a debtor’s main interests” is not defined, but Article 16(3) provides that, in the absence of proof to the contrary, the Court may presume that the place, relevantly, of the debtor's registered office is the centre of its main interests).  Otherwise the foreign proceeding will be a “foreign non-main proceeding”, being a proceeding that takes place where the debtor has an “establishment” (being any place of operations where the debtor carries out a non-transitory economic activity with human means and goods or services) (Article 17(2)(b) and Article 2(c), (f));

(d)        that the application for recognition was accompanied by a statement identifying all foreign proceedings in respect of the debtor that are known to the foreign representative (Article 15(3));

(e)        that the application for recognition was also accompanied by a statement identifying:

            (i)         all proceedings under the Bankruptcy Act 1966 (Cth) in respect of the debtor [not relevant in respect of this corporate defendant];

            (ii)        any appointment of a receiver (within the meaning of s 416 of the Corporations Act 2001 (Cth) (Corporations Act)), or a controller or a managing controller (both within the meaning of s 9 of the Corporations Act), in relation to the property of the debtor; and

            (iii)        all proceedings under Ch 5 or s 601CL of the Corporations Act in respect of the debtor

            that are known to the foreign representative (s 13 of the Act).

9                     The following relevant procedural requirements are found in Division 15A of the Rules:

(a)        the application must be commenced by a Form 2 originating process and any application for provisional relief must be commenced by a Form 3 interlocutory process (Rules 15A.3(1) and 15A.4(1));

(b)       the originating process must:

(i)         be accompanied by the statements referred in Article 15 of the Model Law and s 13 of the Act; and

(ii)        name the foreign representative as plaintiff and the debtor as defendant; and

(iii)       be accompanied by an affidavit verifying the matters mentioned in Article 15(2) and (3), and in s 13 of the Act (Rule 15A.3(2));

(c)        directions as to service must be sought by an interlocutory process which must be filed with the originating process but need not be served (Rule 15A.3(3));

(d)        requirements as to service (Rules 15A.3(4) and 15A.4(2)) and as to notifying known creditors and publication of the application for recognition (Rule 15A.6).

The Court’s general power to dispense with compliance with rules of court is available:  see Rule 1.3(2) of the Rules and 0 1 r 8 of the Federal Court Rules.

Provisional relief

10                  From the time of the filing of an application for recognition until the application is decided upon, the court may, at the request of the foreign representative, where relief is urgently needed to protect the assets of the debtor or the interests of the creditors, grant relief of a provisional nature (Article 19).

11                  Article 19 provides a non-exhaustive list of the kind of provisional (or interim or interlocutory) relief that may be granted in the following terms:

1.         From the time of filing an application for recognition until the application is decided upon, the court may, at the request of the foreign representative, where relief is urgently needed to protect the assets of the debtor or the interests of the creditors, grant relief of a provisional nature, including:

            (a)        Staying execution against the debtor's assets;

            (b)        Entrusting the administration or realization of all or part of the debtor's assets located in this State to the foreign representative or another person designated by the court, in order to protect and preserve the value of assets that, by their nature or because of other circumstances, are perishable, susceptible to devaluation or otherwise in jeopardy;

            (c)        Any relief mentioned in paragraph 1 (c), (d) and (g) of article 21 below.

2.         …

3.         Unless extended under paragraph 1 (f) of article 21, the relief granted under the present article terminates when the application for recognition is decided upon.

4.         The court may refuse to grant relief under the present article if such relief would interfere with the administration of a foreign main proceeding.

Paragraphs (c), (d) and (g) of Article 21 referred to in Article 19(1)(c) above are as follows:

(c)        Suspending the right to transfer, encumber or otherwise dispose of any assets of the debtor to the extent this right has not been suspended under paragraph 1 (c) of article 20;

(d)        Providing for the examination of witnesses, the taking of evidence or the delivery of information concerning the debtor's assets, affairs, rights, obligations or liabilities;

…

(g)        Granting any additional relief that may be available to [a registered liquidator (within the meaning of section 9 of the Corporations Act)] under the laws of [Australia].

12                  The inclusion of the specific powers in Article 19 does not limit the Court’s general power conferred by the prefatory words of that Article to make any orders that are “urgently needed to protect the assets of the debtor or the interests of the creditors”.

13                  Article 20, which applies only where a foreign proceeding is recognised as a foreign main proceeding, sets out the automatic effects of recognition of that kind.  Article 21 confers a general discretionary power to grant "appropriate relief” consequential upon recognition of both foreign main proceedings and foreign non-main proceedings.

The present application for provisional relief

14                  The plaintiffs relied on an affidavit of Damian John Templeton sworn 12 November 2009 (the Templeton affidavit).  Mr Templeton is a chartered accountant and a partner in the Australian KPMG partnership.  He is a member of the Insolvency Practitioners Association of Australia and an official liquidator and has approximately 18 years’ experience as an insolvency practitioner.

15                  Mr Templeton’s firm was contacted by KPMG LLP of the United Kingdom which is retained by Lloyds TSB Commercial Finance Limited (LTSB).  LTSB is security trustee and agent for a syndicate of banks.  It holds fixed and floating charges over, among other things, the defendant’s assets that are located in Australia.  KPMG LLP was retained by LTSB to investigate the affairs of the defendant and its parent company, Aero Inventory Plc.  The banks had made financial accommodation available to the defendant and to its parent company in the form of a USD500 million revolving facility, and there were certain breaches of financial covenants under the terms of that facility by the defendant and its parent company.

16                  The Templeton affidavit shows that the defendant’s principal activity has been to provide a comprehensive procurement and inventory management service.  The defendant sources, distributes and sells, in various countries around the world, numerous consumable and expendable parts that are required in the maintenance of commercial aircraft.  The defendant’s customers include airline and aerospace maintenance and repair companies.

17                  According to the Templeton affidavit, the defendant entered into an agreement in or about October 2006 with Qantas Airways Limited (Qantas) pursuant to which it purchased from Qantas a certain inventory of spare parts, agreed to supply Qantas with certain aircraft parts, and agreed, among other services, to maintain and manage an aircraft parts consignment inventory at certain Qantas locations in Australia.

18                  The Templeton affidavit satisfies me that:

(a)        The plaintiffs were appointed, on an urgent basis, as joint administrators of the defendant in the UK Proceeding on 11 November 2009;

(b)        The UK Proceeding is both a foreign proceeding and a foreign main proceeding within the meaning of those terms in Article 2(a) and (b) (it has its registered office in the United Kingdom and its headquarters there);

(c)        The plaintiffs are foreign representatives in respect of the defendant within the meaning of Article 2(d);

(d)        The plaintiffs have satisfied the requirements of s 13 of the Act as to the existence of any proceedings under Ch 5 or s 601 CL of the Corporations Act and any appointment of a receiver (according to the Templeton affidavit the defendant is not registered as a foreign company under that Act);

(e)        The plaintiffs have satisfied the requirements of Article 15(3) with respect to the identification of all foreign proceedings in respect of the defendant that are known to them (according to the Templeton affidavit, recognition proceedings either exist or are anticipated in 12 named States in respect of the UK Proceeding in the light of the making of the orders made on 11 November 2009 in that Proceeding, and on that date Aero Inventory (Australia) Pty Limited, a wholly owned subsidiary of the defendant, appointed Mr Templeton and Damien Mark Hodgkinson of KPMG joint and several administrators of that subsidiary pursuant to s 436A of the Corporations Act);

(f)         The centre of the defendant's main interests is the United Kingdom, and therefore, as noted at (b) above, the UK Proceeding is a foreign main proceeding;

(g)        The defendant carries on business and has assets in Australia (see above and below);

(h)        The plaintiffs are concerned that, if urgent interlocutory relief is not granted, their ability to take possession of, collect and get in assets of the defendant might be prejudiced (see below).

19                  The reason why the plaintiffs have sought provisional relief urgently and before notification of the substantive application to Australian creditors of the defendant is that the plaintiffs are concerned that otherwise the aircraft parts inventory presently stored at locations in Australiacontrolled by Qantas having a value of approximately US$130 million may be at risk.

20                  There was in evidence correspondence between the plaintiffs and Qantas which suggests that there may be a dispute as to the entitlement to the parts.  That correspondence is contained in Annexures D and E to the Templeton affidavit which I ordered remain confidential to the parties until further order.

21                  At least it can be said that Qantas has purported to exercise a right under the agreement between it and the defendant to purchase six months’ worth of stock.  As the plaintiffs submitted, while it remains to be determined how that step is to be characterised as between Qantas, the plaintiffs as joint administrators, and the secured creditor who had already given notice of a floating charge having crystallised over the stock, the determination of that question is not prejudiced by the granting of the provisional relief sought.

22                  I was satisfied that the plaintiffs had demonstrated a proper basis for provisional relief.  That relief was designed to preserve the position and assets of the defendant in Australia for a limited period pending the hearing of the application seeking recognition of the UK Proceeding.  On the evidence, it was likely that recognition would be granted.  Upon recognition being accorded to the UK Proceeding, the automatic effects provided for in Article 20 commence.  Those effects are as follows:

(a)        Commencement or continuation of individual actions or individual proceedings concerning the debtor’s assets, rights, obligations or liabilities is stayed;

(b)        Execution against the debtor’s assets is stayed;

(c)        The right to transfer, encumber or otherwise dispose of any assets of the debtor is suspended.

The purpose of the provisional relief sought was to ensure that those effects, in particular the last, would not be rendered nugatory.

Conclusion

23                  It was for the above reasons that I made the orders and gave the directions on 12 November 2009.

Associate:

Dated:         20 November 2009