Source: https://iistl.blog/category/insolvency-law/
Timestamp: 2019-04-26 14:39:29+00:00

Document:
On 1st July 2018, the Package Travel and Linked Travel Arrangements Regulations 2018 (hereinafter referred to as the Package Regulations 2018) (SI 2018/634) entered into force to give effect to the Directive (EU) of the European Parliament and of the Council EU 2015/2302. This replaces the Package Travel, Package Holidays and Package Tours Regulations 1992.
Today, people do not usually purchase their holidays from travel shops but instead utilise internet (i.e. their mobile phones, laptop etc). It is also common to use an online travel agent where elements of holiday (i.e. flight, hotel) are bought separately although the consumer might get the impression that he/she is purchasing a package. Therefore, to offer extended protection for today’s consumers, a new definition of “package holiday” has been introduced. The new definition will capture thousands of more arrangements sold on a daily basis especially on the internet increasing consumer protection. For example, if elements of a holiday are offered or sold separately this will still be treated as a package holiday for the purposes of 2018 Regulation if a total price is charged to the consumer (Article 2, (5)(b)(ii)). Similarly, if a consumer purchases a product commonly known as “holiday gift box”, this will be treated as a package holiday even if the precise hotel, for example, or precise combination, is yet to be ascertained(Article 2, (5)(b)(iv)).
Also, consumers purchasing package holidays are increasingly interesting in renting cars for sightseeing purposes. Under 1992 Regulations, there was a package holiday if at least two travel services were included in the package- i.e. transport, accommodation and other tourist services. With 2018 Regulations, “car rental” is added to the list meaning that a contract that provides the consumer holiday accommodation and a rental car will be viewed as a package holiday within the scope of the Regulations.
Article 10 indicates in which instances the price of the package holiday can be increased after the booking is made.
The prize increase is a direct consequence of changes in a) the price of the carriage of passengers resulting from the cost of fuel or other power sources; and b) the level of taxes or fees on the travel services included in the contract imposed by third parties not directly involved in the performance of the package.
The procedure as to how the price increase may be made is stipulated in the Regulation.
Article 12(4) for the first time allows organisers to stipulate “reasonable standardised termination fees” when a booking is cancelled by the consumer. On the other hand, consumers have been afforded a new right to cancel without paying cancellation charges “… in the event of unavoidable and extraordinary circumstances occurring at the place of performance of the package, or which significantly affect the carriage of passengers to the destination.” (Article 12(7)). It is envisaged that this provision might prove problematic in practice especially if extraordinary events occur in the vicinity of the place of performance but there is no evidence that such events have caused disturbance at the location which the holiday maker was planning to go. For example, if a hurricane hits a nearby state (Alabama), would that justify the consumer to cancel a package holiday to Florida?
Under 1992 Regulations, the organiser is liable to compensate the consumers if something goes wrong during the holiday (i.e. problems arising during transportation or sub-standard accommodation is offered to the consumer) or if the consumer suffers illness or injury. This position is not altered under the 2018 Regulations but the liability of the organiser has been defined slightly differently. Under Article 15, the organiser is liable if there is “lack of conformity” with the package travel contract. It is submitted despite the use of new terminology, this will not create a significant change in the liability regime. This is because “lack of conformity” has been defined in Article 2(b) as “a failure to perform or improper performance of the travel services included in a package” which is precisely the wording used in 1992 Regulations.
From the perspective of transport law rules, 2018 Regulations offers the organisers the same protection that the previous Regulations provided.
This means that if a passenger is injured whilst on board a ship involved in an international voyage, if the organiser is treated as a “contractual carrier” from the perspective of the relevant international regime, the Athens Convention on the Carriage of Passengers and their Luggage by Sea, the organiser will be able to rely on the limits afforded to carriers by that Convention. (It was stressed by HHJ Hallgarten QC in Lee v. Airtours Holidays Ltd & Another  1 Lloyd’s Rep 683, at  that a tour operator could be treated as “contracting carrier” under the Athens Convention as long as it assumes responsibility for the performance of the contract including the sea leg.) The position will be the same if the passenger is injured on a plane in an international voyage or on a train engaged in an international voyage.
The Regulation requires the organiser of a package holiday, who is established in the United Kingdom, to provide effective security in the event of organiser’s insolvency to cover the cost of refunding all payments made by or on behalf of travellers for any travel service not performed as a consequence of the insolvency (Article 19).
The Regulation 2018 also introduces a mutual recognition requirement. Accordingly, the UK must accept the insolvency protection arrangements entered into by organisers established in another EU Member State. Likewise, other Member States are required to accept the insolvency protection put in place by UK-based organisers.
One word of caution! Given that the Regulation is intended to implement an EU Directive, it is hard to predict what the position will be after BREXIT in March 2019 especially with regard to insolvency protection requirements. There is a serious risk that UK companies might be cut out of the European market unless they start a business in an EU county and offer insolvency protection as required by the Directive.
Imagine your clients have just got judgment for zillions against a company. You then find that the man behind it, or one of his pals, has quietly siphoned off the company’s assets to some entity in the back of beyond to make sure your clients never see their money. What can you do? Unfortunately one remedy, a suit against the person responsible for diverting the assets, now seems largely closed off. At least that seems to be the result of an important Court of Appeal decision today, Garcia v Marex Financial Ltd  EWCA Civ 1468.
Foreign exchange brokers Marex had a judgment for a cool $5 million, give or take a few thousand, against a couple of BVI companies owned by one S. Hey presto, when it came to enforcement the cupboard was bare, save for a measly $4,392.48, having (on Marex’s case) been deep-cleaned by S. Marex sued S for dishonestly asset-stripping the BVI companies of something over $9 million, alleging correctly that this amounted to the tort of causing loss by unlawful means.
At this point they were met with a plea that their action was barred by the principle of reflective loss stated in Johnson v Gore Wood  2 AC 1. Marex’s claim was based on the companies’ loss through the defendants’ wrong of the assets that would have been used to pay their debt: it was thus the companies’ claim and no-one else could be allowed to piggy-back on it. The defence did not convince Knowles J (see  EWHC 918 (Comm) , noted here in this blog); but it did impress the Court of Appeal. The bar on reflective loss extended to any claim based on a wrong causing loss to the company that had a knock-on effect of causing loss to a third party: it did not matter whether the claimant was a shareholder, a stockholder, a creditor or anyone else. Nor could the rule be sidelined where (as here) it was practically impossible for the company to sue the wrongdoer: the exception in Giles v Rhind  Ch 618 applied only in rare cases where it was not only factually but legally impossible for the company to sue.
How far this decision generally eviscerates the tort of causing loss by unlawful means where the immediate victim is a company remains to be explored. The fact remains, however, that since today an English judgment against a corporate, as against an individual, defendant has become that less valuable as the ability of third parties to frustrate it with relative impunity has grown. Moral: get that freezing relief as soon as possible. It may be all you have to rely on at the end of the day.
Before the twenty-first century there was a clear and undoubted rule in international insolvency known as the Gibbs rule (Antony Gibbs & Sons v La Société Industrielle et Commerciale des Métaux (1890) 25 QBD 399). Whatever recognition or other co-operation we might be prepared to grant foreign insolvency proceedings, if an obligation was governed by English law and otherwise valid, its validity could not be affected by any act of foreign courts or authorities proceeding under their own insolvency law.
There is no doubt that this is no longer the case for EU insolvencies: the EU Insolvency Regulations of 2000 and more recently 2015 have clearly put paid to any such exceptionalism. But what of non-EU insolvencies? Since 2006 there has been some question whether the simple Gibbs rule might have been affected by the UNCITRAL-based CBIR (Cross-Border Insolvency Rules), which now give the English courts considerable scope to replicate in England the effects of a foreign insolvency proceeding in a debtor’s own COMI (centre of main interests, essentially where its business was run from). Progressive and academic opinion (the latter as usual generally aping the former) consistently suggested that the answer ought to be Yes, on the basis that modified universalism in insolvency needed to become more global and less narrowly jurisdictional.
Today, however, Hildyard J, in a careful judgment in Bakhshiyeva v Sberbank of Russia & Ors  EWHC 59 (Ch), a case on the dry subject of paper issued by a Baku bank, gave the answer No. The bank, OJSC, with connections to the Azeri state, was highly insolvent. It went into Chapter 11-style reconstruction in Azerbaijan, successfully applying to have the proceeding recognised in the UK under the CBIR. A vote of an overwhelming number of creditors, valid under Azeri law, agreed a complex debt-for-government-bonds-and-new-lower-debt arrangement under which OJSC would then continue trading. Two financial institutions, one English (Templeton) and one Russian (Sberbank), holding English-law-governed debt issued by OJSC, held out. They took no part in the vote, though as a matter of Azeri law they were bound by it.
The question was, could the English court prevent these two minority creditors bloody-mindedly enforcing their rights in full against the bank once the moratorium created by the Azeri proceedings was over? As stated above, the answer was No. Whatever one might think of the Gibbs rule, it was too solidly anchored to have been removed by the side-wind of the CBIR. Nor should it be bypassed by, for example, admitting that the debt still existed but then reducing it to something like the grin on the Cheshire cat by preventing its enforcement against the assets of the debtor.
There is much to be said for Hildyard J’s solution, both on grounds of legal certainty and also because Parliament has occasionally stepped in in other areas, but not this one, to prevent abuse of international creditors’ rights (notably, in enforcing statutory debt relief for poor countries against vulture funds and the like).
It may, moreover, be important not only for bondholders — who will obviously be opening discreet magnums of champagne this evening — but for other creditors, including maritime ones. Charter claimants and bunker suppliers whose rights are governed by English law will now, it seems, be able to watch smugly from the sidelines while shipping companies go into reconstruction, waiting for the proceedings to end before pouncing, catlike, on the very same companies, seizing their London accounts and arresting their vessels for the full amount of their claim as soon as they venture far from home. Commerce red in tooth and claw, you might say: but then that’s how it’s always been in shipping.
Liens on sub-freights. Where do they need to be registered as a charge?
The Singapore High Court decision in Duncan, Cameron Lindsay v. Diablo Fortune Inc  SGHC 172 provides a cautionary tale for shipowners about the need to register a lien on sub freights as a charge, and where this should be done.
The shipowners let their vessel on bareboat charter to a company incorporated in Singapore, under which they were given a lien on all cargoes, sub-hires and sub-freights belonging or due to the charterers or any sub-charterers and any bill of lading freight for all claims under the charter. Following default in payment by the charterer, the owners notice of lien to a sub charterer which employed the vessel in a pooling arrangement. The bareboat charter was subject to English law and provided for London arbitration.
The charterer’s liquidator contended that the lien was void against them for want of registration under s.131(1) of the Singapore Companies Act. The shipowners contended that as the charter was subject to English law, it was the UK Companies Act 2006 that applied to the registration of charges and whose provisions applied only to companies incorporated in England, Wales, or Scotland, but not to a company incorporated abroad. The Singapore High Court held that as the company was incorporated in Singapore, the requirements of s 131 of the Singapore Companies Act applied regardless of the law governing the creation of the charge or the location of the property.
A distinction needed to be made between the law governing the initial validity and/or creation of the security interest and the law governing the priority of such interests and the distribution of assets in the insolvency of the company. The latter issues are resolved by the law of the state in which the insolvency proceedings are commenced. The invalidity of a charge as against a liquidator due to non-registration is one such issue.
The court then considered whether the lien was a charge within the meaning of s131 and followed the English authorities cited by the Liquidator to the effect that a lien on sub freights give rise to an equitable assignment by way of charge and may be void for want of registration against a liquidator and creditors of the company. The lien on sub freights possessed the characteristics of a floating charge and amounted to a charge on a book debt under s131.
Shipowners, therefore, need to be aware of the insolvency law of their time charterer’s place of incorporation and its law regarding registration of charges.
OW Bunkers (again). Interpleader and maritime liens in Canada.
The collapse of the OW Bunker group in late 2014 has led to a series of interpleader claims in different jurisdictions in which competing claims to the deposited funds have been made by the physical bunker suppliers and ING Bank, the assignee of OW. An interpleader claim has recently been heard by the Federal Court of Appeal in Canada in ING Bank NV and Others v Canpotex Shipping Services Ltd and Others 2017 FCA 47. It concerns the effect of funds deposited by the time charterer and the potential liability of the vessel under a maritime lien.
In 2014 OW UK supplied bunkers in Vancouver to two vessels on charter to Canpotex. Following the collapse of the OW group, competing claims for payment for the bunkers supplied were made by the physical supplier, Petrobulk, and ING Bank as the assignee of OW UK’s receivables. Canpotex interpleaded and obtained an order that the of OW UK’s invoice be paid into the US trust account of its solicitors, which payment would be treated as a payment into court. The interpleader covered only Canpotex’s liability.
Canpotex subsequently added the shipowners as plaintiffs to its statement of claim and sought a judgment as to whether Petrobulk or ING was entitled to all or part of the trust fund and a declaration that following payment out any and all liability of both Canpotex and the shipowners was extinguished. In July 2015 Russell J heard the claims against the trust funds, (2015 FC 1108). There was a dispute about which terms governed OW UK’s supply of the bunkers to the vessel: the OW Group standard terms; or Schedule 3 of the OW Fixed Price Agreement. Both terms provided for the variation of the contract where the physical supply of the fuel was undertaken by a third party, but were worded differently.
Russell J found that there had been an oral agreement to apply the latter terms and the consequence was that Canpotex became jointly and severally liable under the contracts made between OW UK and Petrobulk. Upon payment of that purchase price to Petrobulk, Canpotex would come be under no obligation, contractual or otherwise, to pay any amount representing the purchase price for the marine bunkers to OW UK or the Receivers. He then ordered Petrobulk be paid out of the trust fund and that ING be paid the mark up due to OW UK and that Canpotex’s and the shipowners’ liability in regard to the bunker delivery should be extinguished, as well as any and all liens.
The Federal Court of Appeal has overruled the decision. Interpleader proceedings had to be conflicting claims over the same subject matter which were mutually exclusive. The contractual claims against Canpotex advanced by OW UK and by Petrobulk were such claims, but Petrobulk’s assertion of a maritime lien was not a conflicting claim, and was a claim against the shipowners, and not against Canpotex. If OW UK was contractually entitled to payment of the trust funds, that would extinguish Canpotex’s contractual liability, but Petrobulk’s maritime lien claim would remain alive. The Judge had been wrong to extinguish the shipowner’s liability for that claim and had also wrongly admitted oral evidence as to the terms of the spot bunker purchases. The terms applicable were those found in the OW Group standard terms and the case was returned to the judge for reconsideration.
If the judge finds that OW UK is contractually entitled to payment of the trust funds, this raises the prospect of ING recovering in full under the OW UK invoices from the trust fund established by Canpotex, and of Petrobulk doing likewise through its maritime lien against the vessel, if the vessel can be arrested in Canada.
Recast European Insolvency Regulation kicks in next Monday.
will be a rebuttable presumption that the COMI is at the registered office, but this will not apply if there has been a move of the registered office during the three months prior to the opening of proceedings.
group of companies are insolvent, will be introduced.
company has an establishment. “Establishment” is now defined as “any place of operations where the debtor carries out a non-transitory economic activity with human means and assets”. The relevant time for assessing an establishment will be either the time of the opening of the secondary proceedings or, alternatively, the three month period prior to that. The insolvency practitioner in the main proceedings may now provide undertake to treat local creditors as they would be treated under secondary proceedings.
– New linked registers of insolvency proceedings will be established in each member state by 26 June 2018, to be linked via a central European e-justice portal by 26 June 2019.
Good news from the Supreme Court last week for commerce: in particular, those purchasing assets from trustees. In Akers v Samba Financial Group  UKSC 6 AS, a Saudi businessman, held shares on trust for a company, SICLA: he disposed of the shares to Samba in satisfaction of a debt. Assuming Samba were in good faith, you might have thought there was no problem: they would take free of the trust. But SICLA was insolvent: and the liquidator sought an end-run round the rule of equity’s darling by invoking s.127 of the Insolvency Act 1986. This prohibits disposition of the assets of an insolvent company (including beneficial interests in trust property), and allows their claw-back, with only a judicial discretion to protect the alienee and no general good-faith purchaser protection. The Supremes refused to allow this attempted circumvention. Dispositions within s.127 implied dispositions by the company, not dispositions of the company’s (equitable) property by a trustee purporting to vest it in a third party. Result: purchasers, provided they are in good faith and without notice, can happily thumb their noses at alleged trust beneficiaries, even insolvent ones. Quite right too.
But there was also good news for beneficiaries. In the present case the trust was a Cayman trust; however, the shares, being shares in Saudi companies registered in Saudi Arabia, were situated in Saudi Arabia. Now, Saudi law doesn’t accept the existence of trusts. Nevertheless their Lordships made it clear that under the Hague Convention embodied in the Recognition of Trusts Act 1987, the English courts would recognise the trust (although under Art.11(d) of the Convention the question whether a purchaser of the shares took free of it would fall to be decided by the lex situs, Saudi law). We all thought that was probably the case anyway; but it’s nice to have confirmation of one’s prejudices, especially if (as here) they are sensible ones.
On 13th December 2016, Samil PriceWaterhouseCoopers (Samil PWC) submitted to the Seoul Central District Court an inspection report putting Hanjin’s appraised going concern value at only 80 billion won and expressing the view that Hanjin has very little going concern value. It is likely that by the end of February the rehabilitation process will come to an end and Hanjin will be declared bankrupt.
With respect, we have some doubts as to whether this will necessarily work. Such an arrangement might well fall foul of the anti-deprivation principle in English insolvency law, which says that where there is an accrued debt owed to an insolvent, any provision depriving the insolvent of the right to collect that debt in the event of subsequent insolvency is presumptively ineffective: see the summary by Lord Collins in Belmont Park Investments Pty Ltd v BNY Corporate Trustee Services Ltd  UKSC 38,  1 A.C. 383 at .
A more effective strategy might be an acknowledgment in the contract of sale that in so far as the bunkers sold are not at the time of delivery owned by the seller, then any right of action is held on trust for the actual owner. Such a provision, not being triggered on insolvency, seems to us more likely to survive scrutiny. But only time will tell.

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