Board of Directors of Rizzo-Bottiglieri-De Carlini Armatori SpA v Rizzo-Bottiglieri-De Carlini Armatori SpA

(REVISED FROM THE TRANSCRIPT) RARES J: 1 These proceedings commenced under the Cross-Border Insolvency Act 2008 (Cth) on 15 June 2015 when the plaintiff filed an originating process seeking recognition, under the Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law in Sch 1 to the Act, of a concordato preventivo proceeding granted on 11 February 2015 (the first concordato preventivo) in the Court of Torre Annunziata of Naples in the Republic of Italy (the Italian Court). The plaintiff is the board of directors of Rizzo-Bottiglieri-De Carlini Armatori SpA as debtor-in-possession of Rizzo-Bottiglieri-De Carlini Armatori SpA, which corporation is itself the defendant in the proceedings. Rizzo is a shipping company that owns and charters cargo ships. 2 The effect of concordato preventivo under Italian law is similar to a debtor-in-possession reorganisation under Ch 11 of the Bankruptcy Code of the United States Code. In Tai-Soo Suk v Hanjin Shipping Co Ltd [2016] FCA 1404, Jagot J concluded that debtor-in-possession proceedings of that kind were more closely analogous to proceedings under Pt 5.3A of the Corporations Act 2001 (Cth) than to other proceedings under Ch 5 of that Act, and that, accordingly, the stay contemplated in the delphically expressed Art 20(2) of the Model Law should be a stay imposed under Pt 5.3A.

Background 3 In accordance with the evidence relied on by the plaintiff, I made orders on 17 June 2015 under Arts 15, 19(1) and 20(1) and (3) of the Model Law that, until further order, the commencement or continuation of any individual action or legal proceeding (including, without limitation, any arbitration, mediation or any judicial, quasi-judicial administrative action, proceeding or process whatsoever) against Rizzo or any of its assets, rights, obligations or liabilities not be commenced and that any current such action be stayed, respectively. I also ordered that any application for the issue of a warrant for the arrest in Australia of any vessel owned or chartered by Rizzo, brought by a person claiming to hold a security interest, be made to a judge of the Court in accordance with the judgment of Buchanan J in Yu v STX Pan Ocean Co Ltd (South Korea) (2013) 223 FCR 189. 4 The proceedings were adjourned from time to time, pending, what the plaintiff anticipated ultimately would be, a final hearing under Art 21 of the Model Law for the recognition of the first concordato preventivo proceeding as a foreign proceeding. However, in the event, on 28 April 2016 the Italian court dismissed the first concordato preventivo proceeding. 5 The plaintiff did not disclose that fact to this Court at that time. Instead, on 24 May 2016, the plaintiff commenced a second, fresh proceeding for a concordato preventivo in the Italian court (the second concordato preventivo). The 2016 proceeding had a different number file number and was a distinct proceeding from that commenced in 2015 and which the Italian court had dismissed on 28 April 2016. 6 In the meantime, the plaintiff had also obtained interim stay orders in three other jurisdictions, namely on 13 April 2015 in the United States from the United States Bankruptcy Court, Southern District of Texas, on 23 April 2015 in England and Wales from the English High Court of Justice and on 27 May 2015 in the Republic of South Africa from the High Court of South Africa. On the material currently before me those orders remain in force despite the termination of the first concordato preventivo on 28 April 2016. 7 On 19 July 2016, the Italian Court made an order for the second concordato preventivo not to proceed towards final hearing at which that Court would decide whether to accept any proposed reconstruction or, again, terminate it. The Italian Court, however, only notified the plaintiff of the making of the 19 July 2016 order by email on 29 July 2016. 8 On 10 August 2016, the solicitors for the plaintiff notified my associate by email that the Italian Court had not approved the debt restructuring plan that the plaintiff and its creditors had submitted to the Italian Court for approval in early 2016. That email stated that "a revised debt restructuring plan" had been submitted to the Italian Court after it had closed the earlier proceeding and issued a new proceeding that had been listed for the first hearing of the creditors on 23 November 2016. The email said that, under the new proceeding: … the plaintiff currently enjoys the same protection under Italian law as it did under the CP (scil: concordato preventivo) proceeding issued on 11 February 2015, and hence a moratorium still applies arising from the new CP proceeding. (emphasis added) 9 The email advised that, in light of that position and Art 18 of the Model Law, the plaintiff proposed to take steps to file an amended originating process in this proceeding to refer to the second concordato preventivo proceeding issued on 29 July 2016, make consequential amendments and file a further interlocutory application for interim orders based on the second concordato preventivo proceeding, together with affidavits in support. The email advised that the material required to enable those steps to occur would not be available until early September 2016 and that none of Rizzo's ships were currently scheduled to call at ports in Australia. The email sought an adjournment of the proceeding that had been listed for 12 August 2016 until a later time. 10 Further adjournments occurred without any new documents being filed or the proceeding being mentioned in Court. The proceeding came to be relisted on 16 December 2016 when the plaintiff sought urgent interim relief at a time when I was unable to deal with that matter. As a result, the orders made on 17 June 2015 remained in place. However, it became clearer, during the course of that application, that the plaintiff had not brought the termination of the first concordato preventivo proceeding to the Court's attention promptly after the Italian court had dismissed them on 28 April 2016. I ordered that the plaintiff file affidavit evidence for the hearing today explaining Rizzo's position under Italian law at the time when the first concordato preventivo proceeding was "closed", why this Court had not been informed immediately of that closure and why an immediate application for new interim orders had not been made at that time. 11 I am satisfied by the affidavits of Jesper Martens, sworn 27 January 2017, and of Giuseppe Rizzo, sworn 24 January 2017, that there was no intention to mislead the Court. Today, the plaintiff has sought orders under an amended interlocutory process for the termination of the stay under the orders made on 17 June 2015 from such a date as the Court considers appropriate, and relief by way of a second order for a stay, based on the second concordato preventivo proceeding, under Arts 19 and 20 of the Model Law pending the final hearing of the existing recognition proceeding.

Consideration 12 For present purposes, two principal questions arise. First, from what date should the stay order made on 17 June 2015 be terminated and, secondly, should a new stay order, based on the second concordato preventivo, be made in this proceeding?

What is the consequence of the Italian Court's closure of the first concordato preventivo? 13 The Model Law is given force of law in Australia by s 6 of the Cross-Border Insolvency Act. Under Art 18 of the Model Law, a foreign representative has a continuing obligation, from the time of filing of an application for recognition, to inform the Court promptly of any substantial change in the status of the recognised foreign proceeding or the status of the foreign representative's appointment. 14 In light of the more detailed information that the plaintiff filed for today's hearing, it is apparent that the Italian Court's determination on 28 April 2016 of the first concardato preventivo and its closure of that proceeding had the effect of terminating the foreign representative's appointment. Once that had occurred, there was no foreign proceeding for which any order of recognition could then be made or for which the continuing operation of the stay order made on 17 June 2015 could be justified in accordance with the Model Law. 15 Under Art 22(3), the Court has power to modify or terminate the relief granted earlier, at the request of the foreign representative or a person affected by any relief granted relevantly under Art 19, or of its own motion. In doing so, Art 22(1) requires the Court to be satisfied that the interests of creditors and other interested persons, including the debtor, are adequately protected. 16 The Chief Justice had to consider a somewhat similar, but not identical, situation in Yakushiji v Daiichi Chuo Kisen Kaisha (No 2) [2016] FCA 1277. In that case, a Japanese court made a termination order of the proceedings the subject of the Australian application for recognition. However, that occurred in circumstances where the Japanese court had accepted the debtor's rehabilitation plan so that it had become final and binding on the creditors, as a consequence of which the foreign representatives retired from their offices in Japan, and therefore lost their status here. 17 Chief Justice Allsop said that the termination order issued by the Japanese court, and the foreign representatives' retirement consequent on that, was a substantial change to which Art 18 of the Model Law applied. His Honour said (Yakushiji (No 2) [2016] FCA 1277 at [20]-[22], see too [8]-[17]): 20. While Chapter 5 of the Corporations Act does not contain a provision which adopts the form of the Japanese rehabilitation proceedings, the helpful submissions of the applicants drew attention to the explanatory notes in the UNCITRAL Model Law on Cross-Border Insolvency with Guide to Enactment and Interpretation (United Nations, 2014) at [168], which describes circumstances where it may be relevant to inform the Court of a "substantial change": 168. Article 18 obligates the foreign representative to inform the court promptly, after the time of filing the application for recognition of the foreign proceeding, of "any substantial change in the status of the recognized foreign proceeding or the status of the foreign representative's appointment". The purpose of the obligation is to allow the court to modify or terminate the consequences of recognition. As noted above, it is possible that, after the application for recognition or after recognition, changes occur in the foreign proceeding that would have affected the decision on recognition or the relief granted on the basis of recognition, such as termination of the foreign proceeding or conversion from one type of proceeding to another. Subparagraph (a) takes into account the fact that technical modifications in the status of the proceedings or the foreign representative's appointment are frequent, but that only some of those modifications would affect the decision granting relief or the decision recognizing the proceeding; therefore, the provision only calls for information of "substantial" changes. It is of particular importance that the court be informed of such modifications when its decision on recognition concerns a foreign "interim proceeding" or a foreign representative has been "appointed on an interim basis" (see article 2, subparagraphs (a) and (d)). 21 The reach of Art 20 should be understood to be for the currency of foreign main proceedings. If it is a liquidation, it will be unlikely that an end date for the orders will become relevant. For rehabilitation or reconstruction proceedings, an end date for the operation of orders will or may (as here) be relevant. Article 20, however, provides not for orders but the effect of operation of the Article. Plainly, however, Art 20 and orders under Art 21 are intended to be limited to the currency or life of the rehabilitation. I would not read the effect of Art 20 as lasting beyond the end of the foreign proceeding. 22 This view accords with the view of Judge Lifland in In re Daewoo Logistics Corporation, 2011 WL 4706197 (October 5, 2011, Bankr. SDNY), [461 BR 175], in which it was held that certain recognition order stays that had been granted to Daewoo, a Korean company involved in the shipping and trading businesses, had terminated after the close of its rehabilitation proceedings. (emphasis added) 18 Judge Lifland suggested (In re Daewoo Logistics Corporation 461 BR 175 at 179 (SDNY, 2011)), that in light of the international origin of Ch 15 of the Bankruptcy Code of the United States Code, that substantively enacted the provisions of the Model Law, a stay granted in aid of an order recognising a foreign proceeding, or in aid of a proceeding in which such an order was sought (such as the analogues of Arts 19 and 20 contemplate) had the purpose of giving time to the debtor and preventing collection attempts that would deplete its assets while the debtor devised a plan to restructure itself. Judge Lifland said: The Recognition Order Stays here accordingly sought to preclude actions against Daewoo's assets in the United States in order to facilitate its orderly rehabilitation in the ROK [scil: the Korean court] proceeding by preventing parties from taking actions that would undermine the proceeding. But once the ROK Rehabilitation closed, that purpose could no longer be served. Daewoo no longer needs time to devise a plan and preventing creditors' pursuit of alternative remedies would no longer provide the above-mentioned breathing room. It follows that continuing the Recognition Order Stays after the expiration of the stay in the Korean Proceeding is contrary to the ancillary nature of Chapter 15 because it unnecessarily burdens creditors by preventing their pursuit of United States assets when such action may not be prohibited in Korea. Furthermore, various provisions in Chapter 15 of the Code, which recognize that the status of foreign proceedings can change and give domestic courts flexibility to condition relief or modify previously granted relief in light of such changes, equally compel this Court's conclusion. See In re SPhinX, Ltd., 351 B.R. 103, 113 (Bankr.S.D.N.Y.2006). (emphasis added) 19 I agree with the reasoning of both Allsop CJ and Judge Lifland. As a matter of principle, their approach reflects the purposes which the Model Law is intended to serve. Once a foreign proceeding, the recognition of which is sought in the forum, has come to an end, there can be no bona fide reason to maintain a stay in the forum under Arts 19, 20 or 21 that is based on that foreign proceeding. 20 In Yakushiji (No 2) [2016] FCA 1277 at [7], Allsop CJ noted that he had been informed by correspondence from the plaintiff's solicitors of there having been a "substantial change" in the status of the Japanese rehabilitation proceedings. He said that he had allowed that matter to be brought to the Court's attention informally as there was no Australian precedent for dealing with such a matter (at [14]). However, he said, at [15], that in the future, the moving party should approach the Court by way of an interlocutory process to apply to vacate the stay. I agree. 21 Indeed, r 15A.9(1)(b) of the Federal Court (Corporations) Rules 2000 (Cth) applies to an application under Art 22(3) for an order, relevantly, to terminate relief granted under Arts 19 or 21. Rule 15A.9(4) provides: (4) Unless the Court otherwise orders, a plaintiff who applies for an order under subrule (1) must: (a) send a notice of the filing of the application in accordance with Form 23 to each person whose claim to be a creditor of the defendant is known to the plaintiff; and (b) publish a notice of the filing of the application in accordance with Form 23, in a daily newspaper circulating generally in the State or Territory where the defendant has its principal, or last known, place of business. 22 I accept Mr Martens' evidence that he did not appreciate the need to make any formal application before recently becoming aware of the Chief Justice's reasons in Yakushiji (No 2) [2016] FCA 1277, and he was not aware of r 15A.9. 23 In my opinion, however, the plaintiff must have appreciated that, when the Italian Court terminated the first concordato preventivo proceeding on 28 April 2016, its right to obtain and retain protection from actions in foreign jurisdictions no longer had any legal foundation and that, indeed, it had no such protection in Italy until it began its second proceeding and obtained such relief in July 2016 from the Italian Court. 24 That being so, and having regard to the approach of the Chief Justice and Judge Lifland, I am of opinion that the appropriate date from which an order terminating the orders made on 17 June 2015 should operate is 29 April 2016 (I have allowed an extra day having regard to the potential for time differences between Italy and Australia). The termination of the 17 June 2015 orders with effect from that date should be advertised in accordance with r 15A.9(4) of the Corporations Rules, and any creditors who may have been affected by the continuation of the stay between 29 April 2016 and now should have the opportunity, within four weeks, to make application to the Court for such relief as they may see fit.

Should a stay order be made in this proceeding in respect of the second concordato preventivo? 25 It follows from the termination of the first concordato preventivo on 28 April 2016, that the present proceeding in this Court should also be dismissed. The Court has power under r 8.21(1)(g)(ii) of the Federal Court Rules 2011 to grant leave to amend an originating application for any reason, including to add or substitute a new claim for relief that arises in whole or part out of facts or matters that have occurred or arisen since the start of the proceeding. Proceedings of this nature substantively involve ex parte hearings and the potential to affect claims of creditors in this and other countries who may wish to enforce claims against peripatetic ships owned or chartered by shipping companies, such as Rizzo. 26 The Model Law does not contemplate that a separate, later application for the recognition of a new foreign proceeding is the same, or part of the same, matter as an earlier foreign proceeding that has terminated. Moreover, creditors may or may not be aware of the termination. Once that termination occurs, creditors are entitled to act to pursue their rights unaffected by a protective stay granted under Arts 19, 20 or 21 of the Model Law in aid of the terminated proceeding. 27 It would be productive of confusion if the plaintiff here were to amend this proceeding to seek recognition of a wholly new concordato preventivo proceeding in the Italian Court, that is not, itself, capable of being characterised as an amendment of the first, now terminated, concordato preventivo proceeding. 28 I am of opinion that it is not appropriate to permit an amendment of the originating process for the purpose of enabling the plaintiff to seek recognition of the second concordato preventivo. Rather, the appropriate procedure is to terminate this recognition proceeding and to require the plaintiff to file a new originating process that seeks recognition of the second concordato preventivo that the Italian Court permitted to proceed to a hearing on 19 July 2016.

The form of a stay under Arts 19 and 20 in respect of the second concordato preventivo 29 During the course of argument, counsel for the plaintiff discussed the appropriate form of relief that should be granted under Art 19 pending a final decision of the Italian Court as to whether or not it will give effect to the proposed second concordato preventivo. Counsel drew my attention to the stay order that Jagot J made in Hanjin [2016] FCA 1404, when ordering recognition of a foreign main proceeding under Arts 17 and 21 of the Model Law. Her Honour found that the appropriate stay for a debtor-in-possession reconstruction (such as occurs under Ch 11 of the Bankruptcy Code of the United States Code and its analogues, including that in South Korea) was one analogous to the stay under Pt 5.3A of the Corporations Act and ordered: 6. The Court declares that for the purpose of section 16 of the Cross-Border Insolvency Act 2008 (Cth) and article 20(2) of the Model Law, the scope and modification or termination of the stay and suspension referred to in article 20(1) of the Model Law are the same as would apply if the stay and suspension arose under Part 5.3A of the Corporations Act 2001 (Cth). 7. Pursuant to article 21 of the Model Law, except with the written consent of the plaintiff, or until further order of the Court: (a) No person may enforce a charge or lien on the property of the defendant or execute against the property of the Defendant. (b) No person may enforce a charge or lien over any vessel in the possession or control of the defendant, its cargo, containers and bunker fuel and oil. (c) The owner or lessor of property (other than cargo) that is used or occupied by, or in any vessel in the possession or control of the defendant cannot take possession of the property or otherwise recover it. (d) 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. (e) The owner or lessor of property that is used or occupied by, or in the possession of, the defendant, cannot take possession of the property or otherwise recover it, without the written consent of the plaintiff or the leave of the court. (f) A proceeding in any court or by way of arbitration against the defendant, or in relation to any of its property, cannot be begun or proceeded with, without the written consent of the plaintiff or the leave of the Court. (g) No enforcement process in relation to property of the defendant can be begun or proceeded with, or application for issue of a warrant for the arrest in Australia of any vessel owned or chartered by the defendant can be made, without the written consent of the plaintiff or leave of the Court. … 10. Subject to order 7 above, any application for leave to issue a warrant for the arrest in Australia of any vessel owned or chartered by the Defendant be made to a judge of this Court with reasons for judgment in this case, Chun Il Yu (in his capacity as foreign representative of STX Pan Ocean Co Ltd (South Korea)) v STX Pan Ocean Co Ltd (South Korea) (recs and mgrs apptd in South Korea) (2013) 223 FCR 189; [2013] FCA 680, Yakushiji (in his capacity as foreign representative of Kaisha) v Kaisha [2015] FCA 1170 and Kim (in his capacity as foreign representative of SS Shipping Co Ltd) v SW Shipping Co Ltd (2016) 113 ACSR 260; [2016] FCA 428 drawn to the attention of the Court at the time any such application is made. 30 Counsel also drew attention to a qualification that Besanko J made in Kim v SW Shipping Co Ltd (2016) 113 ACSR 260 to the form of order reflected in Jagot J's order 10 (which is in a usual form that judges of the Court have made since 2013 in cases involving shipping companies). Besanko J inserted into the stay order there, on the foreign representative's application, a requirement for a plaintiff to give four hours' notice of an intention to arrest a vessel to the Australian lawyers of the foreign representative. His Honour gave no reasons for making that qualification. 31 In my opinion, the requirement to give notice to the Australian lawyers of a foreign representative is likely to be inappropriate in a case where a plaintiff claims to be a secured creditor wishing to proceed on a maritime lien. The issue on an application for a claim of that nature is whether a warrant should be issued for the arrest of the ship to enable the plaintiff to assert, effectively, its entitlement to proceed on a maritime lien. The purpose of bringing the application for an arrest warrant to the attention of a judge in the Admiralty and Maritime National Practice Area of the Court is so that the judge can consider whether, on an ex parte basis, it is an appropriate exercise of the Court's jurisdiction to order that an arrest warrant be issued in proceedings in rem under the Admiralty Act 1988 (Cth). The practical effect of giving notice to a foreign representative of an intention to apply for the issue of an arrest warrant may result in the plaintiff creditor's entitlement to enforce its alleged maritime lien becoming lost, as would occur if the foreign representative decided to divert the ship out of the jurisdiction before she could be arrested. That would frustrate the purpose of enabling the creditor, if it established a sufficient prima facie case on an ex parte application, to assert a claim for a maritime lien that a judge considered to be sufficiently substantial and arguable to justify the arrest. 32 The appropriate time for argument as to whether, in such circumstances, the arrest should be set aside, as opposed to not permitted, is after it is effected, when proper evidence can be gathered for a final hearing if that need be done. In Yakushiji v Daiichi Chuo Kisen Kaisha (2015) 333 ALR 513 at 517 [21]-[22] Allsop CJ said that the protection given to a shipping company by orders under the Model Law: [21] … should not be seen as necessarily defeating proper maritime claims that are lien claims, and the question of the status of any claims that are lien claims (as well as the status of any claims that are "quasi lien claims", to which I have referred), would need to be resolved in any litigation unless the matter were agreed. It would be wrong to make orders now that would forestall any vindication by such claimants against the interests of the rehabilitation. Likewise, it would be wrong to prevent the rehabilitation being supported by the Act on the mere possibility of the existence of these claims. [22] Therefore the orders contemplate that there be an ability for creditors to deal with and vary these orders should a particular proceeding, such as by way of enforcement of maritime lien claim, be appropriate. (emphasis added) 33 I agree with those reasons. Indeed, as I said in Hur v Samsun Logix Corporation (2015) 238 FCR 483 at 489 [32]-[33]: It may be that in future proceedings of this kind, consideration might be given to framing an order to clarify that a secured creditor, to the extent necessary, should have leave to, and may, exercise all the rights to bring proceedings against or in respect of any property of the debtor, including the commencement and prosecution of proceedings in rem under the Admiralty Act, to which the security interest of that creditor extends. An order so framed would make clear that, in cases where the proceedings in rem are on a maritime lien under s 15 of the Admiralty Act, they can be brought because they are of a kind that ss 471C and 444F ordinarily recognise are appropriately excluded from an automatic stay of remedies that would otherwise be open to unsecured creditors in order properly to protect a secured creditor's rights. It will be of little comfort to an unpaid ship's crew to be told that they can prove against their defaulting employer in a foreign country in foreign main proceedings if they wish, but, by the operation of the stay in Art 20(2), they have been denied the right to exercise their security interest consisting of their maritime lien, recognised almost universally in the maritime law of nations as protecting their right to be paid their wages: see s 15(2)(c) of the Admiralty Act. The fact that they are unpaid and are on a ship from which, if penniless, they cannot escape is a very good reason to ensure that however else the automatic stay in Art 20(2) of the Model Law operates, claims to such maritime liens are protected and immediately enforceable without any requirement for prior leave to be sought. If the stay in Art 20(2) were construed to preclude members of a ship's unpaid crew from exercising their maritime lien by arresting or attaching the ship when she reached port, the consequence might be the de facto forced labour or enslavement of the crew until the ship finally reached the crew's or ship's home port. (emphasis added) 34 The purpose of the usual order allowing a plaintiff to apply to a judge ex parte for the issue of an arrest warrant is to control and restrict the issue of such warrants to claims that appear to a judge to be ones that give rise to a security interest of the kind that should be allowed to proceed by way of a proceeding in rem in the ordinary way. 35 The plaintiff did not advance any reasons for what form of stay orders should be made in any separate proceeding based on the second concordato preventivo proceeding, beyond identifying the differently expressed orders that had been made by Besanko J and Jagot J. On the material presently before me, if new proceedings are commenced, it could be an appropriate use of the Court's discretion to make an order in the terms that I have made previously, expressed in a general way, rather than by reference to specifically enumerated paragraphs that may or may not cover all relevant situations. It will be appropriate to understand the particular reasoning behind any attempt to express variations of those orders beyond the general terms used in the Art 20(1). 36 In proceedings relating to foreign shipping companies that have no assets in Australia but seek protection, substantively, from the risk of arrest of vessels that from time to time may come into Australian waters, it appears to be appropriate to require publication of advertisements of orders for recognition applications and decisions, as well as stays, in a newspaper circulating generally in Australia, such as The Australian or The Australian Financial Review, Lloyd's List Australia and Lloyd's List international, in lieu of the requirements of rr 15A.6(1)(b), 15A.7(1)(d), (3)(d) and 15.9A(4) to advertise in the country, State or Territory where the defendant has its principal, or last known, place of business. 37 I will consider the appropriate orders to make in the new proceeding once it is commenced. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares.