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

Background 3 Caledonian Bank is a company formed in the Cayman Islands on 1 June 2007. It was a class "A" licensed bank in the Cayman Islands and was licensed to conduct banking business pursuant to the Banks and Trust Companies Law (Cayman Islands). 4 By order made on 23 February 2015 the Cayman Islands Court placed Caledonian Bank into liquidation. The joint official liquidators are currently Keiran Hutchison and Roy Bailey of EY Cayman Ltd. At the time the Cayman Islands Court made its orders, the joint official liquidators were Claire Loebell and Mr Hutchison. By order of the Cayman Islands Court made on 15 November 2018 Mr Bailey was appointed in place of Ms Loebell who, at the time, had resigned from her employment with EY Cayman. 5 On 12 March 2015 the Cayman Islands proceeding was recognised in Australia as a foreign main proceeding under the Model Law (Recognition Orders). 6 Since the commencement of the liquidation the liquidators have made payment of a priority dividend and seven interim dividends to creditors. The effect of the seventh interim dividend made on 1 July 2021 is that the overall quantum of payments made to creditors amounts to: (1) 91.2 cents in the dollar to compliant non-priority creditors; and (2) 100 cents in the dollar to compliant priority creditors. 7 Over the life of the liquidation the liquidators have: sent numerous notices and reports to all creditors; and frequently and extensively advertised for creditors who wish to participate in dividends to come forward including in all jurisdictions where Caledonian Bank's records indicate it conducted business. This includes Australia. 8 On 7 June 2022 the liquidators filed a summons with the Cayman Islands Court seeking relief relating to the calculation of, and determination of who is eligible to receive, a final dividend in the liquidation of Caledonian Bank (Final Dividend Application). In that application the liquidators sought directions as to whether certain depositors who were automatically admitted to prove in the liquidation of Caledonian Bank, but never engaged in it (Disengaged Depositors), should remain included in the pool of admitted creditors or whether the sums attributable to them may instead form part of Caledonian Bank's assets available to the remaining group of admitted and participating creditors. 9 On 9 May 2023 the Cayman Islands Court delivered judgment in the Final Dividend Application. The Cayman Islands Court directed that: (1) the unclaimed funds should be held by the liquidators as trustee in a bank account on trust for the benefit of the Disengaged Depositors and the liquidators are to advertise the existence of the unclaimed funds and administer payment to the Disengaged Depositors, to the extent they come forward; and (2) at the end of one year following the dissolution of Caledonian Bank, the liquidators are to transfer any remaining unclaimed funds to the Cayman Islands Minister for Finance who would be responsible for administering unclaimed funds pursuant to the applicable Cayman Islands legislation. Any amount not claimed and paid would thereafter go bona vacantia to the Crown. 10 At the time of the hearing before me the liquidators were in the course of preparing to advertise the terms of the outcome of the Final Dividend Application to allow the Disengaged Depositors a final opportunity to participate in the liquidation. 11 The process by which a company registered in the Cayman Islands is dissolved is governed by the Companies Act (2023 Revision) (Cayman Islands) and the Companies Winding Up Rules (2023 Revision) (Cayman Islands): (1) in order to dissolve a company, Order 22 of the Winding Up Rules requires a company's liquidators to publish a liquidators' final report and apply to the Cayman Islands Court for an order that the company be dissolved; and (2) when the affairs of a company have been completely wound up, its liquidators are required to apply to the Cayman Islands Court for an order the company be dissolved. 12 In this case, when an order in the terms of [11(2)] is made, the liquidators will cease to be the liquidators of Caledonian Bank and will assume the role of trustees of the unclaimed funds for a period of one year after which, and in accordance with s 153 of the Companies Act, the remaining funds will be transferred to the Cayman Islands Minister for Finance. 13 At the commencement of the liquidation, Caledonian Bank had nine Australian creditors, each of which were priority depositors/creditors. Their claims were either paid out in full or were below the de minimis level to warrant payment. As at May 2023 Caledonian Bank did not have any Australian creditors. 14 During the course of the liquidation three creditor claims were assigned to two Australian nationals. Those assignees have been participating in the liquidation and will receive any final dividend subject to finalisation of its quantum and satisfaction of any "Know Your own Client" (KYC) requirements. 15 The liquidators are of the view that payment of a final dividend is imminent, although its precise timing and quantum will remain unknown until: the notice of intention to declare an eighth and final dividend is circulated; the declaration of that dividend is issued; the notices are advertised; and the requisite KYC and anti-money laundering process has been concluded for those creditors who will receive the dividend. 16 The liquidators also informed the Court that: (1) Caledonian Bank's assets have been fully realised and they no longer require recognition in Australia to protect the debtors' assets or the interests of creditors; and (2) the quantum and timing of the final dividend payment is the only substantive matter that needs to be completed by them in order to finalise Caledonian Bank's liquidation. After the finalisation and distribution of the final dividend, the liquidators intend to take the necessary steps to apply to the Cayman Islands Court for the dissolution of Caledonian Bank and for removal from their appointment as its liquidators.

Consideration 17 Article 17(4) of the Model Law permits, among other things, the termination of recognition. It provides: The provisions of articles 15, 16, 17 and 18 do not prevent modification or termination of recognition if it is shown that the grounds for granting it were fully or partially lacking or have ceased to exist. 18 Article 18 of the Model Law concerns notification of any changes affecting the foreign proceeding. It provides: From the time of filing the application for recognition of the foreign proceeding, the foreign representative shall inform the court promptly of: (a) Any substantial change in the status of the recognized foreign proceeding or the status of the foreign representative's appointment; and (b) Any other foreign proceeding regarding the same debtor that becomes known to the foreign representative. 19 In Suk v Hanjin Shipping Co Ltd [2017] FCA 404 at [5] Jagot J said the following about the obligation conferred on a foreign representative by Art 18: This obligation is important because it ensures that a court which has recognised a foreign proceeding and a foreign representative, and made consequential orders protecting the assets of a debtor, when notified of any substantial change in the status of the foreign proceeding or foreign representative's appointment, is able to revisit its orders or make new orders as appropriate based on the current circumstances. 20 A foreign representative is expected to bring promptly to the attention of the Court a substantial change to the status of a foreign representative's appointment, namely termination of the foreign representative's appointment in the jurisdiction of that appointment: see Board of Directors of Rizzo-Bottiglieri-De Carlini Armatori SpA v Rizzo Bottiglieri-De Carlini Armatori SpA [2018] FCA 153 at [25]. 21 In Rizzo-Bottiglieri at [33] Rares J observed that: As a matter of principle, orders made under the Model Law should also cease to operate once the reason for having originally granted a stay and any other orders under the Model Law to recognise, aid or facilitate the conduct of the foreign proceeding also has ceased to exist. There is then no need to protect the debtor's assets here under the Model Law, because the foreign proceeding (in aid of which the local stay, recognition and any other orders were made) has ceased to exist, or otherwise no longer provides a justification to prevent creditors from exercising their rights in Australia against the debtor or the debtor's assets. See too Re OJSC International Bank of Azerbaijan; Bakhshiyeva v Sberbank of Russia [2018] EWCA Civ 2802 at [97]. 22 The liquidators sought an order terminating the Recognition Orders in order to prevent a situation in which they were later unable to comply with their obligations under Art 18 of the Model Law to update this Court. That is, once the liquidation comes to an end they will no longer be Caledonian Bank's liquidators and Caledonian Bank will be dissolved such that they would not be in a position to meet their Art 18 obligations. 23 Based on the evidence before me it was apparent that the liquidation of Caledonian Bank was, at the time of the application, soon to come to an end. The liquidators were intending in the six months following the application to: (1) notify the creditors of the eighth and final dividend payment; (2) make the final dividend payment to eligible creditors; (3) publish their final report; and (4) apply to the Cayman Islands Court for a dissolution order. 24 The liquidators made their application promptly to this Court as required by Art 18 of the Model Law informing the Court of the imminent application for an order for dissolution of Caledonian Bank and their change in status. Upon these events occurring, the reason for making the Recognition Orders will cease to exist and thus the Recognition Orders should cease to operate. 25 In the circumstances I was satisfied that the orders sought by the liquidators terminating the recognition as a "foreign main proceeding" within the meaning of Art 2(a) of the Model Law of the official liquidation of Caledonian Bank ordered by the Cayman Islands Court on 23 February 2015 as granted by the Recognition Orders should be made including an order that the powers conferred on the liquidators as foreign representatives under Art 21 of the Model Law should also cease. 26 The liquidators submitted that it would be appropriate for the Court to make the orders terminating the recognition, but also to provide guidance as to whether the obligation to inform the Court of a "substantial change" under Art 18 applies where the change is the end of a liquidation resulting in the dissolution of the company, in contrast to the end of a rehabilitation proceeding which does not have the same consequence. 27 The liquidators submitted that the Court should find that the end of a liquidation resulting in the dissolution of the company will not ordinarily be a "substantial change" triggering the obligation under Art 18 of the Model Law. The liquidators relied on the decision in Yakushiji v Daiichi Chuo Kisen Kaisha (No 2) [2016] FCA 1277. 28 In that case the two foreign representatives of Daiichi Chuo Kisen Kaisha (DCKK) and of its subsidiary, Star Bulk Carrier Co, had commenced civil rehabilitation proceedings in the Tokyo District Court. Their foreign representatives made an application to this Court under the CBI Act and the Model Law and orders were made recognising the Japanese rehabilitation proceedings as foreign main proceedings within the meaning of Art 2(a) and (b) of the Model Law. At the time additional orders of a protective nature were also made under the Model Law including an order pursuant to Art 21. Approximately one year later the solicitors representing the plaintiffs in the original proceeding approached the Court by correspondence giving notice of a "substantial change" in the status of the rehabilitation proceedings, namely that termination orders had been issued in those proceedings as a consequence of the Japanese court's acceptance that the company's rehabilitation plans had become final and binding. The practical effect of the Japanese Court's orders was that the foreign representatives had resigned and no longer had authority to bring the notice of "substantial change" to the attention of the Court. In those circumstances Allsop CJ considered that the defendants in the original proceeding, i.e. DCKK and Star Bulk, were best placed to make the application: see Yakushiji at [12]. 29 After referring to the relevant provisions of the CBI Act and the Model Law at [20]-[21] Allsop CJ said: 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. 30 The liquidators also rely on the UNCITRAL Model Law on Cross-Border Insolvency with Guide to Enactment and Interpretation (United Nations, 2014) at [168] which concerns Art 18 as set out in Yakushiji at [20] (see above) and in particular the statement that the purpose of the obligation in Art 18 is "to allow the court to modify or terminate the consequences of recognition". The liquidators submitted that there will not ordinarily be a need to modify or terminate the consequences of recognition once a liquidation has been completed because all of the company's assets and all creditors' claims will have been dealt with in the course of the liquidation and the company dissolved. However, they recognise that if there are unusual circumstances in a particular foreign liquidation coming to an end that required modification or termination of the stay or other relief granted by the Australian Court that would constitute a "substantial change" about which the foreign representative would be obliged to inform the Australian Court under Art 18. 31 There is some force to the liquidators' submission that, where a liquidation has been completed and come to an end in its ordinary course, there will be no requirement on the part of the Court to modify or terminate the consequences of recognition. That is because, in contrast to the termination of a rehabilitation proceeding, all of the company's assets will have been realised and creditors paid in the course of the liquidation in accordance with the applicable legislative regime and the company dissolved. In those circumstances the orders made for recognition of the foreign proceeding do not require modification or termination. The different effect of a termination of a rehabilitation proceeding and the completion of a liquidation seems to have been recognised by Allsop CJ in Yakushiji. 32 That said, in the absence of the matter being fully argued and with the benefit of a contradictor, it is not appropriate for me to come to any firmer view beyond the observations I have made above.

Conclusion 33 For the reasons set put above and, in particular, those at [17]-[25], I made the orders sought by the liquidators. I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Markovic.