Borrelli (Liquidator) v Orthogonal Trading Ltd

JACKMAN J 1 The defendant (Orthogonal) is a company formed in the British Virgin Islands (BVI). It is the subject of liquidation proceedings (BVI Proceeding) in the Eastern Caribbean Supreme Court of the British Virgin Islands (BVI Court). The plaintiffs, Mr Cosimo Borrelli and Ms Elaine Hanrahan, are the liquidators of Orthogonal appointed by the BVI Court (Liquidators). By originating process filed 24 March 2023, the liquidators seek recognition in Australia under the UNCITRAL Model Law on Cross-Border Insolvency (Model Law), being Sch 1 to the Cross-Border Insolvency Act 2008 (Cth) (Act), of the BVI Proceeding as a foreign main proceeding and consequential orders. 2 The liquidators have sought leave to file an amending originating process to correct the scope of the stay sought and I grant that leave. Orthogonal operated two structurally interrelated cryptocurrency businesses: (a) Orthogonal Trading, which traded and invested in cryptocurrencies and other digital assets; and (b) Orthogonal Credit, which acted as the "pool delegate" for a pool of lenders on a cryptocurrency decentralised financial protocol called the Maple Protocol. 3 In late 2022, Orthogonal Trading defaulted on approximately $11 million of loans made to it by two Maple Protocol lending pools of which M11 Credit (a Cayman Islands entity) was the pool delegate. On 14 December 2022, creditors of Orthogonal applied to the BVI Court for the appointment of liquidators, and provisional liquidators, to Orthogonal. On 20 December 2022, Mr Borelli and Ms Hanrahan were appointed as provisional liquidators of Orthogonal. Those orders were extended on 16 January 2023. 4 On 31 January 2023, Orthogonal was put into liquidation by the BVI Court pursuant to ss 162(1)(a) and 162(1)(b) of the Insolvency Act 2003 (BVI). Mr Cosimo Borrelli, managing director of Kroll (HK) Ltd, and Ms Elaine Hanrahan, director of Kroll Advisory (BVI) Ltd, were appointed by order of the BVI Court as the joint liquidators of Orthogonal. Further, the powers conferred on them by the Court expressly include the power to, "seek recognition and/or the appointment of the joint liquidators in any jurisdiction they consider necessary." 5 Article 15 of the Model Law allows a foreign representative to apply for recognition of a foreign proceedings. Article 2(d) defines "foreign representative" as: [A] person or body, including one appointed on an interim basis, authorised in a foreign proceeding to administer the reorganisation or the liquidation of the debtor's assets or affairs or to act as a representative of the foreign proceeding. 6 The liquidators need only satisfy one or the other limb of the definition, but in this case they satisfy both: they are the person authorised in the BVI Proceeding to administer the liquidation of Orthogonal, and they are authorised in the foreign proceeding to act as a representative of the foreign proceeding. Accordingly, the liquidators are the appropriate plaintiff. 7 As required by r 15A.3(2)(b) of the Federal Court (Corporations) Rules 2000 (Cth) (the Corporations Rules), Orthogonal (the debtor) is the defendant. 8 On 29 March 2023, I ordered that the requirements as to service, notification and publication in rr 15A.3 and 15A.6 of the Corporations Rules be dispensed with and in lieu thereof, a customised notification and publication regime was ordered. That regime required the liquidators to give notice of the application and the hearing date to all known creditors of Orthogonal and to publicise the notice in The Australian within five business days of the making of the orders. 9 In accordance with those orders, notice was given to creditors by email on 31 March 2023 and 1 April 2023. The notice was published in The Australian on 3 April 2023. Correspondence was received from some creditors seeking clarification or further information. None of that correspondence indicates that any creditor wishes to be heard on the recognition or has made any objection to recognition being granted. The matter was called outside the court this morning and there has been no appearance for anyone other than the plaintiffs. 10 Pursuant to Art 17(1) of the Model Law, a foreign proceeding must be recognised if certain prescribed requirements are complied with. Those substantive and procedural requirements are addressed in turn below. 11 First, in respect of Art 17(1)(a), the BVI Proceeding is a "foreign proceeding" within the meaning of Art 2(a), as: (a) it is a judicial proceeding because it is a proceeding subject to the supervision of the BVI Court, as evidenced by the BVI Court orders appointing the liquidators; (b) it is a collective proceeding, in which the liquidators are empowered to realise the assets of the company and pay creditors; (c) it is a proceeding in a foreign state, namely the BVI; (d) it is conducted pursuant to a law relating to insolvency, namely Part VI of the Insolvency Act 2003 (BVI); (e) the assets and affairs of the debtor during the proceeding are subject to control or supervision by a foreign court, as in an Australian court-ordered liquidation; and (f) the proceeding is for the purposes of reorganisation or liquidation, namely liquidation under Part VI of the Insolvency Act 2003 (BVI). 12 In respect of Art 17(1)(b), the liquidators satisfy the definition of "foreign representative" in Art 2(d) for the reasons given above. 13 Article 17(1)(c) is satisfied by pages 75 to 80 of the exhibit to Mr Borrelli's affidavit, which is the order of the BVI Court. Pursuant to Art 16(2), this court is entitled to presume the documents submitted in support of the application for recognition are authentic. 14 In respect of Art 17(1)(d), by operation of s 10(b)(i) of the Act, the Federal Court of Australia is a court referred to in Art 4 of the Model Law. 15 As to Art 15, the requirements of Art 15(2) are picked up by Art 17(1)(c) and have been addressed above. 16 Article 15(3) requires an application for recognition to be accompanied by a statement identifying all foreign proceedings (as defined in Art 2(a) of the Model Law) in respect of the debtor that are known to the foreign representative. Section 13 of the Act modifies that Article, requiring that the application must also be accompanied by a statement identifying, relevantly, any appointment of a receiver within the meaning of s 416 of the Corporations Act 2001 (Cth) (Corporations Act) and all proceedings under Ch 5 of the Corporations Act or s 601CL and Sch 2 to that Act that are known to the foreign representative. These requirements are satisfied by paragraph 43 of Mr Borrelli's affidavit, in which Mr Borrelli states that, to his knowledge, Orthogonal is not subject to any such proceedings. 17 The liquidators seek an order that the BVI Proceeding be recognised as a foreign main proceeding pursuant to Art 17(2)(a). Article 2(b) defines "foreign main proceeding" as a foreign proceeding taking place in the state where the debtor has its centre of main interests (COMI). 18 Article 16(3) provides that, in the absence of proof to the contrary, the company's COMI is presumed to be in the state in which its registered office is. Orthogonal's registered office is located on the 4th floor, Waters Edge Building, Meridian Plaza, Road Town, Tortola, BVI. Orthogonal's registered office being in the BVI, the liquidators rely on the presumption to establish that Orthogonal's COMI is in the BVI. 19 Rebuttal of the presumption requires factors which are both objective and ascertainable by third parties, including creditors: see Kapila, in the matter of Edelsten (2014) 320 ALR 506 at [54] (Beach J). To rebut the presumption, those factors must warrant a conclusion that an actual situation exists which is different from that which locating it at the registered office is deemed to reflect: Wood v Astra Resources Ltd [2016] FCA 1192 at [14] (White J). The onus of proof is on the party seeking to rebut the presumption: Buccaneer Energy Ltd v Buccaneer Energy Ltd [2014] FCA 711 at [14] (Jagot J). 20 In the present case there is nothing to displace the presumption. Further, the following factors reinforce the conclusion that the COMI of Orthogonal is in the BVI: (a) Orthogonal is registered as an approved manager in the BVI with the BVI Financial Services Commission pursuant to the Securities and Investment Business Act 2010 (BVI) and the Investment Business (Approved Managers) Regulations 2012 (BVI); (b) Orthogonal acted as investment manager to Orthogonal Trading Master Fund 1 Ltd, which is incorporated in the BVI as a professional fund; and (c) Orthogonal is a limited partner in OP Ventures 1 LP, a venture capital investment fund which is registered in the BVI as a limited partnership. 21 Orthogonal also had connections with various other jurisdictions, but none of those activities or relationships demonstrate that Orthogonal's COMI is in any particular state other than the BVI. The principal other jurisdictional connections are: (a) its directors and its ultimate shareholders are resident in Australia; (b) Orthogonal used the Maple Protocol as both a borrower and a lender. The Maple Protocol is a decentralised lending protocol that allows depositors to pool their assets in decentralised lending pools for lending to institutional borrowers in cryptocurrency. The entity that can enforce Maple Finance loan agreements is the Maple Foundation, a Cayman Islands limited foundation. Orthogonal used the Maple Protocol: (i) as a borrower, borrowing from credit pools of which M11 Credit (a Cayman Islands company) was the pool delegate; and (ii) as a lender, being the pool delegate for the Orthogonal Trading USDC01 Pool, making decisions about the loans advanced by that lending pool, such as assessing creditworthiness and setting loan terms with borrowers; (c) Orthogonal acted as an investment manager to Orthogonal Trading Fund 1 LP, which is a limited partnership incorporated in Delaware, USA; (d) Orthogonal was also a limited partner in Vectr Fintech Paradigm LP, a limited partnership registered in the Cayman Islands; (e) Orthogonal held cryptocurrencies, non-fungible tokens, tokenised investments and equity investments in entities in various countries; and (f) a small sum of US$5,290 was held in a Puerto Rican bank account in the name of Orthogonal. 22 Orthogonal's operations, conducted almost entirely online, were multinational and did not have a COMI other than the presumed COMI of BVI. 23 I conclude that the presumption is not rebutted by the evidence, and is indeed supported by the facts referred to above as reinforcing that conclusion. 24 Pursuant to Art 17(1), a foreign proceeding must be recognised (subject to Art 6) if all the requirements of Art 17(1) are satisfied. Article 6 provides that the court may refuse to take any action governed by the Model Law if the action would be manifestly contrary to the public policy of Australia. Nothing in the facts of the present case suggests a potential application for Art 6. 25 Pursuant to Art 21(a), upon the grant of recognition of a foreign proceeding as a foreign main proceeding, commencement or continuation of individual actions or individual proceedings concerning the debtors' assets, rights, obligations or liabilities are stayed. The Court does not have a discretion regarding the imposition and scope of the automatic stay, which comes into effect pursuant to Article 20 of the Model Law: Senvion GmbH (No 2) (2019) 140 ACSR 20 at [24]-[29] (Anastassiou J); Tai-Soo Suk v Hanjin Shipping Co Ltd [2016] FCA 1404 at [45] (Jagot J); Akers v Deputy Commissioner of Taxation (2014) 223 FCR 8 at [55] (Allsop CJ, with whom Robertson and Griffiths JJ agreed). 26 Section 16 of the Act provides: For the purposes of paragraph 2 of Article 20 of the Model Law (as it has the force of law in Australia), the scope and the modification or termination of the stay or suspension referred to in paragraph 1 of that Article, are the same as would apply if the stay or suspension arose under: a) the Bankruptcy Act 1966; or b) Chapter 5 (other than Parts 5.2 and 5.4A) of the Corporations Act 2001; as the case requires. 27 The question for the Court in recognising foreign proceedings in respect of a corporation is whether "the case requires" the stay that would apply in a voluntary administration or the stay that would apply in a liquidation. In answering that question, the Australian Court looks to whether the foreign proceeding is more akin to a voluntary administration or a liquidation: Tai-Soo Suk at [37] and [51] (Jagot J). Where the foreign proceeding is clearly a business rescue procedure, the former will be more appropriate. The latter would be more appropriate for foreign proceedings that are, as in this case, more analogous to Australian liquidation. 28 Despite having originally filed an originating process seeking the voluntary administration stay, I have granted the liquidators leave to file an amended originating process to correct that error and to seek the liquidation stay. The liquidation stay is narrower than a voluntary administration stay, the principal difference being that a liquidation stay does not affect secured creditors. Accordingly, it is difficult to see that the amendment would cause prejudice to any person, as it involves only a narrowing of the relief sought. 29 The plaintiff submits that the court can presume that the BVI Proceeding, being a BVI Court-ordered liquidation, is analogous to an Australian court-ordered liquidation. There is a presumption of private international law that the foreign law in question is the same as the law of Australia: Neilson v Overseas Projects Corporation of Victoria Ltd (2005) 223 CLR 331 at [125] (Gummow and Hayne JJ) and [249] (Callinan J). The onus of proving the foreign law is on the party alleging that it is different from the lex fori, even if this party is the defendant: Nicholls v Michael Wilson and Partners (2010) 243 FLR 177 at [327] (Lindgren AJA). 30 In Damberg v Damberg (2001) NSWLR 492 at [162], Heydon JA (with whom Spigelman CJ and Sheller JA agreed) declined to assume that German law in respect of the avoidance or evasion of capital gains tax was the same as Australian law, being an area of law which could not be assumed to be a field resting on great and broad principles likely to be part of any given legal system. I do not think that such an exceptional case arises here. 31 In this case no one contends that the law the subject to the BVI Proceeding is different from Ch 5 of the Corporations Act. Therefore, the Court may rely on the presumption. Accordingly, the stay applied by Model Law Art 20 should be the same as that under Pt 5.4B of the Corporations Act. For similar cases applying that analogy see De'ath (Liquidator) v Digital Fuel Marketing (in administration) [2022] FCA 470 at [25] (Anastassiou J); Frege in his capacity as foreign representative of Greensill Bank AG v Greensill Bank AG (No 2) [2021] FCA 510 at [18] (Anastassiou J). 32 The plaintiffs also seek an order under Art 21(1)(e) of the Model Law that the administration and realisation of the company assets located in Australia be entrusted to the plaintiffs as foreign representatives. The liquidators are not aware of any assets located in Australia, but seek the order in the event that such assets do exist and can be identified. In my opinion that order is appropriate in the circumstances. 33 Pursuant to r 15A.7 of the Corporations Rules, the liquidators are required, as soon as practicable after the order is made: (a) to send a notice of the making of the order in accordance with Form 21 to each person whose claim to be a creditor of the defendant is known to the plaintiffs; and (b) to publish a notice of the making of the order in accordance with Form 21 in a daily newspaper circulating generally in the State or Territory where the defendant has its principal, or last known, place of business. 34 I dispense with r 15A.7 and will make notification orders similar to those which I made regarding the notice in advance of the hearing, to: (a) provide for notice to creditors to be given by email only; and (b) maintain the requirement to advertise the recognition application but modify it so that the advertisements would be in The Australian and the Australian Financial Review newspapers. 35 The orders which I make are set out in the draft orders which have been provided by the plaintiffs and which I initial and date and place with the papers. I formally make orders as set out in those proposed orders. I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackman.