Gainsford v Tannenbaum

PERRAM J: 1 Zetta Jet Pte Ltd ('Zetta Jet') is a Singaporean corporation. It owns all of the issued share capital in a California corporation, Zetta Jet USA, Inc. ('Zetta Jet USA'). In broad terms, these two entities until 30 November 2017 conducted a business as a private jet charter flight airline. The business offered flights in, to or from the United States for both domestic and international business. It also targeted luxury travel for companies and high net worth individuals. 2 On 15 September 2017, Zetta Jet and Zetta Jet USA each filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code in the US Bankruptcy Court for the Central District of California - Los Angeles Division. On 29 September 2017 Judge Klein of that Court granted an emergency motion to approve stipulation for the appointment of a Chapter 11 Trustee to both Zetta Jet and the Zetta Jet USA. Pursuant to that order, Mr Jonathan D King was appointed by the Office of the United States Trustee as the Chapter 11 trustee for Zetta Jet and Zetta Jet USA. An order was also made that the two proceedings be dealt with jointly. 3 The Chapter 11 trusteeship was converted to a liquidation proceeding under Chapter 7 of the US Bankruptcy Code on 4 December 2017. I shall refer to Zetta Jet's Chapter 7 proceeding as the US Proceeding. Chapter 7 proceedings are similar to winding up proceedings in Australia. Mr King was appointed interim Chapter 7 Trustee by the US Trustee. Significantly for present purposes, the US Bankruptcy Court on 11 December 2017 authorised Mr King to commence recognition proceedings before foreign courts including the Federal Court of Australia. On 8 January 2018, Mr King became the permanent Chapter 7 trustee of Zetta Jet following a resolution of creditors. 4 As authorised by Order 3 of the orders of the US Bankruptcy Court filed and entered 11 December 2017, Mr King now applies for recognition under the UNCITRAL Model Law on Cross-Border Insolvency ('Model Law') which has effect in Australia by force of s 6 of the Cross-Border Insolvency Act 2008 (Cth) ('CBI Act'). The application has been publicly advertised but when the matter was called on for hearing no other party appeared to oppose its making. 5 Mr King seeks recognition of the US Proceeding under which he was appointed to Zetta Jet. Art 15(1) of the Model Law provides for a 'foreign representative' to apply to the Court for recognition of the proceeding in which he or she has been appointed. Mr King is a foreign representative and the proceeding in the US Bankruptcy Court under which he was appointed is a foreign proceeding: Art 2(a) and (d). 6 Whether the foreign proceeding is to be recognised is regulated by Art 17. In this case, each of its four requirements in Art 17(1)(a)-(d) is satisfied: the proceeding appointing Mr King is a foreign proceeding (Art 2(a)); Mr King is a foreign representative (Art 2(d)) because he is authorised in the US Proceeding 'to administer… the liquidation of the debtor's assets'; the application meets the requirements of Art 15(2) in that it is accompanied by a certified copy of the decision commencing the foreign proceeding and appointing the foreign representative (i.e. Judge Klein's order of 4 December 2017 stipulating for the appointment of Mr King as the interim Chapter 7 trustee); and, the application has been made, relevantly, to this Court (Art 4 and s 10 of the CBI Act). 7 That being so, the effect of Art 17(1) is that the US Proceeding is to be recognised. Art 17(2) then requires the Court to choose whether the US Proceeding is to be recognised as a foreign main proceeding or a foreign non-main proceeding. The latter is a foreign proceeding which is not a foreign main proceeding, and which takes place in a State where the debtor (here Zetta Jet) has an 'establishment': Art 2(c). A foreign main proceeding, by contrast, requires the foreign proceeding to take place in a State where the debtor has its centre of main interest: Art 2(b). 8 Mr King seeks to have the US Proceeding recognised, at this stage, as a foreign non-main proceeding but wishes to preserve, so far as possible, his ability to apply to have it recognised as a foreign main proceeding in this Court or another foreign court at a later time. He submits that this is authorised by Art 17(4). I do not need to decide that at this stage and merely note the contention. 9 The difference between the two types of foreign proceeding turns on the difference between Zetta Jet having an 'establishment' in the United States and having its 'centre of main interest' in the United States. 'Establishment' is defined in Art 2(f) to mean 'any place of operations where the debtor carries out non-transitory economic activity with human means and goods or services'. 10 It is beyond argument that Zetta Jet's subsidiary Zetta Jet USA conducted the business of an airline from the United States under an air operator certificate issued by the US Federal Aviation Administration. I am satisfied that Zetta Jet was also involved in the conduct of that business (which was in Burbank, California). This is because its filings disclosed in the Chapter 11 proceeding show that it incurred significant trade debts in the United States. These included debts for engine maintenance owed to firms in Florida and trade debts owed to firms in Texas, Illinois, Colorado, Maryland and New Jersey. 11 There is confusion as to when the questions posed by Art 17(2) are to be decided. I doubt, with respect, the assumption made by Logan J in Gainsford v Tannenbaum [2012] FCA 904; 216 FCR 543 ('Gainsford') at 555 [45] that they are to be answered at the time the recognition proceeding is filed. It is possible that by the time that a recognition application is made that a debtor may be engaged in no activities at all. For a similar reason, therefore, it also seems awkward to think that the question should be answered as at the date the Court is called on to make the decision under Art 17(2) as Emmett J held in Moore as Debtor-in-Possession of Australian Equity Investors v Australian Equity Investors [2012] FCA 1002 ('Moore') at [18]. 12 This case shows that problem. There is evidence about what Zetta Jet and Zetta Jet USA used to do but Mr King authorised the shutdown of the Zetta Jet business on 30 November 2017 and its principal activity since then is that of being wound up. Beach J has reasoned that for similar reasons it makes sense for the question to be asked at the time that the foreign insolvency proceeding is opened: Kapila, in the matter of Edelsten [2014] FCA 1112 ('Kapila') at [35]-[39]. These three authorities are not readily reconciled. However, Kapila is the only decision in which there has been any analysis of the question. I prefer it and propose to follow it in preference to Gainsford and Moore on this point. 13 The evidence shows that Zetta Jet carried on non-transitory economic activity with human means and goods and services (in the language of Art 2(f)) at Burbank, California and it had, therefore, an 'establishment' in the United States for the purposes of Art 17(2)(b) when the US Proceeding was opened as a Chapter 11 insolvency proceeding on 15 September 2017. That proceeding was a foreign proceeding under Art 2(a) (i.e. 'a collective judicial or administrative proceeding… for the purpose of reorganization or liquidation'). Of course, it became a Chapter 7 proceeding on 4 December 2017 but remained the same foreign proceeding. 14 I therefore conclude that Zetta Jet had an establishment at Burbank on 15 September 2017. For completeness, I note that the High Court of Singapore was satisfied that Zetta Jet had an establishment in the US on a recognition application made by Mr King there: Re Zetta Jet Pte Ltd [2018] SGHC 16 at [20]. 15 Accordingly, the US Proceeding will be recognised as a foreign non-main proceeding. In reaching that conclusion I have not overlooked the fact that at one point the Singapore High Court restrained some aspects of what was then the Chapter 11 proceeding. That injunction has subsequently been discharged and the issues which might have flowed from it no longer do so. 16 It is then necessary to deal with some questions of ancillary relief. In the case of a foreign non-main proceeding Art 21 authorises the Court on application to grant, inter alia, a stay of individual proceedings against Zetta Jet's property (or that concerning the property), a stay of any execution against its assets and a suspension of any right to transfer, encumber or otherwise dispose of any of its property. Mr King seeks each of these and they should be granted. The stay and suspension power referred to in Art 21 piggybacks off the stay and suspension power referred to in Art 20. Art 20(2), as modified by s 16 of the CBI Act, allows such orders to be fashioned in line with local analogies and this is, therefore, picked up in Art 21. 17 It is appropriate, in that circumstance, that the stay and suspension granted under Art 21 should reflect as closely as possible the situation which would exist if Zetta Jet were being wound up under Chapter 5 of the Corporations Act 2001. This will, naturally enough, include any prohibitions, limitations and exceptions in Chapter 5. Art 21(2) permits the Court to entrust Mr King with the administration and realisation of Zetta Jet's property in this jurisdiction including the power to appoint a local representative. Such an order should be made. I will also grant Mr King, pursuant to Art 21(1)(g), the same powers he would have had if he were a liquidator under the Corporations Act. 18 I will therefore make orders 2-8 in the proposed orders. Mr King sought to be relieved from the publication requirements under div 15A of the Federal Court (Corporations) Rules 2000 (Cth) on the grounds that there is no evidence that Zetta Jet conducted any business in Australia. I do not, however, propose to relieve Mr King from the publication requirement so I decline to make order 11. Orders 12-15, which are purely procedural, will also be made. 19 That leaves order 9 which seeks to permit Mr King to file his proposed points of claim against Linkage Access Limited and Dragon Pearl Limited in this recognition proceeding. I do not think that is appropriate. It will require Zetta Jet to be removed as a defendant and added as a plaintiff; further, Dragon Pearl Limited has not yet been served with the proceeding. The proposed points of claim will need to be filed as a separate proceeding in due course. 20 Order 10 is an interim injunction under Art 21 and replaces an earlier injunction under Art 19. Linkage Access Limited did not oppose this injunction. Dragon Pearl Limited does not claim to be entitled to the vessel so I see no reason why, at this stage, the injunction should extend to it and the reference to it will be deleted. I note the undertaking as to damages proffered in paragraph 1. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.