REASONS FOR JUDGMENT
1 The plaintiffs, Messrs Michael Pink, Richard Fleming, and Richard Heis (the Administrators), are joint special administrators of MF Global UK Limited (Global UK), appointed under the Investment Bank Special Administration Regulations 2011 of the United Kingdom (the Regulations). The Administrators have applied under the Cross-Border Insolvency Act 2008 (Cth) (the Cross-Border Insolvency Act), as it applies the UNCITRAL Model Law on Cross-Border Insolvency (the Model Law), for recognition as foreign main proceedings of the insolvency proceedings in the United Kingdom pursuant to which they were appointed as special administrators. They also claim consequential relief under the Model Law.
2 Global UK is incorporated in the United Kingdom as a company limited by shares. It is required by its memorandum of association to have its registered office situated in England, and it complies with that requirement. Although Global UK carried on its business in countries outside the United Kingdom, the centre of its administrative and business interests was in the United Kingdom. Global UK is regulated by the United Kingdom Financial Services Authority, and all of its governance activities, including board meetings and compliance procedures, were conducted in England, where over 700 full-time staff were located.
3 Prior to 31 October 2011, Global UK operated as an intermediary broker in the United Kingdom, providing agency services, matched-principal execution and clearing services for exchange-traded and OTC derivative products, as well as for non-derivative foreign exchange products and securities in the cash market. As from 13 October 2005, Global UK was registered to carry on business in Australia as a foreign company. Its registered local agent is MF Global Australia Limited (Global Australia).
4 Global UK acted as the clearing participant for Global Australia with respect to futures contracts cleared through ASX Clear (Futures) Pty Limited. In that capacity, Global UK cleared transactions entered into by Global Australia on behalf of Global Australia's clients, or on its own behalf. It conducted those activities pursuant to an exemption granted by the Australian Securities and Investments Commission from the requirement to hold an Australian financial services licence. One of the conditions upon which that exemption was granted was that Global UK conducted its activities in compliance with regulatory laws of the United Kingdom. Global UK has significant assets in Australia, the detail of which need not be considered for the purpose of the present application.
5 Each of the Administrators is authorised to act as an insolvency practitioner by either the Insolvency Practitioners Association or the Institute of Chartered Accountants in England and Wales. They are members of the KPMG LLP partnership. On 31 October 2011 they were appointed as joint special administrators, pursuant to a special administration order made by Morgan J, sitting as a member of the Chancery Division of the High Court of Justice of England and Wales (the High Court), in proceeding 9527 of 2011 (the UK Proceeding).
6 As I have said, the order in the UK Proceeding was made under the Regulations. The Regulations, together with the Investment Bank Special Administration Rules 2011 (UK), set out a special administration regime specifically targeting investment banks. The special regime takes the form of an administration procedure based on the existing administration regime, but with special administration objectives. The aims of the special administration regime were twofold. First, it aimed to provide special administrators with clarity and direction in conducting the administration of an investment bank, without the need to make frequent applications to the High Court for directions. Secondly, it aimed to give clients and counterparties greater confidence in the administration process, and therefore reduce the impact on the stability of the United Kingdom's financial systems of an investment bank's failure. Under Reg 10, special administrators are under a duty to pursue three special administration objectives, namely:
ensuring the return of client assets as soon as is reasonably practicable;
engaging with market infrastructure bodies and regulators in a timely fashion; and
either rescuing the company as a going concern, or winding it up in the best interests of the creditors.
7 The general powers and duties of special administrators and the general process and effect of special administration under the special administration regime are set out in the Regulations by the application of provisions of the Insolvency Act 1986 (UK) (the UK Insolvency Act). Regulation 15 provides that a special administrator may do anything necessary or expedient for the pursuit of the special administration objectives. Under Reg 15(2), the special administrator is an officer of the High Court. Under Reg 15(4), the provisions of Schedule B1, and other provisions of the UK Insolvency Act that are set out in the tables to the Regulations, apply in relation to special administration, as in relation to other insolvency proceedings, with the modifications set out in Reg 15, and other modifications specified in the tables.
8 Under the table in Reg 15, various provisions of Schedule B1 to the UK Insolvency Act are applicable. It is desirable to say something about the pivotal provisions of Schedule B1, for reasons that will become apparent. Under cl 67 of Schedule B1, the administrator of a company must, on his appointment, take custody or control of all the property to which he thinks the company is entitled. Under cl 68, the administrator must manage the company's affairs, business and property in accordance with any proposals approved at a creditors' meeting, any revision of those proposals which is made by him and which he does not consider substantial, and any revision of those approvals approved at a creditors' meeting.
9 Under cl 68(2), if the High Court gives directions to the administrator of a company in connection with any aspect of his management of the company's affairs, business, or property, the administrator must comply with the directions. Clause 65 provides that the administrator of a company may make a distribution to a creditor of the company. Section 175 of the UK Insolvency Act applies in relation to such a distribution, as it applies in relation to a winding-up. Under s 175, preferential debts are paid in priority to all other debts. Preferential debts rank equally among themselves after the expenses of the winding-up, and are to be paid in full, unless the assets are insufficient, in which case they abate in equal proportions.
10 So far as the assets of the company available for payment of general creditors are insufficient to meet them, preferential debts have priority over the claims of holders of secured obligations. Otherwise, it is clear that distributions are to be made pari passu. Clause 59 of Schedule B1 authorises the administrator of a company to do anything necessary or expedient for the management of the affairs, business, and property of the company. Clauses 42 and 43 impose moratoria on insolvency proceedings, and on other legal process.
11 Under s 6 of the Cross-Border Insolvency Act, the Model Law, with the modifications set out in Part 2, has the force of law in Australia. Article 17 of the Model Law relevantly provides that, subject to art 6, a foreign proceeding is to be recognised if the foreign proceeding is a proceeding within the meaning of art 2(a), the foreign representative applying for recognition is a person or body within the meaning of art 2(d), the application meets the requirements of paragraph 2 of art 15, and the application has been submitted to a relevant court. The Federal Court of Australia is a relevant court. Under art 17(2)(a), the foreign proceeding is to be recognised as a foreign main proceeding if it is taking place in the state where the debtor has the centre of its main interests. Article 20 provides that, upon recognition of a foreign proceeding that is a foreign main proceeding:
commencement or continuation of individual actions or individual proceedings concerning the debtor's assets, rights, obligations or liabilities is stayed;
execution against the debtor's assets is stayed, and
the right to transfer, encumber or otherwise dispose of any assets of the debtor is suspended.
12 The Model Law may be enlivened by an application under art 15, which relevantly provides that a foreign representative may apply to the Federal Court for recognition of a foreign proceeding in which the foreign representative has been appointed. Under art 2(a), a foreign proceeding is, relevantly, a collective judicial proceeding in a foreign state, pursuant to a law relating to insolvency, in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court for the purpose of reorganisation or liquidation.
13 Having regard to the provisions of the Insolvency Act and the Regulations, which I have briefly summarised, I am satisfied that the UK Proceeding, pursuant to which the Administrators were appointed, is a foreign proceeding within the meaning of art 2. I am also satisfied that it is a foreign main proceeding, in that England is the place where Global UK has the centre of its main interests. I am also satisfied that the Administrators are foreign representatives within the meaning of art 2(d), in that they were authorised in the UK Proceeding to administer the reorganisation or the liquidation of the assets and affairs of Global UK, and to act as a representative of the UK Proceeding.
14 Schedule B1 to the UK Insolvency Act, insofar as it applies under the Regulations, contains provisions for a moratorium on the enforcement of creditors' remedies, the making of reports to creditors by a special administrator, the convening of creditors' meetings, and the making of decisions by creditors at their meetings in relation to proposals made by a special administrator. The UK Proceeding affects creditors collectively, and does not affect only the private rights and obligations of the immediate parties to it. The explanatory memorandum to the Cross-Border Insolvency Bill (2008) (Cth) stated that the definition of foreign proceedings was intended to avoid the use of expressions that may have different technical meanings in other legal systems. That technique was said to have been used to avoid inadvertently narrowing the range of possible foreign proceedings that might be recognised. The explanatory memorandum also stated that the intention was that the term insolvency proceedings refer broadly to proceedings involving companies in severe financial distress (see Tucker v Aero Inventory (UK) Limited (No 2) (2009) 181 FCR 374 at [17]-[20]).
15 The effect of art 15(2) of the Model Law is, relevantly, that an application by foreign representatives for recognition must be accompanied by a certified copy of the decision commencing the foreign proceeding and appointing the foreign representative, or a certificate from the foreign court affirming the existence of the foreign proceeding and the appointment of the foreign representative, or any other evidence acceptable to the Federal Court of the existence of the foreign proceeding. I am satisfied that that requirement has been met in the present case. Under art 15(3), an application for recognition must also be accompanied by a statement identifying all foreign proceedings in respect of the debtor that are known to the foreign representative. That requirement has also been satisfied in the present case. In my view, therefore, it is appropriate to make an order, pursuant to s 6 of the Cross-Border Insolvency Act and paragraph 1 of art 17 of the Model Law, that the UK Proceeding be recognised as a foreign proceeding and as a foreign main proceeding.
16 The Administrators have also sought an order that they be recognised as foreign representatives. That is not something that is contemplated by the Model Law, and I do not see the utility of making such an order. I am satisfied that they are foreign representatives and that they have standing to bring this proceeding, otherwise I would not have the power to make the order that I have just foreshadowed.
17 Article 21 of the Model Law provides that, upon recognition of a foreign proceeding, where necessary to protect the assets of the debtor or the interests of the creditors, the Federal Court may, at the request of the foreign representative, grant any appropriate relief. Article 21(1) then specifies types of relief that may be granted. Under art 21(1)(e), the relief includes entrusting the administration or realisation of all or part of the debtor's assets located in Australia to the foreign representative or another person designated by the Federal Court. It is appropriate, in the present case, to order that the administration or realisation of all of the assets of Global UK in Australia be entrusted to the Administrators.
18 Article 21(1)(d) of the Model Law authorises relief that provides for the examination of witnesses, the taking of evidence or the delivery of information concerning the debtor's assets, affairs, rights, obligations or liabilities. I am disposed to accede to the request of the Administrators that they, in their capacities as foreign representatives of Global UK, may, as they deem appropriate but subject to any further of the order of the Federal Court, examine witnesses, take evidence and obtain delivery of information concerning Global UK's assets, affairs, rights, obligations or liabilities. Article 21(1)(g), as applied by s 11 of the Cross-Border Insolvency Act, provides that the Federal Court may grant any additional relief that may be available, relevantly, to a registered liquidator within the meaning of s 9 of the Corporations Act 2001 (Cth) (the Corporations Act). I am disposed to accede to the application by the Administrators to make an order that, subject to the provisions of the Corporations Act, all powers normally available to liquidators appointed under the provisions of the Corporations Act be made available to the Administrators.
19 Article 21(1)(a) provides that the Court may stay the commencement or continuation of individual actions or individual proceedings concerning the debtor's assets, rights, obligations or liabilities, to the extent they have not been stayed under paragraph 1(a) of art 20. The Administrators proposed that relief be granted under art 21 that enforcement of execution against the assets of Global UK be stayed, except with the leave of the Federal Court or the prior written consent of the Administrators. Such an application seems to me to be misconceived, insofar as it is based on art 21(1)(a). It is not authorised by art 20. Similarly, the Administrators have asked for an order that any person within the jurisdiction of the Federal Court be restrained from transferring, encumbering or otherwise disposing of any assets of Global UK, except with the leave of the Federal Court or the written consent of the Administrators. Article 21(1)(c) authorises the Federal Court to suspend the right to transfer, encumber, or otherwise dispose of any assets of the debtor, to the extent that that right has not been suspended under paragraph 1(c) of art 20. For the same reasons, it seems to me that that application is misconceived, and I am not disposed to make such an order.
20 The Administrators also seek an order under art 21(1)(a) that would extend the stay contemplated by paragraph 1(a) of art 20. The stay in paragraph 1(a) of art 20 is on the commencement or continuation of individual actions or individual proceedings concerning the debtors' assets, rights, obligations or liabilities. The Administrators seek that a stay be extended to any individual action or legal proceeding, including, without limitation, any arbitration, mediation or any quasi judicial administrative action, proceeding or process whatsoever. I see some utility in making such an order under art 21(1)(a). Therefore, I would be disposed to make an order that any such individual action or legal proceeding be stayed, to the extent that it is not stayed under art 20(1)(a).
21 The Administrators have also asked that the Court reserve liberty to the parties and to any creditor or purported creditor to apply on three days' notice. It is appropriate to grant that leave. The Federal Court (Corporations) Rules 2000 (Cth) require notification to creditors and publication of notices in newspapers, and I shall make orders accordingly.
I certify that the preceding twenty one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.