BACKGROUND TO The Current ApplicationS
7 The solicitors who represented the plaintiffs in the original proceedings approached the Court by correspondence to give notice of a "substantial change" in the status of the rehabilitation proceedings.
8 The "substantial change" identified was the termination orders issued in the DCKK Japan proceedings and Star Bulk Japan proceedings on 31 August 2016 as a consequence of the Tokyo Court's acceptance that the companies' rehabilitation plans, which DCKK and Star Bulk had taken steps to implement, had become final and binding.
9 The outcome of the rehabilitation process, which was communicated by DCKK and Star Bulk in a press release issued by DCKK, included the following changes to the companies' position. The affidavit, affirmed 14 October 2016, of Mr Tadashi Kato, Representative Director of DCKK and President and Director of Star Bulk, sets out the changes as follows:
(a) That members of the Maritime Cluster in Japan, namely certain vessel owners and shipyards, had provided funding to rehabilitate the business of DCKK and Star Bulk
(b) DKKK had acquired all existing shares without consideration through the operation of the rehabilitation plans;
(c) Through the subscription of new shares in the amount of 2,490,000,000 JPY, the Maritime Cluster became the new owners of DCKK (and, as a consequence, the owners of Star Bulk)
(d) DCKK and Star Bulk completed their payments to creditors with fixed rehabilitation claims pursuant to the rehabilitation plans on 28 July 2016.
10 In light of the termination of the Japanese proceedings, it was submitted that it was no longer necessary or appropriate that DCKK and Star Bulk maintain the protection under the Model Law as provided for in the orders made by me on 28 October 2015, and, as a consequence, that those orders should be vacated.
11 It is appropriate to note here that there was some discussion at the hearing before me of why the application was brought informally and by whom exactly it should be brought. These matters throw some light on a matter of general interest concerning the operation of the Model Law. In late June both Mr Masakazu Yakushiji, the former President, Chief Executive Officer and former director of DCKK and the appointed representative person in the DCKK Japan proceeding and Mr Koji Fujita, former President and director of Star Bulk and the appointed representative person in the Star Bulk Japan proceeding, resigned as a consequence of the change in ownership of DCKK and Star Bulk effected by the implementation of the rehabilitation plan. In light of their resignation, they no longer had authority to bring the notice of "substantial change" to the attention of the Court. Article 18 of the Model Law places the responsibility for informing the Court of "substantial change" upon the foreign representative.
12 Given that the information being brought to the Court's attention is information brought by the companies themselves, coupled with the fact that the foreign representatives are retired, I considered that in these circumstances, the defendants in the original proceedings, i.e. DCKK and Star Bulk, are best placed to make the application and so treated the application.
13 I accept that both companies' reason for making the application was prompted primarily by a recognition of the appropriateness of drawing the Court's attention to the "substantial change" as required by Art 18 of the Model Law. From a commercial viewpoint, the granting of such orders without doubt also serves the interests of both companies by removing the remnants of protection orders that signal or could be seen as the trapping of their earlier financial difficulties.
14 Given there was no precedent for the vacating of such orders in an Australian Court, I considered on this occasion that it was appropriate that the application be made (albeit informally) by the defendants and, at the hearing, I dispensed with the need for any further documentation to be provided by the parties.
15 In future applications of this kind, however, I consider the usual course should be that the moving party or parties approach the Court by way of interlocutory application to apply to vacate orders of this kind.
LEGISLATIVE FRAMEWORK
16 Article 18 of the Model Law deals with the appropriate course for parties to adopt when a "substantial change" occurs in relation to the recognised foreign proceeding or the status of a foreign representative's appointment. It is set out in the following terms:
Article 18. Subsequent information
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.
17 I consider that the termination orders issued in the DCKK Japan proceedings and Star Bulk Japan proceedings, and the resulting retirement of the foreign representatives, is the kind of "substantial change" to which Art 18 of the Model Law is directed.
18 Article 20 deals with the effects of recognition of a foreign proceeding and provides guidance on the modification or termination of protective orders by reference to foreign legislation. It reads:
Article 20. Effects of recognition of a foreign main proceeding
1. Upon recognition of a foreign proceeding that is a foreign main proceeding:
(a) Commencement or continuation of individual actions or individual proceedings concerning the debtor's assets, rights, obligations or liabilities is stayed;
(b) Execution against the debtor's assets is stayed; and
(c) The right to transfer, encumber or otherwise dispose of any assets of the debtor is suspended.
2. The scope, and the modification or termination, of the stay and suspension referred to in paragraph 1 of this article are subject to [refer to any provisions of law of the enacting State relating to insolvency that apply to exceptions, limitations, modifications or termination in respect of the stay and suspension referred to in paragraph 1 of this article].
3. Paragraph 1 (a) of this article does not affect the right to commence individual actions or proceedings to the extent necessary to preserve a claim against the debtor.
4. Paragraph 1 of this article does not affect the right to request the commencement of a proceeding under [identify laws of the enacting State relating to insolvency] or the right to file claims in such a proceeding.
19 Section 16 of the Cross Border Insolvency Act clarifies that for the purposes of para 2 of Art 20 of the Model Law, to the extent that it has force of law in Australia, the scope and the modification or termination of the stay or suspension referred to in para 1 of that Article, are the same as would apply if the stay or suspension arose under the Bankruptcy Act 1966 (Cth); or Chapter 5 (other than Parts 5.2 and 5.4A) of the Corporations Act 2001 (Cth), as the case requires.
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), 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.
23 Judge Lifland commented on the purposes of recognition order stays in the context of Chapter 15 of the United States Bankruptcy Code, which incorporates the Model Law. He noted:
An automatic stay generally intends to prevent collection efforts against debtors, so as to provide breathing room for their devising a plan to emerge from dire financial straits, as well as prevent creditors' independently pursuing remedies that could deplenish debtors' assets. See In re Pro-Fit Holdings Ltd., 391 B.R. 850, 862 (Bankr. C.D. Cal. 2008). 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 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.
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).
24 While Judge Lifland was dealing with a situation where recognition orders had not been formally vacated and a claim on the Korean company had subsequently been made, the applicants in the proceeding before me have taken the appropriate step of approaching the Court to alert it to the termination of the Japanese rehabilitation proceedings.
25 It may be that if, for the purpose of commercial efficacy of carrying out some aspect of a rehabilitation plan, it was necessary for the company to maintain protection against creditors in foreign jurisdictions, then it may be appropriate for the relevant foreign representatives or companies to approach to Court to achieve that end, either through Art 7 of the Model Law ('Additional assistance under other laws') and Art 21 ('Relief that may be granted upon recognition of a foreign proceeding') or s 581 of the Corporations Act, which deals with the cooperation between courts in external administration matters.
APPROPRIATENESS OF VACATING THE ORDERS
26 The affidavit of Mr Tadashi Kato, affirmed 14 October 2016, confirms that all Australian creditors of DCKK were paid in full in the ordinary course of business, and that he is unaware of any actual or potential claims by those creditors. Star Bulk did, and does not have, any Australian creditors.
27 The granting of orders vacating the protection orders formally in place in effect opens DCKK to any potential collection efforts by Australian creditors, and I am therefore satisfied that there is no underlying interest contrary to granting the orders.
28 For these reasons, I considered it appropriate on 17 October 2016 to make the orders sought by DCKK and Star Bulk.
I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Chief Justice Allsop.