OGX Petroleo E Gas S.A., Re [2016] EWHC 25 (Ch)
In a recent judgment, Mr Justice Snowden sounded a cautionary note for applicants seeking recognition of a foreign insolvency proceeding under the UNCITRAL Model Law, advising applicants to make full and frank disclosure to the court in relation to the effect that such recognition might have on third parties.
The Model Law
The United Nations Commission on International Trade Law developed the Model Law on Cross-Border Insolvency (the “Model Law”) to encourage cooperation and coordination between jurisdictions and ensure a fair and efficient administration of cross-border insolvencies that protects the interests of creditors and the debtor. The Model Law which is somewhat similar to the EC Regulation on Insolvency Proceedings is incorporated into English law by the Cross-Border Insolvency Regulations 2006 (the “CBIR”). The CBIR provides that once a foreign proceeding is recognised by the English courts as being a foreign main proceeding (i.e. a proceeding where the debtor has its centre of main interests) the English courts will stay and suspend any proceeding concerning the debtor in England in the same way the courts will stay any proceedings concerning a debtor on the making of a winding up order.
Background
The matter before Mr Justice Snowden concerned a Brazilian oil and gas company, OGX Petróleo e Gás SA (“OGX”). In 2012 OGX entered into a bare boat charter with OSX 3 Leasing BV (“Leasing”) for a floating production vessel, known as the OSX 3 (the “Original Charter”). Construction of the vessel had been part financed by a bond issue in favour of Nordic Trustee ASA (“Nordic”) and Leasing assigned its rights under the Original Charter to Nordic.
In 2013 OGX experienced financial difficulties and its parent presented a reorganisation plan to the Brazilian bankruptcy courts (the “Plan”). In early 2014, in parallel with the Plan, which was in its early stages, OGX asked Leasing for a reduction in the charter rates payable under the Original Charter. In June 2014 the Plan was approved by creditors. The Plan expressly reflected the fact that a renegotiation of the Original Charter was still continuing and that those renegotiations would sit outside the Plan with neither Leasing nor Nordic included on the list of creditors of OGX for the purposes of the Plan. The charter negotiations concluded in September with the parties entering into an amended and restated charter agreement (the “New Charter”). The parties intended that the New Charter would not be subject to the terms of the Plan and it contained an express provision whereby the parties agreed that all disputes would be referred to the London Court of Arbitration.
In December 2014, OGX sought and obtained a temporary injunction in the Brazilian bankruptcy court unilaterally reducing the daily charter rates payable under the New Charter. Nordic and Leasing challenged OGX’s application to obtain final injunctive relief, and the matter spent some time in the Brazilian court system until, in June 2015, Nordic and Leasing submitted a request for arbitration pursuant to the New Charter, seeking, amongst other things, an order that OGX withdraw its injunction request. In response, OGX applied to the English Courts for recognition of the Plan as a foreign main proceeding under the CBIR in an effort to stay the arbitration proceedings.
In its application before Mr Justice Mann, the witness statement produced by OGX referred to Nordic as “an OGX creditor” and failed to draw attention to the fact that the New Charter had been entered into after the Plan had been approved. Further the evidence failed to disclose that the arbitration was an arbitration of claims pursuant to the New Charter and was not subject to the Plan. The application was heard without notice to Nordic or Leasing and consequently Mann J. reminded counsel for OGX of its duties to the court when making an application without notice, and asked whether there were any points that Nordic and Leasing (in absentia) might have wished to draw to his attention had they been at the hearing. At no time during the hearing was Mann J. informed that the New Charter was not subject to the Plan and Mann J. accordingly recognised the proceeding as a foreign main proceeding and consequently granted the stay.
On being served the order of Mann J. Nordic and Leasing made an urgent application to set aside or vary the order on the basis that Mann J had been misled.
Notes for applicants
When the matter came before Snowden J. the parties had agreed a draft consent order under which the stay would be lifted and the arbitration allowed to continue. Nonetheless Snowden J. considered it appropriate to give a judgment as it concerned matters of “wider importance”. Snowden contended that the stay imposed upon the recognition of a collective foreign proceeding under the Model Law is not intended to prevent persons whose claims are not subject to those proceedings from being able to pursue their claims against the company and that the steps taken by OGX to recognise the Plan in order to prevent the arbitration were inconsistent with this purpose and an abuse of process.
In setting out his judgment, Snowden J. stated that any “foreign representative who seeks recognition without notice ought to place before the court any material of which he is aware which is relevant to the exercise of [the Court’s] discretion”. Further, Mr Justice Snowden also warned that if a foreign representative knows that recognition and the automatic stay will affect existing or threatened proceedings, or the enforcement of security, he should inform the court of that fact.
This decision has clarified the duties on an applicant for a recognition order under the Model Law. It is clear that an applicant now needs to consider any consequences which flow from recognition, and how these affect third parties. As a result, the evidence presented will need to be more comprehensive which in turn will increase the costs of any application and slow down the process of obtaining an order.
A copy of the judgment can be found here.
