The Cambridge Gas In Offshore Restructuring And Insolvency: Not Fit For All Purposes

Previously published in the Global Insolvency & Restructuring Review 2012/13

It is very difficult for those practising in the field of cross-border insolvency and restructuring not to notice the significant moves towards international comity by various jurisdictions around the world. This is to a substantial degree influenced by the enactment of statutory frameworks for co-operation such as section 426 of the English Insolvency Act 1986 or the UNCITRAL Model law on Cross-Border Insolvency adopted by the UK and the US. Despite these statutory routes to co-operation, the use of a court's inherent jurisdiction has remained important, particularly for offshore jurisdictions such as Bermuda which has no similar statutory basis for recognising another jurisdiction's insolvency representatives or restructuring regimes. The courts in offshore jurisdictions, by the very nature of the international business in those jurisdictions, are asked very regularly to deal with cross-border issues including the extent to which they should grant remedies for the benefit of foreign appointed insolvency representatives or make orders implementing in their own jurisdiction the court approved restructuring which has taken place in a foreign jurisdiction.

The Supreme Court of Bermuda has embraced the developing law in this respect, for the most part derived from the decision of the Privy Council in Cambridge Gas Transportation Corpn v Official Committee of Unsecured Creditors of Navigator Holdings plc [2007] 1 AC 508 ("Cambridge Gas"). Cambridge Gas marked a watershed in the approach of the English-based common law to international comity in cross-border insolvency; that is, that under the common law there should be a single insolvency proceeding, be it domestic or foreign, and that therefore a foreign insolvency representative must be extended recognition and assistance by the court. The purpose of recognising and assisting the foreign representative is to permit this to happen without the trouble of having to commence a parallel domestic insolvency proceeding.

On the facts of Cambridge Gas this meant that a plan implemented under Chapter 11 of the US Bankruptcy Code in respect of an Isle of Man company could be given effect by a Manx court, at the request of a New York court, because the company and its creditors could have entered into a compromise and arrangement under Manx law which would have achieved the same result as that under the Chapter 11 plan.

The controversy arises when it comes to how far the court can go under its inherent jurisdiction in providing assistance. It is worth bearing in mind that on the facts of Cambridge Gas, in reality, there was no directly equivalent mechanism for achieving in a Manx Scheme of Arrangement what had been achieved under the Chapter 11 Plan because of the need for the consent of certain shareholders who would have had to be treated, and voted as, a separate class and whose wishes could not have been crammed down by the wishes of creditors. Yet the effect of the court's order was to treat the two mechanisms as being equivalent.

The Bermuda Court has in this same vein been increasingly willing to apply the principles in Cambridge Gas liberally; for example, in Re Founding Partners Global Fund Ltd (No2) [2011] SC (Bda) 19 Com, the Bermuda Court expressed the view that its powers under Cambridge Gas were wider than applying domestic insolvency law and could...