English Court Of Appeal Upholds 'The Gibbs Rule'

In Short:

The Situation: In Bakhshiyeva v Sberbank of Russia, a debtor sought to restructure English law-governed debts pursuant to an Azerbaijani restructuring proceeding. In order to prevent certain dissenting creditors from commencing enforcement proceedings against the debtor in the UK, the debtor asked the English court to provide an indefinite stay.

The Result: The Court of Appeal reinforced the old English common law principle known as "the rule in Gibbs," which prevents debt obligations governed by English law being discharged by foreign insolvency proceedings without consent.

Looking Ahead: Gibbs has been heavily criticised on the basis that the concept of "universalism" has become a central tenet in achieving a successful cross-border restructuring. However, proponents of the rule argue that creditors enter into English law contracts to access the impartiality, commerciality and due process of the English courts. Given the continuing uncertainty in relation to Brexit, the upholding of the rule in Gibbs is likely to be of critical importance when determining international restructuring strategies involving English law documentation.

The Rule in Gibbs

The Gibbs rule is named for the case in which it was formulated: Antony Gibbs & Sons v La Société Industrielle et Commerciale des Métaux (1890) LR 25 QBD 399). Its effect is that, unless a creditor submits to a foreign proceeding, a foreign proceeding designed to bring about the cancellation of a debtor's obligations will discharge only those liabilities governed by the law of the country in which that proceeding took place.

In the context of the UK's current membership of the EU, Gibbs does not apply where an insolvency proceeding has been opened pursuant to the European Insolvency Regulation. However, following the UK's departure from the EU, the UK would need to make new arrangements with the EU to ensure the disapplication of the rule in Gibbs would continue. If no new arrangements are made, in the absence of consent, it will only be possible to amend English law documentation via English proceedings. The most likely consequence of this in a restructuring context is that a scheme of arrangement may be required in parallel with any local EU or other international insolvency proceeding.

Case Background

On December 18, 2018, the Court of Appeal provided its decision in the case of Bakhshiyeva v Sberbank of Russia [2018] EWCA Civ 2802.

The OJSC International Bank of Azerbaijan ("IBA")...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT