Zone of Insolvency

Zone of Insolvency

US group uses an English scheme of arrangement to restructure its debts

Posted in U.S., UK

On 10 September 2019 the High Court in London sanctioned two schemes of arrangement as a part of the successful restructuring of the syncreon group. This transaction was unique because it involved a US based group utilising an English scheme of arrangement to surgically restructure its debts, avoiding an all-encompassing insolvency process. Recognition of the English procedure was obtained in the US and Canada.

The syncreon group is a global specialized contract logistics company supplying the automotive and technology industry. The group is headquartered in Michigan, USA with over 100 locations in 20 countries and 14,000 employees worldwide.

As a part of the restructuring of its US$1.1bn debt stack, the group was seeking to modify debts owed under a US$680m senior secured credit facility and a US$225m senior note indenture. A Dutch company, syncreon BV, was the borrower of the credit facility and the issuer of the notes. These facilities had been guaranteed by, among others, an English company, syncreon Automotive (UK) Ltd. At the outset of the transaction both facilities were governed by New York law.

The restructuring included a release of the credit facility and the note indenture in exchange for equity and, in addition, in the case of the credit facility, restated debt of US$225m. This exchange required unanimous consent which was not forthcoming consensually but which could be effected via a scheme of arrangement with the support of more than 75% of the creditors by value and 50% by number in each relevant class. The restructuring of an existing liquidity facility and an ABL facility, as well as the injection of US$50m of new money, was able to be implemented consensually outside of any statutory procedure. Total debt of the group was to be reduced to US$486m.

The group explored various implementation options (including a US Chapter 11), but concluded that use of the English jurisdiction and the scheme process was the only viable route for restructuring the scheme companies on a going concern basis.

In order to help establish a sufficient connection to the English jurisdiction, the Dutch debtor obtained consent from the debt holders to an amendment to the governing law of the credit facility and the note indenture to English law. Two schemes of arrangement were then proposed, one by the Dutch debtor and one by the English guarantor, with each scheme comprising two classes, one for the credit facility and one for the note indenture. The High Court in London needed to satisfy itself that that the schemes were likely to have effect in relevant jurisdictions in which the companies conducted their business. Recognition of the schemes in the US and Canada was a condition of the restructuring. The High Court was presented with evidence of foreign law experts in relation to the position in the US, Canada and the Netherlands to the effect that the schemes were likely to be effective and recognised in those jurisdictions. Although the group also has significant operations in Ireland and Germany, it was noted that those jurisdictions should follow the EU principles referred to in the Dutch advice, and accordingly the schemes should be recognised there as well.

The schemes were overwhelmingly approved by creditors. In the case of the credit facility, 100% of those creditors attending the meeting voted in favour, representing over 99% of the total principal outstanding. In the case of the notes, 98% of those creditors attending voted in favour, representing, again, over 99% of the total principal outstanding.

Following sanction by the High Court the schemes were recognised in the US under Chapter 15 of the US Bankruptcy Code on 11 September 2019 and in Canada under Part IV of the Companies’ Creditors Arrangement Act by the Ontario Superior Court of Justice on 19 September 2019.

Norton Rose Fulbright represented The Bank of New York Mellon as indenture trustee.

Federal Court deems Halifax a “classic candidate” for cross border insolvency cooperation

Posted in Administration

On August 22, 2019, Justice Gleeson delivered her judgment in Re Halifax.

Halifax Australia (Halifax Aus) owned and operated a number of Halifax investment services companies operating under the Halifax name in various locations around the world.

In late 2018, liquidators were appointed to Halifax Aus. At the time, Halifax owned 70% of Halifax New Zealand (Halifax NZ).

As a part of business operations, funds were transferred between Halifax Aus and Halifax NZ on an “as needs basis”. A majority (95%) of the funds held on trust by the Halifax group were affected by commingling. Halifax Aus, or its clients, were said to have been in a position to make a claim in relation to funds held in the name of Halifax NZ and vice versa. However, accounts held in the name of Halifax Aus and Halifax NZ, on behalf of investor clients, ceased to be feasibly traceable to any entitlement on the part of individual clients.

Pooling applications

The liquidators proposed to bring applications in Australia and New Zealand to allow for the “pooling” of the above mentioned commingled funds. This proposed application ended up taking the form of an application for a ‘letter of request’, essentially requesting that the New Zealand court agree to hear the application cooperatively with the Federal Court of Australia (FCA). The letter of request application was made pursuant to section 581 of the Corporations Act 2001 (Cth) (Corporations Act).


The main issue in consideration was as follows:

Where a cross border insolvency matter exists, can the FCA issue a letter of request seeking that the New Zealand High Court (NZHC) act in aid of, and auxiliary to, the FCA to enable an application to be resolved in an effective way.

Decision and reasoning

The Court decided that it could issue the request to the NZHC to jointly hear, alongside the FCA, the applications in respect of pooled funds. The reasons were as follows:

As per New Zealand statute, the NZHC has jurisdiction over external administration matters.

The FCA held that the liquidators’ claim comprised an external administration matter because it followed the making of a winding up order.

The Court said that if the liquidators’ applications were not co-ordinated, a real prospect of inconsistent directions and further litigation existed, which would be to the detriment of creditors of Halifax Aus. Therefore, the Court found that the pooling of the accounts was required.

Finally, the Court held that there was no reason to believe that, upon receipt of the letter of request, the NZHC would not grant the relief. The Court emphasised that it did not see cause for concern considering the individual integrity of Australian courts in New Zealand and vice versa.


Re Halifax demonstrates that where a company has several commingled funds held on trust with its New Zealand counterpart, the courts can request the cooperation of the New Zealand courts to assist in distributing and managing assets and claims in insolvency proceedings.

This is somewhat a testament to the strong ongoing relationship between Australia and New Zealand, and the similarity in insolvency laws and regimes. Critically, the perceived willingness of the other jurisdiction is imperative to the success of these kinds of ‘letter of request’ applications.

The Halifax decision reminds us that section 581 of the Corporations Act is flexible and provides a certain extent of protection in insolvency matters, especially where assets move beyond the strict boundaries of their originating jurisdiction.

Special thanks to Ellen Soust in our Brisbane office for her assistance in preparing this content.

Supreme Court settles trademark Circuit split

Posted in U.S.

On May 20, 2019, the US Supreme Court ruled that a licensor’s rejection of a trademark license in bankruptcy does not terminate the licensee’s right to continue using the licensed mark. Mission Product Holdings Inc. v. Tempnology LLC, 587 US __ (2019). The decision brings trademarks into alignment with how patents and copyrights are already treated under the Bankruptcy Code.

Samuel Kohn, Susan Ross, Bandar Al-Saif and Joy Wang have provided a briefing.

The Corporations Amendment (Strengthening Protections for Employee Entitlements) Act 2019 commenced April 6, 2019

Posted in Australia

Australia has a taxpayer funded scheme which guarantees employee entitlements arising out of liquidation up to statutory caps. It is known as the Fair Entitlements Guarantee Scheme (FEG). The Australian Government has become concerned that questionable practices which rely on FEG to avoid employee entitlement obligations, such as illegal phoenixing, are on the rise and imposing significant costs on FEG and therefore, the Australian taxpayer. The Government has introduced legislative amendments to facilitate the effective recovery of entitlements from parties which take part in these questionable practices. Continue Reading

UNCITRAL draft Model Law on Enterprise Group Insolvency

Posted in Australia

In December 2018, UNCITRAL Working Group V (Insolvency Law) held its 54th session in Vienna where it discussed, among other topics, cross border insolvency of enterprise groups. These discussions included amendments to the Enterprise Group Insolvency: Draft Model Law (‘draft Model Law’) and the Enterprise Group Insolvency: Guide to Enactment of the Draft Model Law (‘draft Guide to Enactment’). The Working Group began drafting the Model Law after agreeing to the UNCITRAL mandate in December 2013. Continue Reading

Opposing the National Bankruptcy Conference’s proposal to legislatively repeal Fairfield Sentry

Posted in U.S.

On August 20, 2018, the National Bankruptcy Conference (the “NBC”), a group of bankruptcy judges, professors, and professionals that has consulted with Congress on the drafting of the U.S. Bankruptcy Code, sent a letter to Congress proposing a series of amendments to Chapter 15, which governs the process for obtaining recognition of a foreign insolvency or restructuring proceeding in the U.S. Continue Reading

English Court of Appeal affirms application of the “Gibbs Rule” in a cross-border restructuring

Posted in Australia, U.S.

Under the English common law rule known as the “Gibbs rule,” a contractual obligation can be changed or discharged only in accordance with the law governing that obligation. Consequently, a debt governed by English law may not be discharged in a foreign insolvency or under a foreign restructuring plan unless the creditor submits to the foreign insolvency proceeding or consents to the plan. Earlier this week, the Court of Appeal of England and Wales affirmed the application of the Gibbs rule in a case under the Cross-Border Insolvency Regulations 2006 (“CBIR”), Great Britain’s version of the UNCITRAL Model Law on Cross-Border Insolvency, or Chapter 15 as it is referred to in the U.S.  Continue Reading

High Court of Australia rules that “holding” deeds of company arrangements are valid

Posted in Australia

BVI based creditor – Mighty River International Limited – challenged the validity of a “holding” deed of company arrangement (or a ‘holding DOCA’) approved by creditors of Australian miner Mesa Minerals Limited (Company).  Continue Reading

Will Singapore become an international center of debt restructuring?

Posted in Australia

Singapore has set its sights on becoming an “International Center for Debt Restructuring”, approaching the status of London and New York.

Key to achieving that goal, in 2017 Singapore enacted the Companies (Amendment) Act 2017 which effected major legislative changes to restructuring provisions of the Singapore Companies Act (Cap 50) 2006 (referred to hereafter as the “Companies Act”). That legislation has been followed by further reforms with the passage of the Insolvency, Restructuring and Dissolution Act 2018 (which passed parliament on 1 October 2018). Continue Reading