Game of forums: Australian liquidation v Chapter 11 – which should prevail?

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On 30 June 2016 the Victorian Court of Appeal clarified the interplay between US Chapter 11 and Australian insolvency proceedings in Legend International Holdings Inc (in liquidation) v Indian Farmers Fertiliser Cooperative Ltd [2016] VSCA 151.

What you need to know: key takeaways

– This is the first Australian appellate decision on the interplay between a US Chapter 11 reorganisation and an Australian liquidation in the context of the UNCITRAL Model Law on Cross-Border Insolvency (Model Law).

– The Court of Appeal dismissed an appeal by Legend International Holdings Inc (Legend), a company associated with Mr Joseph Gutnick, that a winding-up order should not have been made against it on the basis that Legend was also the subject of Chapter 11 proceedings in the US.
The Court of Appeal’s decision confirms that an Australian Court is not automatically obliged to stay or refrain from making a winding-up order if the company has also filed for Chapter 11 in the US.

– In 2015, an arbitral award was made against Legend for approximately $25M. On application to the Supreme Court of Victoria, the award became enforceable as a judgment of that Court.

– Legend did not comply with a demand for payment and creditors brought winding-up proceedings. Three days before the hearing of the winding-up application, Legend filed a Chapter 11 proceeding in the US and sought to have that proceeding recognised under the Model Law and the Australian winding up proceedings dismissed.

– Associate Justice Randall found that the US Chapter 11 proceedings should not be recognised under the Model Law and ordered that Legend be wound up in Australia. This was because he found that the overwhelming evidence was that Legend’s centre of main interest (COMI) was in Australia.  His Honour’s discussion of COMI for the purposes of the Model Law helpfully set out the applicable tests and relevant factors with respect to Legend. The determinative factors as to COMI are set out in the table below.

– Legend appealed, claiming that the Associate Judge had made an error in making the winding up order on the basis that section 581 of the Corporations Act 2001 mandated the Australian court to refrain from making the winding up order as to do so would be incompatible with the US Chapter 11 proceeding.

-In summary, the Court of Appeal rejected the appeal for the following reasons:

  • notwithstanding the mandatory language of section 581 that Australian Courts “must act in aid of” foreign courts of prescribed countries, the Court has a discretion as to whether or not to make a winding-up order; and
  • in this instance, the discretionary factors favoured the making of the winding-up order particularly given that the Chapter 11 proceedings were in their infancy, Legend had not put forward any plan for reorganisation and Legend’s COMI was Australia and not the US.


-The decision is important not only for Australia, but is of international significance. The worldwide reach of an automatic stay under Chapter 11 is well known and often sought to be employed. This decision confirms that the application of the stay must be considered through the prism of the Model Law as well as local cross-border insolvency provisions. The stay will not be automatically recognised.


Published 20-07-16 by Categories Uncategorized
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