Leiden Law Blog

Equality of Arms in Cross-border Insolvency Cases

Posted on by Bob Wessels in Private Law
Equality of Arms in Cross-border Insolvency Cases

In my July 9 blog, I was able to point out the newly created Global Principles for Cooperation in International Insolvency Cases 2012. These are non-binding principles, essential in any cross-border insolvency case. Based on the well-known Eurofood case (CJEU 2 May 2006, Case C-341/04), the drafters of these Global Principles (prof. Fletcher, UCL, London, and myself), created among others Global Principle 5 (“Equality of arms”). It basically entails: “All judicial orders, decisions and judgments issued in an international insolvency case are subject to the principle of equality of arms, so that there should be no substantial disadvantage to a party concerned. Accordingly: (i) each party should have a full and fair opportunity to present evidence and legal arguments, (ii) each party should have a full and fair opportunity to comment on the evidence and legal arguments presented by other parties.” The value of having a visible expression of the fundamental importance of respect for the principle of equality of arms, as contained in Global Principle 5, is underscored by the regularity with which these elements appear to be overlooked, or by-passed, until they are detected and corrected by a vigilant court. See the following two recent examples.

The Royal Court of Jersey, on 23 December 2011, in the case of Re Standish, ([2011] JRC 239A) felt impelled to qualify the nature of recognition and assistance it was granting to court-appointed receivers from England (in non-bankruptcy proceedings involving the imposition of an asset-freezing order.) While granting the English receivers the power to investigate the possible whereabouts of assets on the island of Jersey, the court re-shaped the terms of their authority so as to preserve the right of local Jersey parties to invoke the jurisdiction of the Jersey court in order to decide whether they should have to provide confidential information sought by the English receivers. The Jersey court affirmed that it was its responsibility to determine questions of fairness arising in such circumstances.   

Another case concerns Sean Quinn (Irish Bank Resolution Corporation Ltd v. Quinn [2012] NICh 1). Mr. Quinn is a well-known business tycoon in Ireland. His largest creditor was a bank, with a claim of almost €2 billion. On 10 January 2012 the High Court in Northern Ireland gave judgment annulling the bankruptcy order previously obtained by Quinn. Quinn’s petition had been filed on 10 November 2011, and had been dealt with by the court the next day without the official receiver having been given the opportunity to reflect on whether he would wish to make any representations at the hearing. Quinn initially succeeded in his contention that his centre of main interest (COMI) – the basis for the court’s jurisdiction – was not in the Republic of Ireland, but in Northern Ireland as “he was born, bred and worked all his life” in Northern Ireland. This “rush to the court house” was compromised by Quinn’s omission to disclose a number of relevant factors which would have raised serious doubts in the court’s mind whether his COMI was genuinely located in Northern Ireland, as he was alleging, rather than in the Republic of Ireland. On appeal brought by the Bank his Northern Irish bankruptcy was annulled and on 16 January 2012 Quinn was declared bankrupt in the Republic of Ireland, where his bankruptcy could last up to 12 years, in contrast to the UK where the norm is just 12 months. Global Principle 5 has been widely welcomed by the advisers and consultants to the Global Principles project; it provides a sound affirmation of the ultimate value of respect for due process and procedural fairness in cross-border insolvency cases.

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