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29 New Zealand law currently has three distinct mechanisms to deal with cross-border insolvency issues. First, in cases of individual bankruptcy, relief may be granted by the High Court under s 135 of the Insolvency Act 1967. Second, in cases involving overseas companies which have assets in New Zealand, those assets can be liquidated in accordance with New Zealand rules for the liquidation of companies under s 342 of the Companies Act 1993. Third, by application of the common law principles of comity.9 We deal with each of these areas in turn.10
30 We note that in cases of insolvency the Reciprocal Enforcement of Judgments Act 1934 is not available as a means of enforcing a judgment because such cases do not constitute an “action in personam”.11
31 Prior to the enactment of s 135 of the Insolvency Act 1967, New Zealand courts derived their ability to act in aid of a foreign bankruptcy from s 122 of the Bankruptcy Act 1914 (UK), an Imperial statute which purported to apply not only in the United Kingdom but also extra-territorially.12 The provision was directed to all “British Courts”. The term “British Court” was considered by the English Court of Appeal in Re James [1977] Ch 41. The English court had been asked to act in aid of a bankruptcy in Rhodesia after the Unilateral Declaration of Independence by that country in 1966. Both Scarman and Geoffrey Lane LJJ held (Lord Denning MR dissenting) that the words “British Court” in s 122 of the English Statute meant a court which, by its constitution, was “British” rather than a court situated geographically in British territory (378–379, Scarman LJ). Because the 1969 Constitution of Rhodesia (following the Unilateral Declaration of Independence) did not recognise the authority of the Queen in Parliament the Court of Appeal held that the Rhodesian Court could no longer be regarded as a “British Court”.
32 The extra-territorial effect of a predecessor of s 122 of the Bankruptcy Act 1914 (UK) had been confirmed in Callender Sykes & Co v Colonial Secretary of Lagos [1891] AC 460 (PC). In that case the Privy Council, on appeal from the Gold Coast Colony, held that s 74 of the Bankruptcy Act 1869 (UK) did have extra-territorial effect. Although doubts were expressed subsequently both in Victoria (Federal Bank of Australia v White (1895) 21 VLR 451) and in Saskatchewan (Re Graham [1928] 4 DLR 375) as to whether s 122 of the Imperial Act of 1914 could bind Colonies or Dominions which had full legislative power, the extra-territorial effect of the provision was recognised in New Zealand as recently as 1973.13 Subsequently, Barker J in the unreported New Zealand case Re Beadle (HC Auckland, 1 September 1980, B116/80) expressed sympathy with the point of view advanced in Victoria and Saskatchewan even though the issue was, by then, moot because of the introduction of s 135 of the Insolvency Act 1967.
33 Section 135 of the Insolvency Act 1967 enjoins the High Court of New Zealand to assist foreign courts having jurisdiction in bankruptcy. Under s 135(1) the court is directed to act in aid of and to be auxiliary to any court of any “Commonwealth country” which has jurisdiction in bankruptcy (see also definition of “Commonwealth country” in s 2(1) of that Act). The provisions of s 135 apply only to personal insolvencies: s 168 Insolvency Act.
34 Under s 135(1), an order of a court of a Commonwealth country requesting aid is sufficient to enable the High Court of New Zealand to exercise such powers as it might have exercised in respect of the matter specified in the order had it arisen within New Zealand.
35 A similar provision to s 135, the Bankruptcy Act 1966 (Cth) s 29(1), was examined by the Full Court of the Federal Court of Australia which interpreted the word “shall” as a mandatory requirement: Ayres v Evans (1981) 39 ALR 129.
36 The equivalent English provision to s 135 was considered in Hughes v Hannover Ruckversieherungs-Aktiengesellschaft [1997] 1 BCLC 497. In that case, the English Court of Appeal held that the words “shall assist” in s 426(4) of the Insolvency Act 1986 (UK) were directory rather than mandatory in nature (517).14
37 One might ordinarily expect a New Zealand court to follow the Australian approach particularly when the Australian decision dealt with a request for aid from the High Court of New Zealand under a companion provision to s 135 of the New Zealand Act. However, we prefer the view that the word “shall” in s 135(1) of the New Zealand Act was directory rather than mandatory in nature. This was the view taken by Barker J in Re Beadle in order to leave open the possibility of the court exercising a residual discretion to refuse to grant aid on public policy grounds. Justice Barker’s approach is consistent with article 6 of the Model Law.
38 Under the Insolvency Act 1967 s 135(2), when aid is sought at the request of a court of any state which is not a Commonwealth country the High Court clearly has a discretion whether or not to grant aid.
39 So far as procedure is concerned on receipt of an application for aid, Lockhart J, in the first instance decision in Re Ayres, ex parte Evans (1981) 34 ALR 582 said:
There have been very few occasions in the past when the aid of this court has been sought by letters of request. The procedure to be followed in cases of this kind has not been prescribed, so I directed the Official Assignee to file applications and serve them on the bankrupt.
The course taken in these matters satisfies me of the desirability generally of ensuring, when future letters of request are issued by foreign courts seeking the aid of this court, that the bankrupt is served with notice thereof and that evidence is given by the moving party as to the administration of the estate, including the assets and liabilities of the bankrupt and the countries in which the creditors reside. (583)
These observations are equally applicable to cases under s 135.
40 Section 135 does not prescribe a procedure for the Official Assignee in bankruptcy of a New Zealand bankrupt to apply to the court to request from a foreign court (whether in a Commonwealth country or not) assistance for a New Zealand bankruptcy. In practice, this issue has been addressed by making application to the High Court, under its inherent jurisdiction, for the issue of a letter of request under the hand of a judge of the High Court of New Zealand which details the aid sought.15 It is then necessary for a separate application to be made in the state in which aid is sought to determine whether that court should act in aid of and be auxiliary to the New Zealand bankruptcy.
41 There have been few New Zealand decisions which have applied s 135 and all are unreported. They are considered below in chronological sequence.
42 In Re Beadle, a request for aid was made by the Supreme Court of Queensland exercising jurisdiction in bankruptcy. After considering authorities under s 122 of the Bankruptcy Act 1914 (UK), Barker J concluded that aid should be granted to enable the Official Receiver of Mr Beadle’s bankruptcy in Australia to have access to real property in New Zealand. Mr Beadle was not bankrupt in New Zealand. Neither were there any competing claims by unsecured creditors in New Zealand which may have justified the refusal of aid.
43 Re Beadle (No 2) (HC Auckland, 14 June 1982, B116/80) involved an issue of distribution of funds from the realisation of the land in New Zealand which had been the subject matter of the earlier decision of Barker J. It was necessary for the court to consider how the funds should be distributed. The issue was whether a charging order over the land (registered to protect Mr Beadle’s ex-wife in respect of moneys owing for arrears of maintenance) was a valid charge to be met out of the proceeds of sale, or whether it was void against the Official Receiver of the Australian bankruptcy as an incomplete execution. The issue turned on the meaning of s 135(1) of the Insolvency Act 1967 which, in part, states that
an order of [the requesting court] requesting aid shall be sufficient to enable the High Court to exercise in regard to the matter specified in the order such powers as the High Court might exercise in respect of the matter if it had arisen within its own jurisdiction.
Had the bankruptcy been a New Zealand bankruptcy the charging order would have been ineffective as a charge on the proceeds of sale of the property as a result of the application of the doctrine of “relation back”. That doctrine applies so that all property and rights which vest in the Official Assignee on bankruptcy pass to him or her at the time of commencement of the bankruptcy, rather than at the date on which either a debtor’s petition in bankruptcy is filed, or an order is made on a creditor’s petition. This means that the Official Assignee takes title to assets at a time earlier than the date on which the bankruptcy actually occurred. (Generally, see Laws NZ, Insolvency, paras 245–251; in relation to foreign bankruptcies see also para 556.)
44 However, following the House of Lords’ decision in Galbraith v Grimshaw [1910] AC 508, Vautier J concluded that the doctrine of relation back does not apply to a foreign bankruptcy. Further, Vautier J held that a foreign state’s doctrine of relation back does not apply to a bankruptcy (or a notional bankruptcy as a result of an order in aid) in New Zealand: Re Beadle (No 2) 8–9. The test, in any particular case, is whether the bankrupt could have assigned to a trustee, as at the date on which a trustee’s title to assets was to accrue, the debt or assets situated in the foreign jurisdiction: Galbraith v Grimshaw, 510–513.
45 As a matter of New Zealand domestic law movable property will be governed by the law of the domicile of the debtor, so that if a debtor ceases to be domiciled in the state of adjudication in bankruptcy the law of that state will not have any application to movable property acquired after bankruptcy that is situated in another state: Hall v Woolf (1908) 7 CLR 207, 211. A valid adjudication in bankruptcy in the bankrupt’s state of domicile will pass the right to movable property of the bankrupt, wherever situate, to the Assignee in bankruptcy: Strike v Gleich (1879) OB & F (CA) 50; Cleve v Jacomb (1864) Mac 171; see Laws NZ, Insolvency, para 559.
46 In contrast, immovable property will be governed by the law of its place of locality. Accordingly, if an Assignee in Bankruptcy wishes to realise immovable property situate in a foreign state a step must be taken in the courts of the state where the immovable property is situated to endorse the Assignee’s proposed action; for example, by appointing a receiver of the immovable property for the purpose of getting in the rents and profits: Re Kooperman [1928] WN 101; [1928] B & CR 49 Re Osborn, ex parte Trustee [1931–32] B & CR 189; Re Beadle (HC Auckland, 1 September 1980, B116/80); see also Laws NZ, Insolvency, para 560.
47 The next case to come before the courts was Re Grose (HC Christchurch, 21 September 1992, B404/92). In Re Grose the Trustee in Bankruptcy of Mr Grose’s bankrupt estate in Australia sought aid from the New Zealand courts to assist in realising assets of Mr Grose situate in New Zealand. A complicating factor was that about 6 weeks before judgment Mr Grose was also adjudicated bankrupt, on his own petition, in New Zealand. Despite the New Zealand bankruptcy, Tipping J could not see any “possible reason why that should be a bar to an order under s 135” (3). The form of the order made by Tipping J enabled the Official Assignee in New Zealand to exercise the powers given to him under the order “subject to any prior claim validly and properly made in accordance with the laws of New Zealand, including applicable international law” (3). Tipping J then said:
In other words, valid claims in the New Zealand bankruptcy will have priority over the claims in the Australian bankruptcy when it comes to the exercise of the powers of the Official Assignee under the s.135 order. That seems to me to be entirely proper and I also agree with the slight expansion of the order as originally sought to make it clear, as was probably implicit anyway, that the prior claim must of course be a valid and proper one. (3)
48 The final case is Re Hemming (HC Hamilton, 21 January 1997, M11/97). Re Hemming dealt with the circumstances in which a New Zealand court may issue a letter of request seeking the aid of an overseas court for the purpose of assisting the Official Assignee in New Zealand to get in assets for the benefit of creditors of a New Zealand bankruptcy. Justice Hammond’s judgment in Hemming implicitly endorsed the practice which had developed of requiring the bankrupt empowered by the inherent jurisdiction of the court to be served with either the application for the issue of a letter of request or with an application to the overseas court for an
order that aid be granted. (The practice is discussed in Laws NZ, Insolvency, para 555; see also Clunies-Ross v Totterdell (1988) 98 ALR 245.)
49 For completeness it is appropriate to mention a number of specific provisions affecting bankruptcy law in Pacific Island states. In summary those laws provide:
50 There is no equivalent to s 135 of the Insolvency Act 1967 in the Companies Act 1993. This distinguishes the New Zealand position immediately from Australia and the United Kingdom. In Australia provisions akin to s 135 of the Insolvency Act 1967 are found in the Bankruptcy Act 1966 (s 29) and in the Corporations Law (s 581). In the United Kingdom, the provisions of s 426 of the Insolvency Act 1986 apply to both companies and to individuals.
51 An application may be made to the High Court under s 342 of the Companies Act 1993 for the liquidation of the assets of an overseas company in accordance with the provisions applicable to domestic companies.16 Section 342(2) of the Companies Act makes it clear that an application may be made whether or not the overseas company is registered as such or has been dissolved in its own jurisdiction. It has been held that the Registrar of Companies has standing to bring an application under this section: McPherson v Industrial Banking Incorporation Limited (1997) 8 NZ CLC, 261,420 at 261,424.
52 Some immediate problems are caused by this approach: use of this provision could result in disparate treatment of local and overseas creditors of the same company for a number of reasons:
53 Some of these concerns may have been alleviated by the manner in which the New Zealand High Court dealt with the case of Gavigan v Australasian Memory Pty Limited (In Liquidation) (1997) 8 NZCLC 261,449. In that case Paterson J opined:
It is questionable whether those propositions are entirely consistent. Certainly, preferential New Zealand claims would deplete the available common fund before remaining creditors (both New Zealand and foreign) participate. If the Model Law were enacted in its proposed form, but s 342 of the Companies Act 1993 remained on the statute book, it would be necessary for a New Zealand court to make a choice as to which remedy was, in the particular circumstances, more appropriate.
54 Reference has already been made to the principles of comity in chapter 1 (paras 20–24). Two recent New Zealand cases have considered cross-border insolvency issues arising in the course of the exercise of the High Court’s jurisdiction under the Admiralty Act 1973: both cases were approached on the basis of comity – although different results were reached in each case.
55 In Fournier v The Ship “Margaret Z” [1997] 1 NZLR 629 Salmon J declined to apply the principles of comity to a case in which the owner of a vessel had been placed under the Chapter 11 Insolvency Regime of the United States Bankruptcy Code. Two reasons were advanced for this decision. First, Salmon J was satisfied that Guam, the foreign territory in which the owner was located, would treat seamen’s wages as being outside the reach of the Chapter 11 automatic stay. Second, Salmon J took the view that special considerations relating to an in rem claim by crew against a ship on which they sailed would have required the proceedings to be dealt with in the forum of the plaintiff’s choice.
56 In Turners & Growers Exporters Limited v The Ship “Cornelis Verolme” [1997] 2 NZLR 110 Williams J took the view that (assuming there was no positive New Zealand law to the contrary) the principles of comity required him to recognise
unless the foreign proceedings were not final, were contrary to public policy, or in breach of natural justice (119). Accordingly, Williams J found that active assistance should be given to the liquidators appointed by a Belgian court. Justice Williams distinguished Fournier on a number of grounds, but principally because there was no issue involving Chapter 11 of the United States Bankruptcy Code: Turners & Growers, 119.
57 A comparison of Fournier v The Ship Margaret Z with Turners & Growers Exporters Limited v The Ship “Cornelis Verolme” demonstrates that principles of comity are simple to state but much more difficult to apply.
58 At common law all jurisdiction is territorial: Gordon Pacific Developments Limited v Conlon [1993] 3 NZLR 760, 765 applying Re Trepca Mines Limited [1960] 1 WLR 1273 (CA). But principles of comity will be applied where there is some connection with the jurisdiction asked to intervene: for example, residence or assets within the jurisdiction: Kuwait Asia Bank EC v National Mutual Life Nominees Ltd [1990] 3 NZLR 513. Yet the need to modify territorial rules to deal adequately with a global economy has also been recognised. In Gordon Pacific Developments Limited v Conlon [1993] 3 NZLR 760, in answer to a submission that principles of comity should be extended to meet modern conditions, Henry J said:
Desirable and timely as change may be, the assumption and the recognition of extra-territorial jurisdiction of foreign Courts is better left to the governmental arm of state rather than ad hoc decisions of the Court. (767)
59 Concurrent bankruptcies occur when the same person is adjudged bankrupt in two or more states and those bankruptcies run concurrently. An example is Mr Grose having been adjudged bankrupt in both Australia and New Zealand: Re Grose (HC Christchurch, 1 September 1992, B404/92). A corporate example of concurrent bankruptcies occurred in the case of Gavigan v Australasian Memory Pty Limited (1997) 8 NZCLC 261,449. In that case there was a branch liquidation of an Australian company (in liquidation in Australia) by a New Zealand court.
60 Difficult issues are involved in determining the extent to which courts in one jurisdiction should yield to the domestic law of another jurisdiction to enable international disputes to be resolved. Three possible ways of dealing with concurrent bankruptcies were considered by the English Court of Appeal in Artola Hermanos, ex parte Chale (1890) 24 QBD 640 (CA) 648–649:
None of these approaches has attracted universal approval.
61 Where concurrent bankruptcies exist there has been a tendency to allow priority claims contained in the domestic law of the jurisdiction from which aid is sought to be paid out of the assets situated in that jurisdiction in priority to other debts. Thus, while no authorities were discussed in Tipping J’s judgment in Re Grose, the cases seem to support the view taken by the judge in that case. In Re Tucker (a bankrupt), ex parte Bird [1988] LRC (Comm) 995, 1008–1009 Hytner JA, sitting in the Staff of the Government Division of the Manx High Court, held that where competition between local and foreign creditors arose from concurrent bankruptcies, the court from which aid was sought had a discretion to limit aid, or impose conditions, so as to protect creditors in its jurisdiction. Hytner JA applied the case of Osborn, ex parte Trustee (1932) 15 B & CR 189, in which Farwell J said:
I think it is clear that I am bound in a proper case under section 122 [Bankruptcy Act 1914 (UK)] to assist the Court in the Isle of Man in the bankruptcy which is the bankruptcy under that jurisdiction. I think under the section it is plain that this Court must give such assistance as it can, but subject of course to the consideration which would arise if there was also a bankruptcy in this country as to the rights of the creditors and other persons in this country. There not being any such conflict I think this Court is bound to give all the assistance that it can. (citing page 194 of Osborn at 1008)
From that, Hytner JA was able to state:
If there is no conflict of interests resulting from two bankruptcies the section is mandatory. If there is such a conflict there is a discretion to limit assistance so as to protect the “home” creditors. (1008)
62 In keeping with the need for a healthy mix of principle and pragmatism in insolvency law many concurrent bankruptcies have, ultimately, been settled on commercial terms with court sanction being given to a settlement between competing Assignees or Trustees in Bankruptcy (for example, Re P Macfadyen & Co, ex parte Vizianagram Co Limited [1908] 1 KB 675 in which there were concurrent bankruptcies in England and India). We have considered whether it would be desirable to set out factors to be taken into account by a court when seeking to approve a compromise of this type. We have concluded that it would be inappropriate as the circumstances in which commercial settlements may be sought are so varied that it would be difficult to articulate factors of use to the resolution of cases.21 We prefer an approach which gives the court a wide discretion to sanction settlements on commercial terms. There is no evidence to suggest that any difficulty has been caused by the current absence of guidelines. As Mr Gordon Marantz QC (President of INSOL International) stated in a submission on the draft of this report:
Once standards or factors are prescribed, that becomes the way things are done. It is restrictive of creativity. If one has faith in the judiciary and the process, the legislation should be as flexible as possible.
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