The Supreme Court of the United Kingdom has declined to hear an appeal of the English Court of Appeal’s judgment in Re OSJC International Bank of Azerbaijan (Re OSCJ IBA) thus maintaining the 19th Century rule in Antony Gibbs & Sons v La Societe Industrielle et Commercial des Metaux (the “Gibbs Rule”) that English law governed debt can only be discharged by the English Courts.
In Re OSCJ IBA, International Bank of Azerbaijan (IBA), undergoing a multijurisdictional restructuring of its debts, obtained recognition from the English Courts of its Azerbaijani restructuring pursuant to the Cross-Border Insolvency Regulations 2006 (CBIR), and obtained a modified version of the automatic stay of proceedings
IBA’s creditors voted in favour of the Azerbaijani restructuring proposal by a significant margin. This was approved by the local Azerbaijani Courts, making it binding on all creditors as a matter of Azerbaijani law.
Two creditors with English law governed debt did not participate in the Azerbaijani restructuring nor did they submit to the jurisdiction of the Azerbaijani courts. They intended that upon the completion of the Azerbaijani restructuring and the consequent lifting of the stay, they would pursue their claims outside the restructuring.
IBA sought a permanent stay under the CBIR to prevent them from doing so. Agreeing with the court at first instance, the English Court of Appeal (COA) refused to grant a permanent stay, which would have remained in force post the completion of the restructuring.
The COA held that IBA failed to show that the stay was necessary and appropriate as the Azerbaijani restructuring would have concluded and further protection was not required for IBA’s creditors and a permanent stay would effectively discharge the English debt, directly counter to the Gibbs Rule. The CBIR is procedural in nature and does not attempt a substantive unification of insolvency law.
The Gibbs Rule has attracted much criticism, predicated on it being overly territorial in nature and contrary to the tide of universalism. The approach of the Gibbs Rule has not been adopted in the USA and Singapore. However, it does allow parties to contract freely in the knowledge that their rights are protected by the law in which they choose to transact.
It is now a matter for Parliament as to whether it wishes to intervene, which is not expected to be any time soon.