Court refuses application for recognition under the Model Law: Indian Farmers Fertiliser Cooperative Ltd v Legend International Holdings Inc [2016] VSC 308.

12 July 2016

In a recent decision of Indian Farmers Fertiliser Cooperative Ltd v Legend International Holdings Inc [2016] VSC 308 in the Supreme Court of Victoria, a Chapter 11 proceeding in relation to Legend International Holdings Inc (Legend) in the United States (US Chapter 11 Proceeding) was not recognised pursuant to the Australian Cross-Border Insolvency Act 2008 (Cth) (CBIA) as a foreign main proceeding or a foreign non-main proceeding. Accordingly, the CBIA had no application in relation to the US Chapter 11 Proceeding.  As was the case prior to the implementation of the CBIA, the Court was left with no alternative other than to rely on the so called “assistance” provisions of the Corporations Act.

Brief overview

The brief facts are as follows:

  • Legend was incorporated in the state of Delaware in United States of America;
  • The creditor entities were incorporated in India;
  • Various factual events culminated in the Indian companies seeking to wind up Legend; and
  • Legend filed proceedings in the United States pursuant to Chapter 11.
Issues for determination

The issues for determination were as follows: 

  • Whether it was “manifestly contrary” to the public interest to recognise the US Chapter 11 Proceeding pursuant to the CBIA;
  • If not:
    • is the centre of main interest (COMI) in Delaware in order for the US Chapter 11 Proceeding to be recognised as a ‘foreign main proceeding’?; and
    • if Delaware is not the COMI, does Legend have an establishment in Delaware such that the US Chapter 11 Proceeding is to be recognised as a ‘foreign non-main proceeding’; and
  • If the Australian Court does not recognise the US Chapter 11 Proceeding as a ‘foreign main proceeding’ or ‘foreign non-main proceeding’, then will section 581 of the Corporations Act apply so as to allow Legend to be wound up in Australia. Section 581 of the Corporations Act effectively provides for the circumstances where Australian courts may (and in some cases, must) act in aid of other courts (including foreign courts) that have jurisdiction in external administration matters.

In essence, the Court found the following:

  • The Court would be slow to exercise a public interest policy exception, and the mere fact that the US Chapter 11 Proceeding had a different insolvency regime than in Australia, does not mean that it is contrary to the public interest;
  • The US Chapter 11 Proceeding should not be recognised as a foreign main proceeding because it did not have its COMI in Delaware as, among other things:
    • although the incorporation documents for Legend stated that it had a registered office located at 110 W. Ninth Street in the state of Delaware, it was possible for Legend to have more than one registered office (by virtue of, among other things, documents filed with ASIC in Australia to allow Legend to be recognised as a foreign corporation, which listed a registered office in Australia) and in those circumstances, given that the term “registered office” was not defined in the Model Law, as there were multiple registered offices the presumption did not arise. The Court went on to find that in any event, to the extent there was a presumption that Legend’s COMI was in Delaware, that presumption was rebutted by proof to the contrary. This was because, among other things:
      • the residents of the directors was a state of flux – it was not clear that the directors resided in the United States or Australia, but it appeared that the majority of directors were in Australia and the day to day decisions were being made by the directors in Australia;
      • the Delaware address of the registered agent was nothing more than a postbox;
      • as a matter of fact the place of business of Legend appeared to be at a Melbourne address;
      • the activities of the holding company was an investment in a company in Australia;
      • there was substantial and compelling evidence that Legend’s operations were conducted in Australia and the day-to-day activities were conducted for reward; it was held that there was no evidence that Legend’s day-to-day operations were conducted in the United States;
      • Legend’s accounting procedures were attended to in Australia (even if done in accordance with US laws);
      • a large proportion of the company’s creditors were located in Australia with a smaller group of creditors located in the US, UAE and India; and
      • whilst the majority of Legend’s shareholders are based in the US, that appeared to be the case in value only, with most shareholders appearing to reside in Australia. In any event the Court noted this was irrelevant as there is the ‘need for the centre of main interest to be ascertainable by third parties, creditors and potential creditors”;
  • The US Chapter 11 Proceeding should not be recognised as a foreign non-main proceeding because it did not have an establishment in Delaware. In this regard:
    • it is recalled that ‘establishment’ is defined to mean “any place of operations where [Legend] carries out a non-transitory economic activity with human means and goods or services”;
    • the Court referred to Gainsford; Re Tannenbaum v Tannenbaum (click here to see our article on this case from a previous issue of the Insolvency article) and held that the mere auditing of accounts and compliance with regulatory supervision in the US do not, in plain language terms, constitute ‘operations’ or ‘economic activity’ by Legend; and
    • the Court concluded that there was no evidence to prove that there was an establishment in the United States and accordingly, the Court declined to recognise the Chapter 11 Proceedings in the United States as foreign non-main proceeding; and
  • Finally, the court considered whether Legend should be wound up pursuant to section 581 of the Corporations Act and found as follows:
        • there was no letter of request (which is usually the case) from the US Bankruptcy Court, and at its highest, there was only a request being made by a foreign representative;
        • whilst the Court has a duty pursuant to section 581(2) to act in aid of the US Bankruptcy Court:

“the Court does not know what action is or might be thought to be in aid of or auxiliary to the US court. In order to act in aid of and be auxiliary to the US bankruptcy court, this Court would need an indication from that court of the assistance it needs; while the Court is required to act in aid of and be auxiliary to the US bankruptcy court, it is not yet clear what assistance is required by that court.”

    • the Court rejected the submission that in the circumstances it would be repugnant to wind up the company in Australia with the Chapter 11 proceeding already in place; and
    • the Court proceeded to wind up the Company.

It should be noted that the Court’s decision in respect of rendering aid pursuant to section 581 of the Corporations Act 2001 (Cth) and winding up Legend was the subject of an appeal in Legend International Holdings Inc (in liq) v Indian Farmers Fertiliser Co-op Ltd [2016] VSCA 151. Legend did not appeal the Court’s decision to refuse to recognise of the US Chapter 11 Proceeding pursuant to the CBIA.

The Justices on appeal unanimously found that the Court did not err in proceeding to wind up the Company saying as follows:

“Very clear words would be required by Parliament to justify a conclusion that an Australian court was obliged to refrain from exercising a discretionary power under the Corporations Act to wind up a company simply because the company had filed for bankruptcy in the USA under Chapter 11. 

Such clear words are not found in s 581. Such an outcome would be surprising and anomalous. For one thing, it would mean that although (as here) the US Proceeding was not recognised under the Model Law, an automatic stay on the winding up application would apply under s 581, thus placing Legend in a stronger position than that it would have been in had the US Proceeding been recognised as a foreign main proceeding. In this regard, Art 20(4) of the Model Law is noteworthy. It provides a carve out from the general stay in Art 20(1) on proceedings against the company in that the general stay does not affect the right to request commencement of a proceeding under the Corporations Act. That includes an application to wind up the company.

Section 581(2) does not mandate that outcome. Rather, the Court was required to consider whether in all the circumstances (including the existence of the US Proceeding which involves a regime that is distinctly different to liquidation) it would be proper to provide aid, and act in an auxiliary manner, by not exercising the discretion to wind up Legend. The Associate Judge here determined that that would not be appropriate and he exercised the discretion in favour of winding up Legend.”

The Justices on appeal went even further to say “had we been exercising the discretion ourselves, we too would have made the winding up order”.


This decision is further evidence of the evolution of the Cross-Border Insolvency law in Australia. The Legend decision demonstrates that just because an overseas insolvency mechanism has been commenced, it does not necessarily follow that the Australian Court will recognise such a proceeding pursuant to the principles of the CBIA.

In circumstances where the CBIA has no application, this decision demonstrates that the traditional use of certain provisions of the Corporations Act, and in particular, section 581, will seek and provide assistance to creditors and practitioners in ensuring that a suitable mechanism will be affected in Australia for the orderly winding up and managing of the insolvent company. However if practitioners are proposing to rely on section 581 they should ensure that there is in fact a letter of request from the foreign court setting out precisely what aid is being sought from the Australian Court.

This article was written by Grant Whatley, Partner and Matthew Youssef, Associate.

Subscribe to HWL Ebsworth Publications and Events

HWL Ebsworth regularly publishes articles and newsletters to keep our clients up to date on the latest legal developments and what this means for your business.

To receive these updates via email, please complete the subscription form and indicate which areas of law you would like to receive information on.

Contact us