COMI, or not COMI? Federal Court of Australia Grants Foreign Main Proceeding Recognition to Greensill Bank AG’s Germany Insolvency

Madeleine Harland

Justice Anastassiou of the Federal Court of Australia has recently delivered two interlocutory decisions in the context of the highly publicised insolvency of Germany’s Greensill Bank AG.  Given that reported decisions on the recognition of foreign insolvency proceedings in Australia are relatively infrequent, the decisions are of some interest.

The Greensill Capital group was a large multi-national corporate group specialising in supply-chain finance and securitising future guarantee cashflows. Greensill Bank’s AG’s main business involved the purchase of receivables from international trade finance transactions through its major shareholder, Greensill Capital (UK) Ltd. This activity was funded through the bank’s deposit-taking business in Germany.

On 16 March 2021, Greensill Bank AG entered into insolvency proceedings in Germany upon application of the German financial regulator.  A special forensic audit conducted by KPMG, on instruction of the German regulator, had earlier raised concerns over the level of the bank’s exposure to companies linked to metals magnate, Sanjeev Gupta, and had identified other balance sheet irregularities.  At the same time, Greensill Capital (UK) Ltd had entered into administration in England on 8 March 2021 and the Australian parent company, Greensill Capital Pty Ltd, had entered into administration in Australia on 9 March 2021, after losing credit insurance coverage for its supply chain financing operations. Greensill Capital Pty Ltd subsequently entered into liquidation in Australia on 22 April 2021. ­

The first ruling of 31 March 2021 – Frege in his Capacity as Foreign Representative of Greensill Bank AG v Greensill Bank AG [2021] FCA 330 ­– concerned an application brought by the German insolvency administrator for urgent interim relief pending the hearing and determination of a claim for recognition of the German insolvency as a foreign main insolvency proceeding under the United Nations Commission on International Trade Model Law on Cross-border Insolvency (UNCITRAL Model Law) and Cross-Border Insolvency Act 2008 (Cth).

The interim relief sought included (i) a stay of asset transfers or disposals and a stay of enforcement or other proceedings, pursuant to Art 19(1)(c); and (ii) permission to examine witnesses, take evidence or require the delivery of information concerning the defendant’s affairs, rights, obligations or liabilities as if the German insolvency administrator was a Liquidator appointed under Part 5.B of the Corporations Act 2001 (Cth) (Corporations Act), pursuant to Art 19(1)(a).  Subsequently, the Germany insolvency administrator decided not to proceed with the application for examination and document production orders.

In considering the application, Anastassiou J reasoned that the likelihood that the foreign proceeding would be recognised at the substantive hearing of this issue was relevant to the question of whether interim orders should be made.  His Honour was satisfied that the applicant had a strong case prima facie for recognition. In particular:

  • The requirements of Art 17 were prima facie satisfied

The German insolvency proceeding was a ‘foreign proceeding’ under Art 17(1)(a) and Art 2(a), as (i) it was a collective judicial or administrative proceeding in Germany; (ii) it was conducted pursuant to the Germany Insolvency Statute; (iii) it was subject to the supervision of the Bremen Local Court; and (iv) it was for the purpose of winding up the bank.

The Germany insolvency administrator satisfied the definition of ‘foreign representative’ in Art 17(1)(b) and Art 2(d).

The application for recognition was accompanied by decisions and orders of the Bremen Local Court, pursuant to Art 17(1)(c) and Art 15(2).

The Federal Court of Australia was a designated court, pursuant to Art 17(1)(d) and Art 4.

  • The requirements of Art 15 were prima facie satisfied

The application for recognition was accompanied by decisions and orders of the Bremen Local Court, pursuant to Art 15(2).

The application for recognition was accompanied by a statement identifying all foreign proceeds in respect of the debtor that were known to the foreign representative, any appointment of a receiver and all external administration proceedings under Chapter 5 of the Corporations Act 2001 (Cth) that were known to the foreign representative, pursuant to Art 15(3) and Section 13 of the Act.

  • The requirement for recognition as a foreign ‘main’ proceeding were prima facie satisfied (Art 17(2)

Article 2(b) defines ‘foreign main proceeding’ as a foreign proceeding taking place in the State where the debtor has its centre of main interests (COMI).  Article 16(3) provides that in absence of proof to the contrary, a company’s COMI is presumed to be in the State in which its registered office is.

The registered office of Greensill Bank was in Bremen, Germany, and Anastassiou J found that there was nothing to rebut the presumption of COMI in Germany.  In addition, the following factors buttressed this conclusion:

        • All of the bank’s employees were in Germany;
        • The bank did not have any branches outside Germany and owned the land at its business address in Bremen;
        • The bank primarily collected deposits from investors in Germany;
        • The majority of the bank’s creditors were in Germany;
        • The bank had been issued a bank licence by the relevant German regulator; and
        • Under the European Insolvency Regulation, the Bremen Local Court would not have opened the insolvency proceedings without being satisfied that the bank’s COMI was in Germany.
  • There were no public policy reasons against recognition (Art 6)

On the basis that the foreign recognition application had a prima facie strong chance of success, his Honour granted the interim stay orders sought by the German insolvency administrator.

The second ruling of 6 May 2021 – Frege in his Capacity as Foreign Representative of Greensill Bank AG v Greensill Bank AG (No 2) [2021] FCA 510 ­– concerned the substantive application for foreign main proceeding recognition of the German insolvency proceedings, including (i) a stay of asset transfers or disposals and a stay of enforcement or other proceedings, pursuant to Art 20; (ii) authority for the German insolvency administrator to be entrusted with the administration, realisation and distribution of the bank’s assets in Australia, pursuant to Art 21; and (iii) permission to examine witnesses, take evidence or require the delivery of information concerning the defendant’s affairs, rights, obligations or liabilities as if the German insolvency administrator was a Liquidator appointed under Part 5.B of the Corporations Act, pursuant to Art 21.

Anastassiou J essentially confirmed the prima facie findings from his earlier ruling. With respect to COMI, his Honour held that (at [17]):

 “… there is substantial evidence which supports the conclusion that Greensill Bank’s COMI is in Germany, including that all of Greensill Bank’s strategic business decisions, such as decisions relating to financial or operational matters, were made at or otherwise issued from its registered office in Bremen; all of Greensill’s Bank’s books and records were held at its registered office in Bremen; and the majority of its creditors are situated in Germany.”

Anastassiou J found that the purpose of the German insolvency proceedings, and the procedures for giving effect to that purpose, were akin to a liquidation under Australian law.  Accordingly, it was appropriate to modify the stay ordered on 16 March 2021 such that any potential claim that may be made against the bank in the future would be treated as triggering a stay pursuant to Part 5.4B of the Corporations Act, as if the bank was being wound up.

His Honour also found that there was a proper basis under Art 21 to entrust the German insolvency administrator with the administration of the bank’s assets in Australia.

Lastly, Anastassiou J reasoned that under Art 21 it was appropriate to permit the Germany insolvency administrator, if so advised, to invoke the power to examine witnesses, take evidence and require the delivery up of information concerning the bank as if he were a liquidator appointed under Part 5.4B of the Corporations Act.  This “will assist with the liquidation of Greensill Bank and allow for the efficient identification of assets and liabilities in Australia” (at [19]).

***

The German insolvency administrator of Greensill Bank AG has also been successful in establishing foreign main proceeding recognition in the United Kingdom (In the Matter of Greensill Bank AG [2021] EWHC 966 (Ch), 31 March 2021, ICC Judge Prentis) and in the United States (Greensill Bank AG and Michael C Frege, 18 May 2021, Order of Judge Wiles, 1:21-bk-10757).

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