The Court of Appeal today dismissed an appeal by Legend International Holdings Inc. from an order that placed it into liquidation in Australia. The Court granted Mr Joseph Gutnick, one of Legend's directors, the right to enable the appeal to be brought.
Legend is a corporation registered in Delaware in the United States of America. Its principal assets are shares in a company in Queensland and its main place of business is Melbourne.
In May 2015, Legend's major creditors, Indian Farmers Fertiliser Cooperative Limited and Kisan International Trading (the respondents), obtained an arbitral award which entitled them to be paid $12.35 million plus interest. The respondents applied to the Trial Division of the Supreme Court of Victoria for the liquidation of Legend. Legend then filed for bankruptcy in the United States of America under Chapter 11 of the United States Code.
In the Trial Division, the Associate Judge found that Legend's main centre of interests was in Australia, and he made the order to place Legend into liquidation. Legend appealed, claiming that the Associate Judge had made an error in ordering that Legend be wound up, given the existence of the US proceeding. Legend argued that an Australian liquidation was incompatible with the US proceeding, as the goal of the US proceeding was to reorganise the company so that it may continue, which an Australian liquidation might prevent from occurring. Legend argued that s 581 of the Corporations Act, which states that Australian courts must 'act in aid of, and be auxiliary to' courts of prescribed countries (which include the USA), meant that the Court must refuse to place Legend into liquidation.
The Court of Appeal did not accept that s 581 prevented the Court from making an order for liquidation. The Court has a discretion as to whether to make such an order. The Court said that very clear words would be required in the legislation to justify a conclusion that an Australian court could not exercise its discretionary power just because the company had filed for bankruptcy in the USA. The Court stated that s 581 of the Corporations Act requires the Court to consider what aid it should properly give to the foreign court. In this case that involved the Court considering whether in all the circumstances (including the existence of the US proceeding) the Court should refrain from exercising its discretion to place Legend into liquidation. The Court confirmed that the Associate Judge's decision was not wrong, noting that the US proceeding was on foot but in its early stages, that Legend had not yet proposed any plan for reorganization and that the pre-requisites for winding up Legend under the Corporations Act were satisfied. Among other things, the Court took into account that Legend's main place of business, its major assets and its major creditors were all located in Australia or entitled to enforce their rights against Legend in Australia. The Court also noted that, should it be necessary, it has the power under the Corporations Act to respond to relevant developments in the US proceeding.
NOTE: This summary is necessarily incomplete. It is not intended as a substitute for the Court's reasons or to be used in any later consideration of the Court's reasons. The only authoritative pronouncement of the Court's reasons and conclusions is that contained in the published reasons for judgment.