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Cross-Border Insolvency highlighted by Edelsten case

Insolvency: 23 March 2019

On 3 September 2014, Soneet Kapila, the United States trustee in bankruptcy for Geoffrey Edelsten, issued an application in the Federal Court of Australia for recognition of a foreign bankruptcy proceeding in Australia after Mr Edelsten was made bankrupt in the United States. It is alleged that Mr Edelsten owes significant sums to around 40 creditors.

In circumstances such as these, where a person has interests in multiple jurisdictions and is made bankrupt, the trustee in bankruptcy can, in certain circumstances, take action to enforce against assets in other jurisdictions.  The United Nations Commission on International Trade Law (UNCITRAL) developed the Model Law on Cross-Border Insolvency ('the Model Law'). The Model Law has been adopted by a number of countries, including Australia, the United States, New Zealand and Great Britain, though there remain many countries which have not adopted it. The Model Law was brought into effect in Australia by the enactment of the Cross Border Insolvency Act 2008 ('the Act').    

Under the Model Law, if a foreign proceeding is to be recognised, it will be recognised as either a 'foreign main proceeding', in the case where the jurisdiction is where the debtor has the centre of its main interests, or a 'foreign non-main proceeding' where the centre of its main interests is elsewhere but it 'carries out a non-transitory economic activity with human means and goods or services'.  If the proceeding is recognised as a 'foreign non-main proceeding', the interests and authority of the trustee are likely to be limited. In other words, in this case, depending on whether Mr Edelsten's centre of main interests is determined to be Australia, there may be limits on the relief that can be sought here by his trustee.

Aitken Partners has extensive experience in Insolvency.  Should you have any queries related to insolvency, prospective or current, please contact us.

For media commentary on the case, Geoffrey Edelsten's US bankruptcy trustee launches Federal Court case for Australian assets

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