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Asset Recovery Hub E-Magazine: Issue 3 - Americas & Asia Focus

                                                                                                                                                                    ASSET RECOVERY
We are very pleased with continuing support of the Asset Recovery Magazine from our
                                                                                                                                                                    Danushka De Alwis
readers and especially our contributors and delighted to bring you our 3rd edition.                                                                                 Head of Asset Recovery Series
We welcomed over 400 practitioners from around the world to Singapore, Sao Paulo and                                                                                Paul Barford
our London drinks and you can see the highlights in this issue with a special focus on the                                                                          Divisional Manager Legal
Americas and Asia plus indispensable coverage of hot issues from elsewhere in the Asset
Recovery world.                                                                                                                                                     Chris Leese
                                                                                                                                                                    Commercial Director
The enthusiasm and level of expertise on display continues to demonstrate what an
important and fast-moving area we are all involved in.
The Asset Recovery Hub Team                                                                                                                                         CONTRIBUTORS
                                                                                                                                                                    Leyza F. Blanco
                                                                                                                                                                    Andrew B. Dawson

CONTENTS                                                                                                                                                            Greg S. Grossman
                                                                                                                                                                    Sequor Law
                                                                                                                                                                    Henrique Forssell
ISSUE 3 - AMERICAS & ASIA FOCUS                                                                                                                                     Octaviano Duarte Filho
                                                                                                                                                                    Felipe Vieira
 Florida leads the way in development of chapter 15 jurisprudence............................................. 3                                                    Duarte Forssell Advogados
 The Economic Freedom Provisional Measure and other tools against fraud in Brazil 	��������� 7                                                                      Philip Hime
 Brazilian high court decision disregards Creditors’ guarantees..................................................11                                                 S-RM
 The rise of cybercrime in Asia Pacific and considerations for organisations operating in                                                                           David Harby
 the region....................................................................................................................................................14   Lydia Redman
 Enforcement of foreign judgments in Dubai.....................................................................................16
 Bahamas Asset Recovery – Privy Council determines Extraterritorial reach of                                                                                        Mary Young
 clawback claims .....................................................................................................................................18            Kingsley Napley
 Taking a leaf out of the US book on Corporate Crime: The UK’s plan to fight Economic                                                                               Sophia Rolle-Kapousouzoglou
 Crime must focus more on Civil Asset Recovery Tools................................................................20                                              Lennox Paton
 The Hague Judgments Convention: Easier enforcement of foreign judgments                                                                                            Amy Harvey
 in England?.................................................................................................................................................23     Amalia Neenan
 The Astana International Finance Centre Court – An introduction to the Court and                                                                                   Kelly Thornton
 enforcement of its judgments in Kazakhstan..................................................................................25                                     Peters & Peters
 Tools for cross-border enforcement of judgments.........................................................................27                                         Harriet Campbell
 A Second Wind for the French Blocking Statute..............................................................................30
                                                                                                                                                                    Galina Usorova
                                                                                                                                                                    Stephenson Harwood LLP
 French Safeguard proceeding-A new « RALLYE » for Creditors?.................................................32
                                                                                                                                                                    Sahana Jayakumar
 Civil Recovery Orders: a crucial weapon in the fight against economic crime                                                                                        Five Paper
 and corruption...........................................................................................................................................34
                                                                                                                                                                    Jon Felce
 Enforcement of foreign judgments in Jersey...................................................................................35
                                                                                                                                                                    Rachel Turner
 Full and frank disclosure: too heavy a burden?.................................................................................38                                  PCB Litigation LLP
                                                                                                                                                                    Elena Fedorova
                                                                                                                                                                    BONIFASSI Avocats
UPCOMING EVENTS IN THE ASSET RECOVERY SERIES                                                                                                                        Paul-Marie GAURY
                                                                                                                                                                    Luca CAMPBELL
                                                                                                                                                                    CABINET BOUTTIER Avocats
                                                                                                                                                                    Stephen Alexander
                                                    26 - 28 February 2020                                                                                           Mourant



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Leyza F. Blanco                 Andrew B. Dawson                 Greg S. Grossman
Sequor Law                      Sequor Law                       Sequor Law

Chapter 15 of the Bankruptcy Code                 Finally, because Chapter 15 requires        that may be of particular interest in
has become a powerful asset recovery              U.S. bankruptcy courts to interface with    asset recovery efforts.
tool, and the Florida bankruptcy courts           foreign insolvency proceedings, there
have been leading the way in this                 has been a great deal of uncertainty        Chapter 15: A Bankruptcy
development. The Southern District of             as to how open courts would be to           without a Bankruptcy Estate
Florida has seen more Chapter 15 filings          cooperating with foreign insolvency
than any court other than the Southern            proceedings, particularly when those        Chapter 15 of the U.S. Bankruptcy
District of New York, and many of these           foreign proceedings involve insolvency      Code provides a powerful tool kit for
Florida Chapter 15 cases have been                laws that are importantly different         bankruptcy trustees and liquidators, but
focused on assisting foreign trustees             from U.S. bankruptcy law in substance       it is not itself a “bankruptcy” case. It does
and liquidators track down and recover            and process. One common concern             not open a full bankruptcy proceeding
assets in the United States. Our team at          when Chapter 15 was first enacted in        or create an estate, as would happen
Sequor Law in Miami has alone filed over          2008 was that U.S. bankruptcy courts        in a typical corporate bankruptcy case.
forty chapter 15 cases.                           might be reluctant to cooperate with        Instead, Chapter 15 creates a process
                                                  foreign proceedings—or that they would      to assist the representative of a foreign
While Chapter 15 is not a new tool—it is                                                      proceeding, whether that be a debtor-
                                                  cooperate inconsistently—in the face of
approaching its fourteenth birthday—it is,                                                    in-possession, trustee, monitor, or
                                                  foreign insolvency laws.
like many a teenager, under-appreciated                                                       other official. Chapter 15 permits that
and at times misunderstood. This is in            Florida bankruptcy courts have in           foreign representative to open a case
part because Chapter 15 is not really             recent years played a key role in the       in the bankruptcy court in order to seek
“bankruptcy” in the sense that it does not        development of Chapter 15. It is perhaps    assistance within the United States, with
create a bankruptcy estate or appoint a           no surprise that courts here have been      that assistance ranging from discovery
trustee. Instead, Chapter 15 provides a           leaders in this arena, particularly as to   orders to asset turnover orders.
procedure to assist trustees administer           cross-border insolvencies originating
foreign insolvency cases whose cross-             from Latin and South America. These         The bankruptcy court’s threshold
border estates reach into the United              courts have played important roles          function is to determine whether to
States. The underappreciation also                in establishing precedent for inter-        recognize foreign proceeding, either a
stems in part because Chapter 15’s                American cooperation and assistance         foreign main proceeding (i.e., one filed
substantive contours remain unknown,              in this still-developing area of law.       where the debtor has its “center of main
as it is primarily a procedural vehicle           This article will discuss three recent      interests”) or foreign nonmain proceeding
with minimal substantive constraints.             decisions that highlight developments       (i.e., one filed where the debtor has an

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establishment). The court then has                recognize the Brazilian extension order        Broad Discovery Relief: In re
discretion to fashion assistance.                 on public policy grounds; second, they
                                                  argued that the foreign representative
                                                                                                 SAM Industrias, S.A.
Thus, there is no actual “debtor” in the
                                                  could not use Chapter 15 to order              In re SAM Industrias, S.A., 2019 WL
Chapter 15 case and no estate is created.
                                                  discovery against the transferees              1012790 (Bankr. S.D. Fla. March 1,
Whereas a traditional bankruptcy case
                                                  because they were not “debtors”.               2019), built upon the foundation laid in
can be a cost-intensive and disruptive
                                                                                                 Petroforte. In Petroforte, Judge Mark
endeavor—trustees are appointed, claims           In what is now a widely-cited case (In re
                                                                                                 also suggested an alternative basis
must be processed, assets liquidated              Petroforte Brasileiro de Petroleo Ltda., 542
                                                                                                 for ordering broad investigation into
and distributed, etc. —Chapter 15, in             B.R. 899 (Bankr. S.D. Fla. 2015)), Judge
                                                                                                 third party transactions in situations
contrast, is not a traditional bankruptcy         Robert Mark rejected the first argument.
                                                                                                 in which the third parties were actually
case. Rather, it is an ancillary case in aid      He noted that U.S. courts grant a similar
                                                                                                 involved in the fraudulent transfer or had
of the foreign bankruptcy proceeding. It          type of relief under the equitable remedy
                                                                                                 otherwise engaged in wrongdoing: “The
is thus more flexible and less onerous            of substantive consolidation, and thus
                                                                                                 Trustee’s Supplemental Response failed
than a traditional bankruptcy case.               the Brazilian extension order was not
                                                                                                 to establish any actual involvement in
                                                  substantively offensive as a matter of
The main questions in these ancillary                                                            the Plant Transaction or any wrongdoing
                                                  public policy. As to the ex parte nature of
cases concern what aid is available to the                                                       by any of the Third Party Targets.” The
                                                  the proceedings, he acknowledged that
trustees of the foreign insolvency cases.                                                        court, though, did not further discuss this
                                                  this differs from U.S. procedure, which
Chapter 15 provides some very specific                                                           alternative ground.
                                                  would have provided the remedy of
procedures designed to facilitate that
                                                  substantive consolidation only upon an         The issue arose in SAM Industrias when
cross-border assistance, e.g., authorizing
                                                  open hearing; however, he noted that the       the foreign representative of the Brazilian
judge-to-judge communications, and
                                                  parties had the opportunity to be heard at     liquidation filed a Chapter 15 in the
it provides a non-exclusive list of relief
                                                  the appellate level in Brazil. Consequently,   Southern District of Florida to investigate
the U.S. bankruptcy court can grant to
                                                  the Brazilian proceeding did not offend        potential fraudulent transferees identified
the foreign representative. As with any
                                                  U.S. public policy.                            by the Brazilian courts. The Brazilian
relatively new legislation, there is a lot of
                                                                                                 courts had found that the debtor had
uncertainty as to the extent of that relief
                                                                                                 undisclosed interests in certain corporate
and to the standards for granting that
relief. The uncertainty in Chapter 15 has         “JUDGE MARK HELD                              entities, which he had concealed by
                                                                                                 transferring to family members. The
an additional complicating factor due
to its cross-border nature: would U.S.
                                                    THAT THE ENTITIES THAT                       foreign representative, accordingly,
bankruptcy courts extend relief to foreign          WERE SUBJECT TO THE                          sought the Chapter 15 court’s assistance
                                                                                                 in examining these family members, who
bankruptcy proceedings that differ from
U.S. bankruptcy law and procedures?
                                                    BRAZILIAN EXTENSION                          were not themselves debtors in Brazil,

Three Florida cases brought by Sequor
                                                    ORDER WERE                                   and in examining certain non-debtor
                                                                                                 corporate entities.
Law on behalf of foreign representatives,           “DEBTORS” SUBJECT                            The debtor objected to this assistance,
illustrate these issues and show how the
Florida bankruptcy courts have helped
                                                    TO SECTION 1521’S                            arguing that the requested discovery
fashion answers and standards.                      DISCOVERY POWERS.”                           assistance falls outside the scope of
                                                                                                 Chapter 15’s relief because the discovery
                                                                                                 targets were not debtors in Brazil. As
Who is the Foreign “Debtor”:                      As to the scope of discovery assistance        to the family members, the Chapter
In re Petroforte                                  under Chapter 15, the court had to             15 court examined the Brazilian court
The first case is by now well known in            interpret the scope of “debtor” under          record carefully and concluded that
the cross-border insolvency world so              section 1521(a)(4), which provides that a      discovery was appropriate as to those
will receive only a cursory treatment;            court may authorize the “the examination       family members identified as transferees
however, it would be remiss to exclude            of witnesses, the taking of evidence or        of the debtor’s property. The foreign
the case altogether as it has had                 the delivery of information concerning         representative, accordingly, was entitled
important ramifications throughout the            the debtor’s assets, affairs, rights,          to discover information related to the
Chapter 15 jurisprudence.                         obligations or liabilities.”                   transferees’ corporate and financial affairs.

Petroforte was one of Brazil’s largest            Judge Mark held that the entities              As to the non-debtor corporate entities,
gas and ethanol distributors before               that were subject to the Brazilian             the foreign representative was entitled
entering bankruptcy. That liquidation             extension order were “debtors” subject         to broad discovery not only as to those
had uncovered evidence of fraudulent              to section 1521’s discovery powers. As         entities in which the debtor had a
transfers made to several entities,               to third parties who were not subject          majority interest but also in those entities
which provided the basis for the                  to the Brazilian extension order, the          found to have participated in the debtor’s
Brazilian court to enter ex parte an              bankruptcy court in Petroforte held            asset concealment scheme. Again, in
order extending the bankruptcy case to            the trustee may be entitled to broad           defining the scope of relief available to
include the transferees. The Brazilian            discovery to the extent the debtor is a        the foreign representative, the Chapter
trustees commenced a Chapter 15                   majority stockholder in the non-debtor         15 court examined the findings of the
proceeding in the Southern District of            discovery target. Such broad discovery         Brazilian courts. The Brazilian courts
Florida to seek discovery to assist the           “allows the Trustee to determine               had found that the debtor had concealed
Brazilian liquidation. Some of these              whether the stock, which is an asset           assets through certain corporate pass-
discovery targets objected on two                 of the estate, has sufficient value to         throughs owned and controlled by the
main grounds: first, the argued that              induce the Trustee to take control of the      debtor. The foreign representative was
the Chapter 15 court should refuse to             entity, and attempt to derive value by         thus entitled to discovery related to these
                                                  selling or liquidating the entity.”            corporate pass-throughs. The foreign

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representative, though, was not entitled          enforcing or adjudicating tax claims from     Section 1513(b)(2)(B) goes on to say “[a]
to discovery related to the non-debtor            another sovereign.” Here, the debtors’        llowance and priority as to a foreign tax
entities whose connections to the debtor          principal obligations were unpaid tax         claim or other foreign public law shall be
had not yet been established in the               debts owed in Canada. Republic of             governed by any applicable tax treaty of
Brazilian courts. Accordingly, the court          Honduras vs. Philip Morris Companies,         the United States, under the conditions
concluded that the foreign representative         Inc., 341 F.3d 1253, 1260 (11th Cir. 2003).   and circumstances specified therein.”
is not entitled to “carte-blanche in his          The issue, as urged by the debtors, was
                                                                                                The bankruptcy court ruled that the
inquiries of non-debtors,” but that he is         whether a Chapter 15 court could order
                                                                                                Revenue Rule did not apply because it
entitled to obtain information narrowly           to liquidate U.S. property for the purpose
                                                                                                was not being asked to “adjudicate or
tailored “to discover ‘the legal entities         of satisfying Canadian tax claims.
                                                                                                rule upon the validity or priority of the
created in purely fictional form’ which are
                                                                                                Canadian taxing authorities’ claims.”
part of a ‘complex corporate structure’
                                                                                                That matter, the court noted, would
obscuring” the debtor’s ownership of
corporate assets.
                                                  “THE BANKRUPTCY                              have to be decided in the Canadian
                                                    COURT RULED THAT                            proceeding. Second, the court noted that
                                                                                                as a general matter, Chapter 15 courts
The Foreign Revenue Rule: 		                        THE REVENUE RULE DID                        are not in the business of adjudicating
In re Dixon
                                                    NOT APPLY BECAUSE                           the validity of foreign claims. Finally, the
                                                                                                court held that the case did not touch on
In re Dixon (Case No. 16-bk-02453, M.D.
Fla. March 23, 2016) illustrates Chapter            IT WAS NOT BEING                            any fundamental U.S. public policies, as
15’s flexibility, as it required the court
to consider a novel application of the
                                                    ASKED TO “ADJUDICATE                        it was simply a dispute as between the
                                                                                                debtors and the foreign representative.
Foreign Revenue Rule to a Canadian                  OR RULE UPON THE                            In fact, the court found that it was
                                                                                                promoting the public policies underlying
trustee’s request for assistance.
The Canadian debtors commenced
                                                    VALIDITY OR PRIORITY                        not only Chapter 15 but the U.S.-Canada
proceedings in Canada under the                     OF THE CANADIAN                             tax treaty. As an aside, the court noted
                                                                                                that, to the extent the Canadian case
Bankruptcy and Insolvency Act. The
foreign representative subsequently filed
                                                    TAXING AUTHORITIES’                         involved more than just tax claims, that
a Chapter 15 proceeding in the Middle               CLAIMS.”                                    would further support its conclusion that
                                                                                                the Foreign Revenue Rule does not apply.
District of Florida, seeking discovery
assistance related to the debtor’s assets
in the United States. When the foreign            Judge Caryl Delano noted that the             Conclusion
representative sought authorization to            application of the Foreign Revenue Rule
                                                                                                These three Florida case descriptions
sell the debtors’ U.S. property in aid of         in the Chapter 15 context was a matter
                                                                                                illustrate how Chapter 15 of the
the Canadian liquidation, the debtors             of first impression. Traditionally, in non-
                                                                                                Bankruptcy Code has elements of both
filed their own bankruptcy case under             chapter 15 contexts, courts would refuse
                                                                                                bankruptcy law and more traditional asset
Chapter 13 of the Bankruptcy Code and             to permit a U.S. proceeding (whether
                                                                                                recovery tools. When considering whether
later sought to dismiss the Chapter               in bankruptcy or not) to adjudicate tax
                                                                                                Chapter 15’s toolbox could help in the
15 proceedings. They argued that the              claims under foreign laws. Section
                                                                                                asset recovery effort, it appears the sun is
Chapter 15 petition would violate the             1513(b)(2)(A) states that the language
                                                                                                shining in Florida’s bankruptcy courts.
Foreign Revenue Rule.                             in subsection (a) and paragraph (1) “do
                                                  not change or codify present law as
The Foreign Revenue Rule is “a long-              to the allowability of foreign revenue
standing common law rule that prevents            claims or other foreign public law
the courts of one sovereign from                  claims in a proceeding under this title.”

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Henrique Forssell                                 Octaviano Duarte Filho                       Felipe Vieira
Duarte Forssell Advogados                         Duarte Forssell Advogados                    Duarte Forssell Advogados

Arising from the philosophical logic of           n.º 8.078 / 90), the Brazilian Competition   principals of a legal entity who have
the sixteenth century, the modern State           Policy System (Art. 34 of the Law n.º        committed insolvency fraud.
assures entrepreneurs that the risks              12.529/2011) the National Tax Code
of a business activity would be limited           (CTN) as well as the Brazilian Civil Code
to the subscribed and paid-in capital.            (Art. 50 of the Law n.º 10.406/2002) that        	Although the Provisional Measure

Thus, in return, they receive a favorable         sets the general bases for the application         is effective immediately, it needs to
environment to reduce unemployment                of the disregard doctrine.                         be ratified and converted into Law
and to grow the tax revenue. However,                                                                by the Brazilian National Congress
                                                  On April 30, 2019 the Executive Branch             within 120 days, after which it will
the same patrimonial autonomy that
                                                  of the Federal Government of Brazil                lose its effectiveness. The National
justifies the organization of a business
                                                  issued Provisional Measure 881 (the so-            Congress also has authority to propose
activity in a corporate form can lend
                                                  called “Economic Freedom Provisional               amendments to the original language.
weight to the misuse of legal entities for
                                                  Measure”) amending, in part, the
illicit activities such as money laundering,
                                                  provisions of the Brazilian Civil Code       The current Civil Code of Brazil was
tax evasion and others.
                                                  defining the requirements to pierce          enacted in 2002. Since then, the
In order to prevent and/or remedy the             the corporate veil, thereby clarifying       standards of review used to disregard
misuse of a corporation, modern legal             the parameters to be used by Courts          the corporate veil of a legal entity in
systems started to adopt the Disregard            to make shareholders and managers            Brazil have often been considered to
Doctrine through which the corporate              liable for the debts of a legal entity.      be less demanding in contrast to those
veil can be lifted. So It becomes possible        The Provisional Measure also added a         applied in other jurisdictions such as
to access the assets of partners or               new Article to Brazil’s Bankruptcy Law       the United States or England & Wales.
managers that used the legal entity to            11,101/2005 to the effect that the “...      According to Article 50 of the Civil
defraud creditors or divert assets in their       extension of the effects of bankruptcy [to   Code, in cases involving the abuse of a
own benefit.                                      the assets of shareholders or managers       corporate entity characterized either by
                                                  of a company] shall only be granted          (a) a deviation from its stated corporate
As a Civil Law country, Brazil adopted
                                                  when the requirements to pierce the          objects, or (b) the commingling of its
in its legislation similar mechanisms
                                                  corporate veil are present…”.                assets with the assets of its principals
to lift the corporate veil and expand the
liability to assets of shareholders or            This Provisional Measure has codified        (sometimes translated as “confusion
administrators. Those provisions are              most of the standards that have been         of assets” or “patrimonial confusion”), a
scattered in micro-legal-systems such as          developed and applied by Brazilian           judge may disregard the veil and impose
the Consumer Code (art. 28 of the Law             Courts to reach the assets of the            an insolvent company’s obligations over

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the assets of illicit corporate managers          phrase “deviation from a company’s               As a practical example, the abuse of the
or shareholders.                                  stated purpose.” To persuade a Court to          legal entity often can be materialized
                                                  pierce a corporate veil on this ground, an       together with the following elements:
For almost two decades, creditors,
                                                  applicant must adduce evidence proving              • the transfer of assets between
liquidators and judicial administrators
                                                  “the wilful utilisation of the corporate               entities under the same corporate
have used this legal mechanism to
                                                  entity for the purpose of harming                      structure and/or management for a
successfully recover assets diverted
                                                  creditors and for the performance of illicit           vile price or no consideration;
fraudulently. Leading cases such as
                                                  acts of any nature.” With respect to this
Banco Santos and Petroforte resulted in                                                               • granting of loans with very low
                                                  second form of abuse, the Brazilian Civil
over R$1 billion being recovered for the                                                                 interest rates (or no interest rates)
                                                  Code now provides that the commingling
relevant estates as a result of effective                                                                in favor of the parent company on
                                                  of assets is the “lack of separation of
transnational investigative work. This                                                                   a period close to the filing of an
                                                  patrimony”2 , characterized for example
was combined with legal measures in                                                                      insolvency procedure or next to the
                                                  by a transfer of assets and liabilities
                                                                                                         maturity of a credit;
                                                  without due consideration or by the
                                                  repetitive payment of obligations of a              • lending of the main means of
“THE PROVISIONAL                                 company by its shareholders/managers                   production to other subsidiaries with
                                                                                                         no economic justification and/or for
                                                  or vice-versa.
  MEASURE INCLUDES                                                                                       an unreasonable price;
                                                  Furthermore, there are other provisions
  ANOTHER REQUISITE                               established by the Provisional Measure
                                                                                                      • disproportional distribution of
                                                                                                         dividends in comparation with the
  ELEMENT TO LIFT THE                             which are particularly relevant in the
                                                                                                         actual financial situation of the
                                                  context of insolvency fraud. Even before
  CORPORATE VEIL ON                               the new Bankruptcy Law was enacted

  THE BASIS OF FRAUD.”                            in 2005, Brazilian Courts granted
                                                  applications to extend the effects of a
                                                                                                      • mispreparation of the account and
                                                                                                         tax books;
                                                  bankruptcy decree to third parties who           To illustrate the reach of such tools
Brazil piercing the corporate veils of the        were somehow involved in fraudulent              (disregard doctrine and extension of
debtor companies and extending the                acts harmful to creditors of an estate.          bankruptcy effects), we can mention the
effects of bankruptcy over the assets             The Provisional Measure incorporates             Banco Santos case. The court extended
of the wrongdoers and their asset                 the case law that was developed by               the effect of the bankruptcy decree to the
holding companies.                                leading bankruptcy fraud cases such as           assets of a Panamanian entity, based on
                                                  Minister Nancy Andrighi’s judgment in            an objective demonstration that (i) this
The Provisional Measure includes another
                                                  Petroforte Brasilero Ltda (STJ, August           entity was used by the former controlling
requisite element to lift the corporate veil
                                                  2011), by providing that the “...extension       executive of Banco Santos as a shell
on the basis of fraud. Article 50 of the
                                                  of the effects of a bankruptcy shall only        to divert assets from the estate and
Civil Code has been amended to provide
                                                  be ordered when the requisite elements           defraud creditors, and (ii) the Panamanian
that only shareholders or managers of
                                                  to pierce the corporate veil are present”.1      company had been managed in Brazil.
companies who directly or indirectly
benefit from abusive conduct may be
made liable to pay the debts of the legal
                                                       	Under Brazilian law, “patrimony” is
                                                                                                   “ALTHOUGH THERE IS A
entity that they manage or own. This
                                                         the net worth of an individual or legal
element of proof is consistent with most
of the decisions of the Superior Court
                                                         entity at any point in time, similar to
                                                         the concept of “estate” in common
                                                                                                     HIGH LEVEL OF RECOVERY
of Justice (“STJ”) in Brasilia. It would
however appear to have been included in
                                                         law countries.                              DUE TO VEIL PIERCING
the Provisional Measure in response to            The Provisional Measure goes on to state
                                                                                                     PROCEDURES IN
a minority of judgments of lower courts
holding that a shareholder / manager may
                                                  – correctly - that the mere existence of           BRAZILIAN INSOLVENCY
be made liable in spite of the absence of
                                                  a common economic group per se does
                                                  not authorize a judge to disregard the
                                                                                                     COURTS, IT´S NOT
any evidence demonstrating that they
benefited from wrongdoing. This has been
                                                  corporate veil of a legal entity and make          ALWAYS CLEAR WITCH
                                                  its shareholder / managers pay for the full
a particular issue with Labour Courts in          amount of debts owed by an estate.                 LEGAL ENTITIES AND/OR
Brazil which have generally applied a less
rigorous standard of review in piercing           However, within the context of an                  INDIVIDUALS ASSISTED
the corporate veil on the basis of a policy       insolvency procedure, it is often noticed
                                                  that economic groups are created not to
                                                                                                     ON THE FRAUD.”
choice favouring labour claims in response
to an employer’s insolvency. In this sense,       maximize the efficiency of the business,
the Provisional Measure encourages the            but rather to make it harder for a creditor
                                                                                                   The Bankruptcy Court found that3
formation of capital for entrepreneurial          or group of creditors to enforce their
                                                                                                   “considering the evidence provided on
activities by assuring investors,                 rights towards the debtors. Meanwhile the
                                                                                                   the file, there is no doubt that Offshore
shareholders and managers that they will          parent company or equity shareholders
                                                                                                   X, formally registered on behalf of Mr. Y
not be made liable to pay a company’s             continue to experience a substantial
                                                                                                   it is nothing more than a shell company
debts. There is an exception, in case they        growth of their individual wealth. In such
                                                                                                   under the management of Controller Z,
benefit from a fraud perpetrated against          cases, bona fide third parties should not
                                                                                                   created with the sole purpose to hide the
the company in which they are invested or         be deprived of their credit rights due to
                                                                                                   artwork acquired with funds diverted from
whom they serve.                                  the patrimonial autonomy of a legal entity
                                                                                                   Banco Santos. As Offshore X has been
                                                  that, in fact, had the sole purpose to serve
In addition, the Provisional Measure has                                                           manipulated to perform fraudulent acts
                                                  as an obstacle to a fair collection.
introduced a statutory definition for the                                                          with the purpose of harming creditors,

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Asset Recovery Hub E-Magazine: Issue 3 - Americas & Asia Focus

the legal entity shall be disregarded to          was recognized abroad (such as in the            This procedure, in our view, is a very
extending the effects of the bankruptcy           United States through US Bankruptcy              effective tool to investigate fraud once
to such corporation, thereby reaching             Code Chapter 15 ancillary bankruptcy             it provides the judicial means to gather
unlawfully diverted assets, especially		          proceedings), which resulted in the              enough evidence to fulfill the law
 the artworks.”                                   recovery of tens of millions of dollars          requirements as to the demonstration of
                                                  in assets.                                       abuse of the legal entity that can lead to a
                                                                                                   veil piercing order.
                                                  Although there is a high level of recovery
    	The actual names are omitted to
                                                  due to veil piercing procedures in Brazilian     In practical terms, the Provisional
      preserve the parties involved.
                                                  insolvency courts, it´s not always clear         Measure does not actually create new
                                                  witch legal entities and/or individuals          law. Instead, it merely codifies the
“THIS PROCEDURE, IN                              assisted on the fraud. The usage of
                                                  investments funds and several layers of
                                                                                                   requisite forms of abuse developed
                                                                                                   by the STJ and clarifies the applicable
  OUR VIEW, IS A VERY                             companies incorporated both in Brazil and        standard of review for the extension of
                                                  abroad often creates a complex corporate         the effects of bankruptcy. It therefore
  EFFECTIVE TOOL TO                               structure that blurries the tracing of funds     incorporates into the relevant statues
  INVESTIGATE FRAUD                               and the lines between what is a legitimate
                                                  or illegitimate operation.
                                                                                                   the existing jurisprudence that had been
                                                                                                   developed by the STJ and a majority of
  ONCE IT PROVIDES                                For those situations and inspired by
                                                                                                   the lower courts since the enactment
  THE JUDICIAL MEANS                              common law legal systems, the Brazilian
                                                                                                   of the Brazilian Civil Code in 2002. As a
                                                                                                   result, it is not expected that the recent
  TO GATHER ENOUGH                                Civil Procedure4 code introduced the
                                                  possibility of filing a claim for “anticipated
                                                                                                   Provisional Measure will in any way
  EVIDENCE TO FULFILL THE                         discovery5” from which the interested
                                                                                                   adversely impact the ability of creditors,
                                                                                                   liquidators and judicial administrators to
  LAW REQUIREMENTS AS                             party will be able to examine witnesses,
                                                  produce evidence and require documents
                                                                                                   recover assets diverted by fraud. Instead,
  TO THE DEMONSTRATION                            from third parties or the target itself to
                                                                                                   it clearly expresses the requisite grounds
                                                                                                   to support an application to disregard
  OF ABUSE OF THE LEGAL                           determine if and to what extent that entity
                                                  or individual participated in the fraud.
                                                                                                   the corporate veil and to extend the
  ENTITY THAT CAN LEAD                            Brazilian courts accepted that this
                                                                                                   effects of a bankruptcy order over all of
                                                                                                   the assets of those who benefit from
  TO A VEIL PIERCING                              preliminary procedure be filed under             fraud. The Provisional Measure places
                                                  seal and without the participation of the        the effectiveness of measures to tackle
  ORDER.”                                         defendant at an early stage, once and            creditor fraud in Brazilian insolvency
                                                  only if it is fairly demonstrated that the       proceedings onto a solid and well
                                                  secrecy of the investigation is key to           articulated statutory footing.
Thus, the bankruptcy court in Banco
                                                  avoiding the destruction of evidences,
Santos found it had jurisdiction to
                                                  creation of new corporate layers to
extend the effects of its bankruptcy
                                                  evade the enforcement of a court order               	Article 381, II and III
decree to the assets of a foreign entity
                                                  or the transfer of funds away from the               	Free translation: “Produção antecipada
in the context of a fraud, once it was
                                                  creditor´s reach. It has been ruled that               de provas”
demonstrated that the Panamanian
                                                  this is not a question of violating the
company was an instrument used
                                                  rights of the defendant to counter the
to conceal assets taken from the
                                                  applicant, but rather to postpone in honor
estate; and that it was managed by
                                                  of the effectiveness of such procedure,
Brazilian resident individuals. The
                                                  due to a plausible justification.
Brazilian bankruptcy extension order

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Asset Recovery Hub E-Magazine: Issue 3 - Americas & Asia Focus

Asset Recovery Hub E-Magazine: Issue 3 - Americas & Asia Focus

Philip Hime

A Brazilian court decision to                     which instruments such as guarantees        which was approved by the majority
intended to help a Mato Grosso car                were created: to enhance financial          of creditors in a general assembly.
dealership recover from its financial             transactions by reducing risk. It allows    However, creditors with secured assets
difficulties could have implications              the creditor to carry on its business       voted against the plan.
that reverberate across the Brazilian             without the concerns associated with
                                                                                              These creditors argued that the
economy. The Superior Court of                    a reorganisation plan and provides it
                                                                                              guarantees could not have been
Justice (STJ), the second-highest court           certainty that it will receive its due –
                                                                                              supressed without their approval, as
of law in Brazil, overturned its own              whether from the debtor or from the
                                                                                              they understood that these obligations
precedent and now allows debtors                  guarantor. However, this may no longer be
                                                                                              could not be affected by the judicial
to unilaterally supress personal                  true for Brazil.
                                                                                              recovery without their consent. Ariel
guarantees provided by third parties to
                                                                                              claimed that, as the plan was approved
their creditors in a reorganisation plan,
                                                                                              by the required majority, it overrode the
so long as the plan is approved at the            “THE COMPANY’S PLAN                       creditors rights under the guarantees,
creditor’s general meeting.
                                                   INCLUDED THE RELEASE                       given that all debts were novated, i.e.,
                                                                                              replaced with the debt payment plan
Tried and tested dynamics                          OF ALL GUARANTEES,                         under the reorganisation process.
Before this landmark decision, Brazilian
courts understood that third-party
                                                   WHICH WAS APPROVED                         Aftermath
personal guarantees provided to creditors          BY THE MAJORITY                            While the STJ award is only binding
in usual business transactions would not
be affected by the terms of the recovery
                                                   OF CREDITORS IN A                          between the parties involved in
plan, unless the creditors specifically            GENERAL ASSEMBLY.”                         the Ariel case, the STJ award sent
                                                                                              shockwaves through the market in
agreed to release such guarantees.
                                                                                              Brazil. Financial institutions, which are
Hence, for example, if a company that
                                                                                              usually the largest guarantee holders in
had provided a bank guarantee to its              The STJ’s new precedent
                                                                                              corporate reorganisation proceedings,
creditor filed for a reorganisation plan,
                                                  In a decision that stunned many legal       are especially concerned: they could
the creditor could call on the guarantee
                                                  practitioners and market experts,           be subject to large losses if their
to secure payment. The bank would then
                                                  the STJ analysed the case of Ariel          guarantees are deemed unenforceable,
be subrogated into the original debt and
                                                  Automóveis, a car dealership in the         given that, after judicial recovery, debts
would participate in the reorganisation
                                                  state of Mato Grosso which had filed        are usually paid with a haircut.
plan in the creditor’s place.
                                                  for a reorganisation plan (known as
                                                                                              STJ justice Marco Aurélio Bellizze, the
This is a familiar dynamic in several             “judicial recovery”). The company’s plan
                                                                                              author of the majority opinion in the
jurisdictions, and forms the basis for            included the release of all guarantees,
                                                                                              case, stated that his decision was based

Asset Recovery Hub E-Magazine: Issue 3 - Americas & Asia Focus

on the fact that decisions approved               majority opinion in Ariel, declared that his      In any case, interested parties should
by the general assembly of creditors              decision was at least partially intended          remain seized of developments in
could not be overridden by a minority of          to protect economic activity, by making           this case. The STJ decision was not
interested parties.                               it easier for companies to recover from           unanimous – two of five justices voted
                                                  financial hardship. 6                             against it – which will certainly lead to
Naturally, the increased credit risk has
                                                                                                    further tests of the court’s new position.
a direct impact in the cost Brazilian
companies pay to obtain financing
                                                  How can creditors protect
– which is a major concern for the                their interests?
                                                                                                        	Supressão de garantias no plano de
Brazilian government, which has already           While the Ariel award is very recent and                recuperação aprovada em Assembleia
cut Selic (the Brazilian base interest rate)      may still be appealed, there are some                   atinge todos os credores’, Migalhas, 3
to 6%, it’s lowest-ever level, in an attempt      precautions that creditors can take to                  April 2019.
to stimulate economic activity following          better protect their interests.
a four-year recession. However, STJ
justice Moura Ribeiro, who joined the             Firstly, the STJ specifically carved out
                                                  in rem guarantees from the decision.
                                                  Therefore, this type of guarantee is still
“FIRSTLY, THE STJ                                protected from unilateral changes in the
                                                  reorganisation process.
  SPECIFICALLY CARVED                             Second, and perhaps more interestingly,
  OUT IN REM GUARANTEES                           the court’s opinion did not mention on-
                                                  demand guarantees and letters of credit.
  FROM THE DECISION.                              Such instruments are usually issued in
  THEREFORE, THIS TYPE                            the context of international trade or large
                                                  contracts, and are usually favourably
  OF GUARANTEE IS STILL                           seen by creditors given that they can and
  PROTECTED FROM                                  should be construed to be separate from
                                                  the transaction or contract itself. As it only
  UNILATERAL CHANGES                              comprises a third party’s obligation to pay
  IN THE REORGANISATION                           a given amount to the beneficiary once a
                                                  claim is made, an on-demand guarantee
  PROCESS.”                                       would not be subject to be released.

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Asset Recovery Hub E-Magazine: Issue 3 - Americas & Asia Focus

Asset Recovery Hub E-Magazine: Issue 3 - Americas & Asia Focus

David Harby                                       Lydia Redman
HFW                                               HFW

1.                                                Defining cybercrime and 		                  cybercrime to the APAC region alone11.
The Asia Pacific (APAC) region faces
an increasing rate of cybercrime 7 and
                                                  its cost
cases of serious digital asset theft              2.                                             10
                                                                                                   	“Cryptocurrency thefts and fraud
have occurred there in recent years.              Cybercrime can be broadly defined as               reach $1.2bn in Q1”. Nikkei Staff
This vulnerability is due to quicker              computer related crime. The computer               Writers. 23 July 2019. https://asia.
digital transactions and greater                  either is used as a tool to commit       
internet connectivity combined with               crime or acts as the target of a crime.            Cryptocurrency-thefts-and-fraud-reach-
lacking cybersecurity investment                  A particular example is cryptojacking.             1.2bn-in-Q1
and low awareness8. As avenues for                This type of attack concerns the               11
                                                                                                   	Cost of cybercrime continues to soar
transnational, digital payments diversify,        unauthorised use of a computer to                  for Southeast Asian businesses.
APAC’s digital economy is undergoing              mine cryptocurrencies. Cyberextortion              https://asiancorrespondent.
significant growth9. Asia is also a hub           often involves the threat of infection of          com/2018/04/cost-of-cyber-crime-
for the investment and trade of valuable          a device with ransomware to coerce                 continues-to-soar-for-southeast-asian-
digital assets.                                   the recipient into submitting to a                 businesses/

As cybercriminals choose to operate               demand. Cybercriminals have also
within APAC networks, it is unsurprising          increased their capacity to launder         Increased regulatory and
that the region is a focal point for the          money, steal digital assets and hijack      legal framework
development of regulation, legislation            networks. Digital assets that are usually
and digital asset recovery mechanisms.            the subject of theft include personal
                                                                                              Governmental and regulatory bodies
                                                  information and data, trade secrets or
                                                                                              in APAC are recognising the need to
                                                  more commonly, cryptocurrency.
    	Financial Sector Cybersecurity
    7                                                                                         balance technological innovation with
                                                  3.                                          risk management and user protection.
      Requirements in the Asia-Pacific
      Region. William A. Carter and William
                                                  Cryptocurrency is a sought-after asset.     The following countries have made
      D. Crumpler. April 2019. https://csis-      The reported theft of the following         progress in building the foundations          values of cryptocurrency took place in      of a strong regulatory and legislative
      publication/190429_CarterCrumpler_          2019 alone10:                               framework, in which APAC’s digital
      APAC_WEB.pdf                                (a) 4
                                                       .5 billion yen stolen from the        economy can prosper.
    	Cyber Risk in Asia Pacific. The Case
    8                                                 cryptocurrency exchange Binance in      6.
      for Greater Transparency. Marsh &               Hong Kong, May 2019;                    In terms of regulation in Japan, the
      McLennan Companies.                         (b) US$4.3 million stolen from Bitrue in   Japan Network Security Association
    	Is APAC’s Desire to Lead Global
                                                      Singapore, June 2019; and               and Japan’s Virtual Currency Exchange
      Innovation in Digital Payments              (c) 3 billion yen stolen from Bitpoint     Association (JVCEA) are prominent
      Working? A Tech Research Asia                   exchange in Tokyo, July 2019.           bodies. The JVCEA is a self-regulatory
      Report Commissioned by Temenos                                                          body that applies rules to protect assets
      Group AG.          4.                                          and focuses on developing anti-money
      globalassets/mi/wp/is-apac-s-desire-        A study produced by the Center for          laundering policy.
      to-lead-global-innovation-in-digital-       Strategic and International Studies
      payments-working-.pdf                       reported that the global cost of            7.
                                                  cybercrime reached US$544.5 billion         From a legislative perspective, Japan
                                                  in February 2018. A figure of US$171        has made noteworthy developments.
                                                  billion is reportedly the damages cost of   Japan’s Parliament adopted the
                                                                                              Cybersecurity Basic Act in 2014. The

Asset Recovery Hub E-Magazine: Issue 3 - Americas & Asia Focus

Act outlines government responsibilities          9.                                          12.
and provides for the establishment of             In Singapore, the Monetary Authority of     Another mechanism for enabling the
cybersecurity strategic headquarters.             Singapore provides a monitoring and         tracking and recovery of cryptocurrency
In October 2016, the Diet approved                regulatory function. The agency’s reach     is the analysis tool “The Taint Chain”.
an amendment to the Act. The                      expanded to include additional payment      This enables the tainting and tracking
amendment increased the scope of                  activities with the passing of the          of stolen bitcoin. Developed by a team
parties which are subject to government           Payment Services Act in January 2019.       of researchers from the Department of
evaluation for cybersecurity purposes.            This Act regulates payment systems          Computer Science and Technology at
Special corporations and authorised               and payment service providers in            the University of Cambridge, the tool
corporations now fall within this scope.          Singapore. Key objectives of this Act are   employs an algorithm, which operates
                                                  to streamline the regulation of payment     according to the FIFO (first in, first out)
                                                  services and to mitigate the risks          principle. This is based on a well-known
“ALONGSIDE AN                                   inherent in the payments value chain.       English Chancery Court case12. The
                                                                                              case considers that the first person to
 IMPROVING                                        Mechanisms for recovery of                  have paid in is the first person to be paid
 REGULATORY AND                                   cryptocurrency                              out where funds are withdrawn from
                                                                                              a collective account. When applied to
 LEGAL ENVIRONMENT,                               10.                                         bitcoin wallets, the principle holds that
 PROGRESS HAS BEEN                                Alongside an improving regulatory
                                                  and legal environment, progress has
                                                                                              if the first bitcoins paid into the wallet
                                                                                              are stolen, then, (at least as a matter of
 MADE IN THE REALM                                been made in the realm of research 		       English law), the first bitcoins paid out
 OF RESEARCH AND                                  and development.                            are also considered stolen.

 DEVELOPMENT.”                                    11.
                                                  Developments have been made in
                                                                                              Whilst digital economic activity and
                                                  tracing stolen monies. The theft of         growth continues in the APAC region,
8.                                                US$534 million worth of NEM (XEM)           the regulatory, technical and legal
In December 2016, the Hong Kong                   cryptocurrency from the wallets of          framework must keep pace with rising
Monetary Authority launched the                   Japan-based exchange Coincheck              opportunities for cybercrime. Although
Cybersecurity Fortification Initiative            is one of the largest recorded              rates of cybercriminal activity are high, we
aimed at banks and financial institutions         cryptocurrency thefts in history. It        believe the aforementioned developments
established in Hong Kong. Three pillars           occurred in January 2018 and forced         should inspire increasing confidence for
form the foundation of the initiative             the exchange to consider ways of            organisations within APAC.
- a Cyber Resilience Assessment                   tracking the stolen coins. The NEM
Framework, a Professional Development             team developed an automated tagging
Programme and a Cyber Intelligence                system, where stolen funds could be              	
                                                                                                    Devaynes v. Noble 35 E.R. 781 (1816).
Sharing Platform. Notably, the purpose            tagged as tainted. Once stolen funds
of the Platform is to store information,          were deposited into regulated trading
data and intelligence on the subject of           platforms, these deposits were verified.
cyber-attacks. Authorised users can               Accounts that received the funds were
access this information and may find the          tagged and other exchanges could
platform useful as the initiative develops.       then be notified that they held these
                                                  accounts on their platform.

Asset Recovery Hub E-Magazine: Issue 3 - Americas & Asia Focus

Mary Young
Kingsley Napley

Almost six months ago Cabinet                     2. That the order being enforced was         enforcement (and which had been seized
Resolution No. (57) of 2018 concerning               made in accordance with the law of         of the enforcement action for the previous
the Executive Regulations of Federal                 that country and certified as such;        12 months) refused to continue dealing
Law No (11) of 1992 on the Civil                  3. That the parties were summoned and        and instead insisted that the matter be
Procedure Law (‘the Resolution’) came                represented;                               passed to the Enforcement Judge.
into effect in the UAE. The Resolution            4. That the order is final and binding
                                                                                                There was no order issued within the
made significant amendments to the                   under the laws of the country in which
                                                                                                requisite three days by the Enforcement
UAE Civil Procedure Code (the Federal                it was made, and is either certified as
                                                                                                Judge. Instead, the Enforcement Judge
Law No (11) of 1992 referred to in its               such or states so within the judgment
                                                                                                tried to pass the file back to the Court
title) including in respect of: service of           itself; and
                                                                                                which had initially been dealing with the
proceedings; requirements to include              5. That the order is not contrary to a
                                                                                                case. This has been followed by around
in proceedings certain information                   judgment or order of a UAE court and
                                                                                                10 weeks without a decision, and then
relating to the identification of the                not contrary to the morals and public
                                                                                                by a rejection of the application, without
parties (corporate or individual); the               order of the UAE.
                                                                                                any reasons or judgment given. Whilst
establishment of a fast track process
                                                  Article 88 of the Resolution confirms         the solicitors I am working with in Dubai
for claims below a certain level of
                                                  that it is without prejudice to the           have lodged an appeal, and made a
value; and the enforcement of foreign
                                                  provisions of any other treaties or           complaint to the Court about how the
judgments and awards. In this article
                                                  agreements between the UAE and                case has been dealt with, my client is
I am going to briefly focus on some of
                                                  other states. As such the New York            still, over 24 months later, without an
the changes to enforcement and my
                                                  Convention will continue to apply to the      order for enforcement in Dubai.
recent experience of trying to enforce a
                                                  enforcement of arbitral awards.
judgment of the Courts of England and
Wales in Dubai.
                                                  Appeal process                                We are hopeful that the Dubai Court of
Enforcement of Foreign                            The order of an Enforcement Judge             Appeal will have a better understanding
Judgments, Orders and                             can be appealed to the Court of Appeal        of the new Resolution and the intention
                                                  and the Court of Cassation, which             that it should streamline and modernise
Instruments                                       means that the expedition of the initial      the enforcement process. Nonetheless,
Articles 85 – 88 of the Resolution cover          order could be rendered nugatory if a         at present the interpretation of the
enforcement of foreign judgments and              defendant was to challenge the order          Resolution in terms of enforcement of
orders and specify that the provisions            through the available appeal processes.       foreign judgments does not appear to
apply to arbitral awards as well as                                                             be assisting a great deal in terms of
judgments. Article 85 provides that               Practical experience                          certainty, time or costs.
an order for enforcement shall be
                                                  I have been working with Dubai solicitors     It is, of course, possible that once the
applied for by way of a petition directly
                                                  for more than two years, seeking to enforce   Courts become more familiar with
to an Enforcement Judge and that the
                                                  a judgment obtained in the UK against a       the Resolution they will embrace the
Enforcement Judge shall issue an order
                                                  fraudster (and in respect of which there      changes it includes, leading to the
within three days of the submission of the
                                                  was no scope to refer the matter to the       modernised, streamlined approach to
petition without notice to the defendant.
                                                  Courts of the DIFC). As such the efforts      litigation and, in this particular instance,
That is, however, on the condition that the
                                                  have straddled the two regimes. The first     enforcement of foreign judgments it was
following can be verified:
                                                  effect of the Resolution was that two         intended to provide, but that remains to
1. That the UAE Courts do not have               months after it came into effect, the court   be seen.
   exclusive jurisdiction over the dispute;       which had previously been dealing with

Asset Recovery Hub E-Magazine: Issue 3 - Americas & Asia Focus


                                          Geneva Zurich London
Asset Recovery Hub E-Magazine: Issue 3 - Americas & Asia Focus

Sophia Rolle-Kapousouzoglou
Lennox Paton

The Privy Council has recently ruled                                                                 office in Bermuda. The Liquidator
in the case of AWH Fund Ltd. (In                                                                     therefore applied pursuant to Order 11
                                                         Section 160 of the International
Compulsory Liquidation) v ZCM Asset                                                                  Rule 8(4) of the Rules of the Supreme
                                                         Business Companies Act (‘IBC
Holding Company (Bermuda) Ltd. [2019]                    Act’) 2000 provides: 160. (1) “Any
                                                                                                     Court 1978 (‘RSC’)14 by way of an
UKPC 36 that an application seeking                      conveyance, mortgage, delivery of           interlocutory Summons in the winding up
a declaration to set aside a fraudulent                  goods, payment, execution, or other act     proceedings to serve ZCM outside of the
preference claim served on a third                       relating to property as would, if made      jurisdiction.
party agent may be served outside of                     or done by or against any individual        Under Bahamian law the legal test for
the jurisdiction even in the absence of                  trader, be deemed in the event of his       the avoidance of fraudulent preferences
express statutory procedure governing                    bankruptcy to have been made or
                                                                                                     is that the payment must be paid within
the extraterritorial jurisdiction to do so.              done by way of undue or fraudulent
                                                                                                     the requisite statutory time (ie. within
                                                         preference of the creditors of such
                                                                                                     3 months prior to the commencement
                                                         traders, shall, if made or done by or
“THE RESPONDENT, A                                     against any company, be deemed,
                                                                                                     of the liquidation), and there must be a
                                                                                                     dominant motive or intent to prefer a
 BAHAMIAN MUTUAL                                         in the event of such company being
                                                         wound up under this Act, to have been       particular creditor over others.
 FUND (“AWH FUND”)                                       made or done by way of undue or             The Privy Council in its ruling determined
                                                         fraudulent preference of the creditors
 HAD BEEN PLACED                                         of such company, and is invalid
                                                                                                     that although there were no Rules
                                                                                                     that governed the winding up of an
 INTO VOLUNTARY                                          accordingly. (2) For the purposes of
                                                         this section — (a) the presentation of
                                                                                                     International Business Company
 LIQUIDATION IN 2002.”                                   a petition for winding up a company
                                                                                                     (‘IBC’), the jurisdiction could be vested
                                                                                                     in a Liquidator by way of the provisions
                                                         in the case of a company being
                                                                                                     governing service out of the jurisdiction
                                                         wound up by the court or subject to
                                                                                                     as contained in the Rules of the Supreme
The Respondent, a Bahamian Mutual                        the supervision of the court; and (b) a
                                                         resolution for winding up the company,      Court and there was no need to have a
Fund (“AWH Fund”) had been placed
                                                         in the case of a voluntary winding up,      substantive claim within Order 11 Rule
into voluntary liquidation in 2002. The
                                                         shall be deemed to correspond with          1(1) of the RSC in order to do so.
fraudulent preference as it is termed
under Bahamian law13 was alleged by                      the act of bankruptcy in the case of an     The Board determined in the judgment
the Liquidator to have been made to                      individual trader, and any conveyance       delivered by Lady Arden at paragraph
                                                         or assignment made by any company
ZCM (Asset Holding Company Bermuda)                                                                  [39] that, “Times have moved on since
                                                         formed under this Act of all or any part
Ltd. (‘ZCM’), within three months                                                                    the nineteenth century when the relevant
                                                         of its estate and effects to trustees
preceding the liquidation of AWH Fund.                                                               provision in bankruptcy were enacted,
                                                         for the benefit of all or any part of its
ZCM held the shares in AWH Fund on                                                                   and it would not be surprising to find
                                                         creditors is void.”
behalf of American Express Alternative                                                               provision now being made for service
Offshore Ltd. (‘AMEX’) as its agent. The                                                             out” and further at [40] “it is now settled
                                                  The main issue considered by the Board
Liquidator filed an application by way                                                               law that insolvency provisions can have
                                                  on the appeal was whether the Supreme
of Summons seeking a declaration that                                                                extraterritorial effect”. The Board in its
                                                  Court of The Bahamas had jurisdiction
the payment made to ZCM in the sum of                                                                ruling cited Sir Donald Nicholls VC In
                                                  to serve an interlocutory Summons
approximately $13 million was wrongful                                                               Re Paramount Airways [1993] Ch 223
                                                  outside of the jurisdiction in winding up
by reason that it constituted an undue                                                               which was considered and, noted that,
                                                  proceedings seeking a declaration to
and/or fraudulent preference of ZCM and                                                              “Trade takes place increasingly on an
                                                  set aside a fraudulent preference claim.
is invalid accordingly.                                                                              international basis. So does fraud.”
                                                  ZCM, is a company with its registered

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