Notable cases

Salem Mohammed Ballama AlTamimi

& Ors v Emirates NBD Bank PJSC & Ors (2021) CFI 085

A panel of trustees brought a Part 8 Claim in the DIFC Courts seeking inter alia recognition of parallel restructuring/bankruptcy proceedings in the Abu Dhabi Courts. By way of a judgment dated 11 February 2022, Justice Sir Jeremy Cooke dismissed the Trustees’ claim in full and handed down a landmark judgment regarding the operation of the DIFC Insolvency Law.

A claim was brought by Trustees seeking the DIFC Court to inter alia recognise the restructuring in bankruptcy proceedings commenced on 27 July 2021 against the debtors and joined litigants in the Abu Dhabi Court (the “Abu Dhabi Proceedings”) as foreign main proceedings under Articles 15 and 17(2) of Schedule 4 of the DIFC Insolvency Law No 1 of 2019. The Trustees also sought an order staying the DIFC proceedings and in the alternative an order under Article 20(1) of the UNCITRAL Model Law staying the commencement or continuation of proceedings in the DIFC Courts concerning the debtor’s and joined litigants’ assets, rights, obligations, or liabilities.

The Trustees brought the Claim on the basis that they were a “foreign representative” under the Model Law and were therefore entitled to apply directly to the DIFC Court for recognition (Model Law, Articles 2(d) and 9) and, that the Abu Dhabi Proceedings were “foreign main proceedings” under the Model Law because Abu Dhabi was the place where the debtor had the centre of his main interests (Model Law, Article 2(b)).Justice Cooke considered the terms “Foreign Representative” and “Foreign Proceeding” in accordance with Schedule 4 to the Insolvency Law. It was held that the terms had defined meanings which held importance in the context of the applications made by way of the Part 8 Claim. The question before the Court was in relation to the nature of the Abu Dhabi proceedings and whether they could truly be considered as a Foreign Proceeding within the meaning of the definition set out in Article 2 of the Schedule to the Insolvency Law.

At paragraph 17, Justice Cooke stated, “The definition of a “foreign proceeding” is apt to include an interim judicial or administrative proceeding, pursuant to a law relating to insolvency in which the assets and affairs of the debtor are subject to supervision by a foreign court for the purpose of reorganisation...the assets and affairs of the Debtor and the Joined Litigants are, it appears to me, subject to the supervision of the Abu Dhabi Court in an interim proceeding pursuant to a law relating to insolvency for the purpose of reorganisation, even if no further orders have yet been made in relation to restructuring or liquidation. That is the purpose of the Commencement Order which will be followed by the Abu Dhabi Court making further orders in relation to their assets and affairs.”

Justice Cooke found that the Trustees in this case faced a particular difficulty in establishing that they met the definition of a “foreign representative” which requires such a person, whether appointed on an interim basis or otherwise, to be “authorised in a foreign proceeding to administer the reorganisation… of the debtor’s assets or affairs or to act as a representative of the foreign proceeding”. Justice Cooke found that although a Commencement Order had been made and it was said that commencement of restructuring had begun, no order had been made for any reorganisation or liquidation by the Abu Dhabi Court.

It was held that the functions of the Trustees were only to put forward proposals for restructuring for the approval of the creditors and the Court on the basis of the information gathered by them in relation to the assets and liabilities of the debtor, with a list of creditors where liability is accepted or disputed. As such, Justice Cooke held that the Trustees were not authorised to administer any reorganisation until such time as an order had been made for such reorganisation or restructuring and, could not be satisfied that the Trustees qualify as the Foreign Representative, authorised in a Foreign Proceeding to administer the reorganisation of the Debtor’s assets and affairs.

In recognition of whether the DIFC Insolvency Law permits recognition of foreign proceedings against individuals, Justice Cooke noted that there is nowhere in the Insolvency Law any provision relating to the bankruptcy of an individual in the DIFC, as opposed to a corporate entity or those involved in a limited liability partnership. Justice Cooke took the view that Article 117(1) restricts the application of Article 117(3) to Foreign Companies where their insolvency proceedings take place in the jurisdiction of their incorporation and further noted that it provides for the UNCITRAL Model Law as set out in Schedule 4 to have force in the DIFC but only in respect of foreign companies.

The consequence of this is that provisions of Schedule 4, whether relating to recognition under Chapter III or to cooperation or assistance under Chapter IV cannot apply to individuals. Justice Cooke held that the Trustees were not entitled to seek recognition or a stay of proceedings under a provision of the Model Law enshrined in Schedule 4 or the Insolvency Law. Justice Cooke found that that there was simply no jurisdiction to recognise the Abu Dhabi proceedings even if they had been brought by a foreign representative.

Given the Model Law was found not to apply to individuals the question arose as to whether it applied to the joined litigants. In relation to the jurisdiction to stay proceedings in the DIFC, Justice Cooke found that the evidence put before the Court as to the centre of main interest and location of establishment of the twenty-eight corporate bodies who were joint litigants was unsatisfactory. Justice Cooke held that the significance of the difference between the location of an entity’s centre of main interests and the location of an establishment arises because of the distinction drawn between recognition of a foreign proceeding as a foreign main proceeding and recognition as a foreign non-main proceeding. Justice Cooke concluded that recognition of foreign proceedings involving the bankruptcy of an individual is not available under the DIFC Insolvency Law and there is therefore no relevant debtor. In this case, Justice Cooke identified that as the debtor in the Abu Dhabi proceedings and the insolvency related to him, noting that no purpose would be served if the proceedings in the DIFC were to continue against him whilst staying proceedings against any corporate joined litigants who had a centre of main interest or establishments in Abu Dhabi.

The Court’s decision in this case is of great significance in establishing that the Model Law can only be invoked to recognise “foreign proceedings” involving companies and not individuals and, that where an individual applies to commence restructuring or insolvency proceedings in another jurisdiction, they cannot rely on the Model Law to have those proceedings recognised and stay the DIFC Court proceedings.