Winding up proceeds despite foreign court rescue bid

An Australian court has wound up an Australian company with operating subsidiaries offshore despite an 11th hour, expensive and likely futile bid for an adjournment brought on the basis that restructuring proceedings had been commenced in Singapore and the foreign subsidiaries needed only a short time to develop a proposal.

Vietnam Industrial Investments (VII) is described as a holding company for subsidiaries domiciled in Singapore and in Vietnam, where hundreds of workers are employed to operate steel mills.

In refusing to adjourn the winding up application, NSW Supreme Court judge Ashley Black has shown that debtors can’t be assured of derailing the winding up of an Australian entity simply by setting in train restructuring proceedings offshore and promising to be quick.

“Instead it needs time to develop a proposal which has not been developed in the two years since VII’s potential insolvency was first identified by its auditors. It is by no means apparent that two weeks, four weeks or two months would be sufficient for that purpose.” Justice Ashley Black.

This is particularly so when at the time of the adjournment application the restructuring proposal is largely if not entirely hypothetical despite the proponents having been warned years earlier that urgent action was required and when the initiation of the foreign court proceedings has what the judge describes as distinctly “defensive” flavour.

In the matter of Vietnam Industrial Investments Pty Ltd [2022] NSWSC 1411 it’s difficult to conclude other than that the applicants paid for top end legal representation when they were on a hiding to nothing.

At the hearing of the adjournment on September 30, 2022 barrister Jeremy Giles SC – taking time out from his exertions on behalf of Westpac in the Forum Finance debacle – conceded that there was no question of any automatic stay arising under Article 20 of the UNCITRAL Model Law on Cross Border Insolvency (“Model Law”), since the proceedings recently commenced in the High Court of Singapore would not qualify as a foreign main proceeding.

“Mr Giles puts VII’s application, first, on the basis that the Court should adjourn the proceedings, whether for a longer period or a shorter period, in order to allow the development of VII’s restructuring proposal,” there judge said.

“However, that adjournment is directed to allowing VII to develop a restructuring proposal which does not now exist in any developed form.

“Mr Giles submits that adjournment is also sought, second, to allow VII to progress its application in respect of that proposal (I interpolate, once it has developed such a proposal) in Singapore; third, for it to take any necessary steps to obtain recognition of that proposal in Vietnam, in respect of subsidiaries of the Singaporean entities, which are the operating companies, which would not be available in Vietnam under the Model Law because Vietnam is not a party to the Model Law; and, fourth, depending upon the way in which those matters develop, for VII to bring a possible application for discretionary relief under Article 21 of the Model Law in Australia.”

The judge said the strongest point in Giles’ application was that the adjournment sought was only for a short time.

“However, it is important to recognise that this is not a case where VII needs further time to lead evidence of an existing restructuring proposal, because it has already led evidence which demonstrates that no such proposal presently exists in any developed form.

“Instead it needs time to develop a proposal which has not been developed in the two years since VII’s potential insolvency was first identified by its auditors. It is by no means apparent that two weeks, four weeks or two months would be sufficient for that purpose,” he said.

No doubt Giles knew he was pushing a snowball up a hill in hell.

His honour refused the adjournment application, ordered that VII be wound up, that the Deloitte duo of David Mansfield and Matthew Donnelly be appointed joint and several liquidators and the petitioning creditor have leave to apply for a lump sum costs order in respect of the costs of the adjournment application.