Last reviewed and updated: April 2026
Cross Border
Insolvency has become an increasing problem given growing trade
globalisation. It exists in situations
where a foreign insolvent debtor has assets or creditors in more than one
country.
Differing legal systems and laws have created problems in the past recognising the rights of foreign creditors. The United Nations designed the Model law to assist countries to address cross-border insolvency. The Model law was enacted into Australian legislation in Schedule 1 of the Cross Border Insolvency Act 2008 (Cth) (“CBIA”).
Overview of the CBIA
The CBIA was
intended to enable overseas “foreign
representatives”, such as an overseas liquidator, the ability to seek orders
locally in an Australian Court helping them carry out asset liquidation within
Australia for an individual bankrupt or a bankrupted corporation.
The process of
recognition is not simply a ‘rubber stamp’ and a Court hearing an application
in Australia, must be satisfied that all of the preconditions under the CBIA are
satisfied. In recognising an application,
the local court must decide if the foreign insolvency in question
can be recognised as a:
- Foreign
main proceeding; or - Foreign
non-main proceeding.
The Federal Court
of Australia (“FCA”) has the power to recognise a foreign proceeding involving
a bankrupt who is an individual. For
corporate debtors, the FCA coupled with the Supreme Court of a State or Territory,
has the power to recognise a foreign proceeding.
Foreign main proceeding
A foreign insolvency
will be recognised in Australia, unless manifestly contrary to public policy,
if it is a foreign main proceeding. To
establish this, the court need to be satisfied that the foreign proceeding is
taking place in the State where the bankrupt has their centre of main interests
(“COMI”) at the time the recognition
is made.
Recognising the Bankrupt’s COMI
The expression COMI
is not defined in the CBIA and there is a presumption, in the absence of proof
to the contrary, the bankrupt’s COMI will be:
- their habitual
residence for an individual; or - the
location of a company’s registered office for a company.
The term habitual residence was discussed in Re Gainsford and Others v Tannenbaum
(2012) 129 ALD 542 [38] – [42] (“Gainsford”).
In this case, the court considered that a person’s habitual
residence is a broad factual one that may take into account the following
factors:
- the actual and intended length of stay in a
State, - their purpose of stay within the State,
- the strength of ties they have to the State
(past and current); and - their degree of assimilation into the State such
as cultural, social and economic integration.
When determining a company’s COMI, the court in Akers v Saad Investments (2010) 118 ALD
498 [42] – [49], concluded that it was necessary to put forward material that
disclosed objective and ascertainable facts showing where the debtor conducted
the ‘administration of its interests’
on a ‘regular basis’ which could be ‘ascertainable by third parties’. The company was incorporated in the Cayman
Islands with its registered office there but its books and records were held by
a related company registered in Switzerland and it engaged in many commercial
activities around the world. In this
case the presumption that the company’s registered office was its COMI, was not
rebutted.
As a “fallback” position when a COMI cannot be ascertained, a foreign
representative can try to seek recognition for a “non-main” foreign proceeding.
Foreign non-main proceeding
To establish a foreign
non-main proceeding the court, need to be satisfied that the bankrupt has an
“establishment” in the foreign State.
Recognising The Bankrupt’s Establishment
Establishment has
been defined in the CBIA as a place of operations where the bankrupt carries
out a non-transitory economic activity and does so with human means and goods
or services.
In Shierson v
Vlieland-Boddy [2005] WLR 3966 cited in Gainsford,
the letting and managing of a single unit in England as ‘multi-let business
premises’ was sufficient to bring the bankrupt within the definition of
establishment as it was possible to infer that the entity was acting for a
front for the bankrupt.
In Gainsford,
the debtor left South Africa (“SA”) in 2007 to reside in Australia and his
business operations ceased in SA in 2009.
His assets remained in SA and he still held life insurance and endowment
policies. The court concluded that the
debtor no longer had a place of operation in SA and therefore no present
establishment.
Current Challenges
The
CBIA provides minimal assistance in situations where the bankrupt has no COMI
in the foreign proceeding and has left the foreign jurisdiction leading to the
termination of any establishment with the foreign land.
For
companies with a diverse transnational operation, recognising a COMI might be a
difficult task. When the bankrupt is an
individual, difficulties arise when the bankrupt leads such a nomadic life that
they can abandon a place, without becoming habitually resident in another place.
If the event that a
local court concludes that the foreign proceeding is neither “main” nor
“non-main”, it seems that there is no jurisdiction, at least under the CBIA to
grant recognition.
Related Services
Need Legal Advice?
If you need assistance, contact Boss Lawyers on 1300 267 711 or visit bosslawyers.com.au for a confidential discussion about your matter.
Disclaimer: This article provides general information only and does not constitute legal advice. You should obtain professional advice specific to your circumstances.
This is general information only and is not legal advice. You should obtain professional advice specific to your circumstances. For expert advice, contact Boss Lawyers on 1300 267 711.
Related Reading
For expert legal advice on commercial disputes in Brisbane and Queensland, speak with our commercial litigation lawyers Brisbane. Call 1300 267 711 or contact us online.
