Out-Law Legal Update 3 min. read
14 Dec 2017, 10:29 am
The ruling means that the Croatian administration has been recognised under English law and, therefore, a stay on any enforcement or other legal action against the company's assets in England has been put in place. The decision was made despite opposition from a creditor bank which had started arbitration proceedings against the company in London.
Agrokor is the largest private company in Croatia, with revenue of €6.5 billion equal to roughly 10% of Croatia's GDP.
On 6 April 2017 the Croatian parliament passed a new law designed to help the restructuring of companies so large that they had systematic importance to the wider country. On 10 April, Agrokor and its group were placed into extraordinary administration under the new law.
Sberbank, a Russian bank and Agrokor's largest creditor, began arbitration proceedings against Agrokor in London.
The CBIR gives force to the UNCITRAL 'model law' in Great Britain. The model law creates a framework for the recognition of insolvency procedures between countries. The CBIR states that an overseas insolvency process will be recognised if it meets the definition of "foreign proceeding" set out in the CBIR.
The CBIR says: "'foreign proceeding' means a collective judicial or administrative proceeding in a foreign state, including an interim proceeding, pursuant to a law relating to insolvency in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganisation or liquidation".
Recognition gives the company in question protection equivalent to that given when a winding-up order is made, including an automatic stay on any enforcement or other legal process over the company's assets in England. For Agrokor, this would mean staying the Sberbank arbitration proceedings.
Agrokor applied for recognition in England under CBIR and Sberbank contested the application.
Sberbank's arguments were that a Croatian extraordinary administration was not a "foreign proceeding" because:
Sberbank also argued that it would be "manifestly contrary" to English public policy to recognise the extraordinary administration because it would be fundamentally unfair to do so as it would deny creditors access to any effective legal remedy for recovering their debts.
The court dismissed Sberbank's arguments:
The court also dismissed Sberbank's public policy argument. Just because the priorities of the new Croatian law in reorganising or liquidating a company were different from those under English law it did not make recognition against public policy.
Simon Gibbs is a restructuring expert at Pinsent Masons, the law firm behind Out-Law.com