...jurisdiction, to prescribe conduct, and jurisdiction to adjudicate between parties. It briefly touches upon the notion of an inherent jurisdiction to adjudicate in liquidation and on jurisdiction for proceedings during the course of rather than on the adjudication of a liquidation. The discussion of jurisdiction to adjudicate in a multi-state liquidation in Australia addresses the winding-up of a foreign company under Part 5. 7 of the Corporations Act 2001 (Cth), as well as topics such as forum non conveniens, lis alibi pendens, anti-suit injunctions, and the notion of discretion to exercise jurisdiction to wind up a company. The jurisdiction to provide aid and auxiliary assistance upon request from a foreign court is also touched upon briefly.]



CONTENTS I Introduction II Multi-State Insolvency Theories III Classification of Jurisdiction A Constitutional Framework for Bankruptcy and Insolvency Jurisdiction B Geographical Jurisdiction in Liquidation C Jurisdiction to Prescribe Conduct in Liquidation D Jurisdiction to Adjudicate between Parties in a Liquidation 1 Inherent Jurisdiction to Adjudicate in Liquidation 2 Jurisdiction in Proceedings during the Course of a Liquidation IV Jurisdiction to Adjudicate in a Multi-State Liquidation V The Exercise of Jurisdiction in a Multi-State Liquidation A Part 5.7 Liquidation B Forum Non Conveniens C Lis Alibi Pendens D Anti-Suit Injunctions E Discretion in the Exercise of Jurisdiction F Jurisdiction under the 'Aid and Auxiliary' Provisions VI Conclusion

The Court's inherent jurisdiction, while broad, is not unlimited. (1)

I INTRODUCTION

Fundamental to the winding-up of a company that is insolvent is that otherwise justified claims will remain unsatisfied. The phenomenon of the failed HIH Insurance Group brought home to many people who may previously have had little interest in insolvency that 'just' claims may well go unrewarded. For example, parties with actions in negligence against otherwise impecunious policy holders were suddenly faced with the reality that their 'someone should pay' expectation would be unmet, because there was no-one who 'could pay'. The combination of impecunious defendants and their insolvent insurers meant that claims would remain unrequited.

Yet the law, particularly in areas principally derived from statute, may contain lacunae that prevent applicants from receiving what they believe to be the 'just desserts' of a judgment in their favour. Drafters of legislation, in seeking to reify the wishes of the government and to 'flesh out' the bones of its policy, may choose words that do not cover the particular permutation or combination of facts that serendipitously evolved. Such a fate awaited Mr Lunn, apparently the sole traceable member of the Cardiff Coal Co ('Cardiff'). Mr Lunn unsuccessfully sought the moribund, albeit solvent, private trading corporation's winding-up as a Part 5.7 body under the Corporations Act 2001 (Cth) ('Corporations Act'). (2)

While the case of Lunn [No 2] (3) involved local proceedings in a corporate insolvency, it was not a multi-state insolvency, in the sense of dealing with facts arising in more than one state or law area. (4) Yet, as discussed below, the lack of this multi-state dimension was fatal to Mr Lunn's application. (5) Gaps in the law may also arise where an insolvency crosses jurisdictional borders because the local legislators have not considered or have chosen not to address the 'foreign' implications of a multi-state insolvency.

The majority of companies in Australia derive their existence from the Corporations Act and as such, the provisions on external administrations to achieve their dissolution are also largely to be found in this statute. In the case of a multi-state insolvency, however, the statutory provisions are to be applied in the context of the (largely judge-made) principles of private international law. A range of laws may be relevant to determining issues in a corporate insolvency administration, as insolvency provisions may intersect not only with those regulating companies but also with laws on property, securities, and civil and criminal liability. Underpinning all of these are procedural laws which are often critical to the eventual outcome.

This article addresses local proceedings in a multi-state corporate insolvency, focusing specifically on liquidation. Following a brief description of multi-state insolvency theories, Part III classifies the different types of jurisdiction that a court may exercise. It then concentrates on jurisdiction in corporate insolvency within Australia, beginning with the constitutional framework and then addressing geographical jurisdiction, jurisdiction to prescribe conduct, and jurisdiction to adjudicate between parties. The last briefly touches on the notion of an inherent jurisdiction to adjudicate in liquidation and on jurisdiction for proceedings during the course of, rather than for the adjudication of, a liquidation. Parts IV and V provide a more detailed discussion on jurisdiction to adjudicate in a multi-state liquidation in Australia and address the winding-up of a foreign company under Part 5.7, as well as topics such as forum non conveniens, lis alibi pendens, anti-suit injunctions, and the notion of discretion to exercise jurisdiction to wind up a company. Finally, brief comments are made on the jurisdiction to provide aid and auxiliary assistance upon request from a foreign court.

II MULTI-STATE INSOLVENCY THEORIES

Analysis of multi-state insolvency (specifically bankruptcies or liquidations with multi-state dimensions) has traditionally been undertaken using the two theoretical extremes of 'universality' and 'territoriality'. These terms are often used interchangeably with the terms 'unity' and 'plurality'; however the distinct (though connected) issues require separation. (6) 'Unity' and 'plurality' relate to jurisdiction and the number of courts which have jurisdiction to open insolvency proceedings over a debtor. 'Universality' and 'territoriality' relate to the multi-state effects (7) of the insolvency proceedings. (8)

Under the principle of 'unity', there is one set of insolvency proceedings in respect of the one debtor, while 'plurality' means that there are multiple sets of proceedings in progress concurrently in different states. 'Universality' refers to the extraterritorial effect of one set of proceedings in every other jurisdiction, while 'territoriality' refers to the limitation of the effects of a set of proceedings to its place of origin. (9)

'Territorialism' addresses choice of forum by permitting a court to exercise jurisdiction over any debtor that satisfies local insolvency law requirements. Choice of law 'follows the forum', in that the law of the forum applies to all aspects of the insolvency. The strictly territorialist approach claims no extraterritorial reach to a local insolvency order. Thus, each state which accords itself jurisdiction over a debtor has authority to administer the debtor's estate within its jurisdiction. However, there are few states that adhere to the strict territorialist approach.

'Universalism' involves two aspects. First, the 'active' aspect means that an insolvency proceeding, opened in the insolvent debtor's domicile, place of incorporation or seat, claims to comprise all the assets of the debtor, including those located in other states. Second, the 'passive' aspect means that, if an insolvency proceeding is opened abroad in the insolvent debtor's domicile, place of incorporation or seat, it will be given full local effect in each state that has adopted the universalist approach. (10)

Choice of forum under the universalist approach is based on the debtor's country of domicile or, in the case of a company, its place of incorporation or seat. The doctrine accepts the universal extraterritorial effect of an insolvency adjudication made in such a forum. The law of the forum then governs the insolvency administration, including its foreign effects. (11) As with territorialism, choice of forum is therefore likely to be outcome-determinative because of the differences in states' insolvency laws. (12)

Scholars have proposed various models that modify these theoretical extremes, some of which can be found in current state or convention practice. The qualifications often involve concurrent proceedings, which recognise home state (13) insolvency administrations to a greater or lesser degree. In a multi-state insolvency, judicial orders are typically required in more than one state in order to control the debtor's assets. These concurrent proceedings may take the form of ordinary civil litigation, (14) enforcement of foreign judgments obtained during the principal administration, specific aid and assistance for a foreign principal administration, or separate insolvency administrations.

Concurrent insolvency administrations often comprise liquidation adjudications that purport to be the 'main' administration (15) and similar adjudications in other jurisdictions with lesser claims to significance in the debtor's affairs. These 'non-main' administrations typically take one of two forms. First, such proceedings may primarily be intended to aid the main administration and therefore will not amount to a sequestration of the debtor's assets. For example, they involve a local moratorium on creditor action and assistance to the foreign administrator in realising local assets. Second, local liquidation administrations may be instituted, albeit ones which recognise the main administration and cooperate to a greater or lesser extent with it.

Various terms are used for these forms of non-main administrations. In American terminology, the former are known as 'ancillary proceedings' and the latter are 'parallel proceedings'. (16) English and Australian case law, (17) on the other hand tend instead to use the term 'ancillary' for local non-domiciliary (non-main) bankruptcy or liquidation administrations. Insolvency-related proceedings brought to assist a foreign administration, not being a local bankruptcy or liquidation, do not have an established nomenclature.

'Modified universalism' accepts the central premise of universalism--that there should be a single administration which collects and distributes assets on a worldwide basis. However, modified universalism alters this by reserving to the local forum the discretion 'to evaluate the fairness of the [foreign home state] procedures and to protect the interests of the local creditors.' (18) In the exercise of its discretion, the local forum is to consider whether 'deferring to' the single foreign home state administration would alter parties' entitlements or offend the forum's public policy. (19) It is undertaken when a foreign administration is claimed as the home state administration such that local proceedings should be stayed and all property and claims should be dealt with by the foreign office-holder. Local proceedings are therefore merely auxiliary proceedings. Where the discretion is exercised against assisting the foreign home state administration, then a local insolvency administration may be instituted. Local insolvency law will therefore apply. (20)

'Cooperative territorialism' is a system in which each state administers the assets over which it has jurisdiction (21) as a separate estate, distributing them under local insolvency law. None of the proceedings are principal, ancillary or auxiliary; rather each constitutes a separate administration. (22) The system, however, acknowledges the multi-state dimension by providing for cooperation in the administration of the separate estates.

'Secondary bankruptcy' (23)--or to use a broader term which would be applicable to companies as well as individuals, 'secondary insolvency' 24)--is currently practised in various forms. Under municipal law, it is mandated in statute (25) and judge-made law, (26) and it also appears in various multilateral conventions and international solutions. (27) Until recently, scholars have typically described the phenomenon, rather than proposed it as a theory placed within the frameworks of universalism and territorialism. (28) In a secondary insolvency system, insolvency administrations proceed concurrently in each state in which a debtor has a substantial presence. (29) In common with modified universalism, it recognises a home state main administration with which other states cooperate. However, it differs in that the local proceedings are ancillary liquidations (30) rather than auxiliary proceedings. (31) Local assets are realised and distributed to locally secured and priority claims. (32) Any remaining assets are then remitted to the primary administration for distribution. (33)

These theories from multi-state insolvency literature assist with providing the insolvency law context for issues which are also dealt with in private international law scholarship on matters of jurisdiction. The following Part outlines the jurisdictional framework within which specific issues concerning company liquidation are subsequently addressed.

III CLASSIFICATION OF JURISDICTION

The term 'jurisdiction' encompasses both geographical jurisdiction and subject matter jurisdiction. (34) Geographical jurisdiction delimits the area with which a relevant connection (such as physical presence or the carrying on of business) with one or more of the parties is to be established. Geographical jurisdiction also defines the area within which the court's judgments will prima facie be enforced or have direct or automatic effect. (35)

Subject matter jurisdiction, a court's authority to deal with disputes, itself comprises two elements: the jurisdiction to prescribe conduct and the jurisdiction to adjudicate between particular parties. Jurisdiction to prescribe--or 'substantive jurisdiction'--is satisfied where a court 'has jurisdiction over the conduct complained of, in light of the nature of the conduct'. (36) Jurisdiction to adjudicate, or 'personal jurisdiction', is 'the power a court has over a person because he or she is amenable to being served with the court's initiating process in accordance with its rules.' (37) It comprises several categories of proceedings, each with its own special rules that, if met, enable the court to adjudicate between the particular parties. In order to hear a matter, a court must have both jurisdiction to prescribe and adjudicatory jurisdiction.

A Constitutional Framework for Bankruptcy and Insolvency Jurisdiction

The constitutional allocation of legislative powers between the Commonwealth and state Parliaments has affected the legislative history of, and courts with jurisdiction over, personal bankruptcy and corporate liquidation in Australia. The colonial constitutions granted legislative authority in general terms to colonial (now state) Parliaments to pass laws for the 'peace, order and good government' of particular geographical areas (subject to certain powers of the Imperial Parliament). (38) Upon federation, legislative authority was redistributed between the Commonwealth and the states. 'Bankruptcy and insolvency' (39) was one of the specific powers granted to the Commonwealth to be exercised concurrently with the states. (40)

The colonies' personal bankruptcy and insolvency laws (41) continued in existence until being made otiose by comprehensive Commonwealth bankruptcy legislation. (42) Although the grant of power to the Commonwealth to legislate on 'insolvency' was wide enough to extend to the liquidation of companies, (43) the English approach of including the regulation of corporate insolvency in the general corporations' legislation was followed in Australia. Thus, the colonies--and later, the states--continued to legislate on the winding-up of trading companies and other associations in various Companies Acts. (44)

The Australian Constitution granted the Commonwealth limited concurrent power over corporations, specifically to make laws with respect to 'foreign corporations, and trading or financial corporations formed within the limits of the Commonwealth'. (45) Despite the constitutional limitations imposed by the words 'trading', 'financial' and 'formed', a move towards uniform corporate regulation in Australia began in 1961 through essentially standard state legislation. (46) An attempt was made in 1989 to legislate federally for Australia-wide comprehensive companies' regulation. However, this was struck down as unconstitutional by the High Court. (47)

As a consequence of this lack of a Commonwealth power 'to enact a comprehensive corporations law', (48) the Commonwealth, states and the Northern Territory negotiated a national scheme of cooperative legislation. In 1990, the states and the Northern Territory introduced their own statutes applying federal legislation passed for the Australian Capital Territory to regulate companies, grant national regulatory powers to the Australian Securities Commission (now the Australian Securities and Investments Commission ('ASIC')) and cross-vest jurisdiction between the federal, state and territory Courts. (49)

In 1999, the cross-vesting scheme (50) was held by the High Court to be constitutionally invalid insofar as it attempted to cross-vest state jurisdiction in the federal courts. (51) Soon afterwards, another High Court decision (52) raised concerns about the continued viability of the cooperative scheme insofar as it involved Commonwealth officers and authorities (for example, the Director of Public Prosecutions or ASIC) performing functions conferred under state law. Subsequently, based on this decision, a challenge was made to the capacity of ASIC to incorporate companies under state law. (53) After a period of significant uncertainty that adversely affected national commerce and foreign investment, agreement was finally reached between the various governments to put national corporations' regulation on a firmer constitutional foundation. Through state referral of powers to the Commonwealth, (54) in addition to the Commonwealth's pre-existing constitutional powers, comprehensive federal legislation was passed in the form of the Corporations Act and the Australian Securities and Investments Commission Act 2001 (Cth) ('ASIC Act'). (55)

B Geographical Jurisdiction in Liquidation

Corporate insolvency law is contained in federal legislation and, while the cooperative scheme with all states referring the relevant powers to the Commonwealth is in operation, one Commonwealth Act applies across a single national jurisdiction. (56) The Act confers civil jurisdiction, (57) as well as vesting and cross-vesting criminal jurisdiction, (58) in the relevant federal, state and territory courts. The courts with primary jurisdictional competence under the Corporations Act are the Federal Court and the state and territory Supreme Courts. (59) State and territory lower courts may determine certain civil claims, such as debt recovery and monetary compensation matters, subject to their general jurisdictional limits as to the amounts and value of property with which they may deal. (60)

The geographical area of competence of federal courts depends on the terms of the statute conferring the jurisdiction. (61) The Corporations Act applies to all of Australia's states and internal territories. Certain chapters, including Chapter 5 (external administrations), (62) apply according to their tenor in relation to all natural persons, bodies corporate, unincorporated bodies and acts and omissions 'outside this jurisdiction', which includes places outside Australia. (63) Certain sections specify their territorial application. For example, of possible relevance during a multi-state liquidation, s 186 states that ss 180-4 (officer liability) do not apply to an act or omission by a director or other officer or employee of a foreign company unless there is one or more specified jurisdictional connection. (64)

The territorial boundaries of the state and territory courts, (65) when acting in corporations matters remain unaffected. However, there is precedent for the Supreme Court of South Australia to sit outside the geographical territory of Australia in a corporate insolvency case. (66) It arose out of the liquidator's overseas investigations into the collapse of Bond Corporation Holdings Ltd, subsequently renamed Southern Equities Corporations Ltd ('SEC'). In England v Smith, (67) the English Court of Appeal granted the assistance requested by the Supreme Court of South Australia. It ordered an English resident to attend before a Master of the Supreme Court of South Australia sitting in England and to be examined in accordance with Australian law and procedure. (68)

C Jurisdiction to Prescribe Conduct in Liquidation

Jurisdiction to prescribe conduct is satisfied where a court has substantive jurisdiction (that is, jurisdiction over the conduct complained of due to the nature of the particular conduct). (69) In corporate insolvency matters, the jurisdiction to prescribe conduct is vested in the Federal Court and state and territory Supreme Courts. Following the referral of the states' corporations powers to the Commonwealth, the Corporations Act enacted a single federal jurisdiction in such matters, including external administration of companies. As federal courts have 'exclusive jurisdiction' in bankruptcy, (70) many of the issues which arise in personal insolvency matters (71) are not of concern in corporate insolvency because jurisdiction may be exercised concurrently by the relevant federal, state and territory courts.

Jurisdiction in liquidation involves a wide range of matters with which a court may be involved in a winding-up context. In Gould v Brown, Brennan CJ and Toohey J noted that the ordering and conduct of examinations of directors constituted the exercise of judicial power. (72) Even though the functions of courts in the judicial management of the property of bankrupts may involve a large element of discretion, they have nevertheless been upheld as a proper exercise of their judicial powers. (73)

D Jurisdiction to Adjudicate between Parties in a Liquidation

Jurisdiction to adjudicate between parties is determined according to the category of dispute to be resolved. Three categories have been identified: actions in personam, actions in rem and a category for proceedings that do not fall within either of the foregoing. (74)

The most important category is the action in personam. This is brought against a person essentially to compel them to do a particular thing or to cease to do something. A judgment in such an action only binds the parties, and their privies, to the action. (75) At common law, jurisdiction to adjudicate in a particular action in personam requires valid service of the originating process on the defendant or the defendant's submission to the court's jurisdiction. (76)

Service within the court's geographical jurisdiction is typically by actual physical service on the defendant. (77) This is an example of power theory (78) underpinning adjudicatory jurisdiction:

The root principle of the English law about jurisdiction is that the judges stand in the place of the Sovereign in whose name they administer justice, and that therefore whoever is served with the King's writ and can be consequently compelled to submit to the decree made, is a person over whom the Courts have jurisdiction. (79)

In certain circumstances, the plaintiff may obtain leave to serve a defendant by local substituted service. This may occur where the applicant can establish that personal service is impracticable and other means of service, such as by post, or by leaving the relevant document with a third party, are likely to bring the document to the respondent's attention. (80)

Statutory extensions to this jurisdiction, dating back to the Common Law Procedure Act 1852, 15 & 16 Vict, c 76, provide for service out of the jurisdiction 'where, speaking generally, there is some link between the forum and the subject matter involved.' (81) In Australia, the rules of the High Court, Federal Court, and the state and territory Supreme Courts permit service of process outside the jurisdiction. (82) Leave prior to service may be required. Where it is not, the court considers the manner of service where the plaintiff seeks to obtain judgment by default. (83)

The second category of dispute is that of the action in rein. (84) This involves jurisdiction over a thing (res), typically in the context of admiralty, as well as property interests therein. (85) Jurisdiction to adjudicate is based on the presence of the res within the court's geographical jurisdiction. (86) This jurisdiction permits the court to determine title, rights or claims to the res and its resulting judgment is binding against the whole world. (87)

Although jurisdiction in bankruptcy has been described as being a form of in rem jurisdiction over the property comprising the divisible 'estate', (88) others have placed it in a category of proceedings that neither fall within actions in personam nor actions in rem, but rather are the subject of special jurisdictional rules. (89) The major subcategories are proceedings in individual bankruptcy and corporate liquidation, (90) matrimonial proceedings, probate and administration actions, and proceedings in lunacy.

These proceedings involve matters of status and, accordingly, they potentially affect a party's relations with others. (91) Therefore, for example, bankrupt status affects one's capacity to manage a corporation or to incur credit; (92) marital status may affect one's capacity to (re)marry; and mental competence may affect one's capacity to contract. Another common theme to several of these proceedings is their impact on the administration of a person's property or estate. (93) As Louis Jacques Blom-Cooper stated:

[Bankruptcy] is neither wholly in personam nor wholly in rein. It is therefore considered that bankruptcy jurisdiction cannot be based entirely upon theories relating to other branches of Private International Law with regard to jurisdiction. (94)

Special statutory jurisdictional rules apply...

NOTE: All illustrations and photos have been removed from this article.



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