Larsen & Anor (Foreign Representatives of Atlas Bulk Shipping AS) & Anor v Navios International Inc

Recognition of a foreign main insolvency proceeding under the Cross Border Insolvency Regulations 2006 does not create a notional English insolvency or automatically apply English insolvency law. The court may nevertheless grant relief under Article 21 where necessary to protect the debtor’s assets or the general body of creditors.

For that purpose, the relevant rights may be determined by reference to the date on which the foreign insolvency proceeding opened, rather than the date of recognition. The court may restrain or undo set-offs acquired or exercised after that date, including non-mutual set-off and set-off based on a post-insolvency assignment. Relief remains discretionary and must adequately protect the interests of creditors and other interested persons.

Atlas Bulk Shipping A/S entered Danish bankruptcy proceedings. Its Danish bankruptcy trustees obtained recognition of those proceedings in England as a foreign main proceeding under the Cross Border Insolvency Regulations 2006.

Atlas Bulk claimed sums under three forward freight agreements against Navios International Inc. Navios sought to rely on a non-mutual set-off involving a debt owed by an affiliated company and on a debt acquired by assignment after the Danish bankruptcy had commenced.

The trustees applied for relief preventing Navios from relying on those set-offs in related Commercial Court proceedings. The central issue was whether Article 21 permitted the English court to determine set-off rights by reference to the opening of the Danish proceedings and, if so, whether relief was necessary and should be granted.

1. Recognition and automatic relief. Recognition under Article 20 of the Cross Border Insolvency Regulations 2006 creates a moratorium equivalent in scope to the specified consequences of an English winding-up. It does not apply English law to the Danish insolvency or create a notional English winding-up. Article 20 does not automatically affect a creditor’s set-off rights except to the extent that those rights would be unavailable in an English winding-up. In any event, unexercised non-mutual set-off and set-off based on a post-insolvency assignment could not be enforced after recognition under Rule 4.90 of the Insolvency Rules 1986 (paras [13]–[18]).
2. Article 21 relief. Article 21 has a broader and discretionary scope. Where necessary to protect the debtor’s assets or the interests of the general body of creditors, Article 21(1)(g) permits the court to restrain or undo the purported exercise of set-off rights after the foreign insolvency commenced. The rights relevant to that relief are to be determined by reference to the date on which the foreign proceedings opened, not necessarily the date of the recognition order (paras [19]–[24]).
3. The construction was supported by the broader purpose and structure of the Model Law, including the objectives of fair and efficient administration, protection of creditors and maximisation of the debtor’s assets. It also avoided giving creditors an incentive to exercise or acquire set-off rights during the period between commencement and recognition (paras [23]–[24]).
4. Set-off contrary to pari passu distribution was sufficiently prejudicial to make relief necessary. Both Danish and English insolvency law rejected non-mutual set-off and post-insolvency assignment set-off against the general body of unsecured creditors. There was no discretionary reason to withhold relief, and Navios could retain the assigned indebtedness as security only to the extent justice required. The court declared that Navios could not rely on either set-off as a defence in the Commercial Court proceedings (paras [25]–[27], [33]).