Extra-territorial reach of s 440B moratorium considered by Federal Court
Last month Justice McKerracher delivered judgments in Tucker, in the matter of Vector Resources Limited  FCA 112 (Tucker (No 1)) and Tucker v Mongbwalu Goldfields Investments Limited  FCA 135. His Honour considered the extra-territorial application of the moratorium on enforcement of security interests during a voluntary administration under s 440B of the Corporations Act 2001 (Cth) where the security interest is held by foreign companies over properties located outside Australia.
The application was brought by the Administrators of Vector Resources Limited (Administrators Appointed) (Vector). The administrators sought injunctive and declaratory relief in relation to shares Vector held in a company, MGIH6, which were subject to a security arrangement with another company, MGI, which would effect a transfer of the shares back to MGIH6 in certain circumstances. The purpose of the application was to prevent the transfer of shares back to MGI and prohibit the enforcement under s 440B.
MGIH6 and MGI are registered in the Republic of Seychelles and the British Virgin Islands, respectively. The Court considered whether s 440B has extra-territorial effect. His Honour held that s 5(4) of the Act, which states “each provision of this Act also applies, according to its tenor, in relation to acts and omissions outside this jurisdiction” provides some extra-territorial reach.
However, the Court was not prepared to grant injunctive relief as an Australian Court could not restrain a foreign corporation from dealing with property in foreign jurisdictions. His Honour held that even if there was precedent to do so, he would be disinclined to use his discretion as the relief would ultimately not be capable of enforcement without foreign government assistance.
The Court therefore ordered declaratory relief solely in relation to the application of s 440B of the Act, particularly, as the administrators had adduced evidence that a declaration would assist them in obtaining orders preventing the transfer of shares in the British Virgin Islands.
This case provides useful information to insolvency practitioners. As international transactions and property holdings become increasingly common for Australian companies, insolvency practitioners should be aware of the limitations of Australian courts.