CBInsolvency LLC

Thought Leadership


CBInsolvency LLC (CBI): Cross-Border Insolvency

To our friends and colleagues –
If you google “Chinese Real Estate Crisis”, you will find numerous articles discussing China’s 2020 crack down on borrowing by real estate developers.  The tightened credit, coupled with the Covid-induced economic slowdown, led to delays in construction and declines in values and sales.  This has led to mortgage payment boycotts by homebuyers who borrowed to pay for unfinished homes, the Chinese model for home purchases.  These cumulative obstacles tipped many developers into default, necessitating restructuring, such as occurred recently in the widely-reported Evergrande Group collapse, China’s largest debt restructuring on record – with over $270 Billion in debt, largely internationally held (see the CNN report at https://tinyurl.com/bdekcz6t).

Our role as an expert witness in the China real estate cases results from the efforts of restructuring holdouts and opponents, who typically begin litigation or involuntary winding up proceedings (the analog to involuntary bankruptcy) against the developer.  Because large Chinese developers raise debt capital in international markets through affiliates incorporated outside of the PRC, typically in the Cayman Islands, the British Virgin Islands or Hong Kong, those venues become the battlefields.So where does “standing” come in? Investors in the developers’ debt do not directly own notes but, instead, hold book-entry interests through financial intermediaries whose interests are reflected in the records of international clearing houses Euroclear and Clearstream.  When the book-entry investors (a/k/a ultimate beneficial owners) petition to wind-up the developers, the foremost issue is whether those investors have standing to commence the winding up proceeding under the terms of the governing indentures.  We come in to provide the expert analysis these cases require on this and related issues.  CBI member Dan Glosband was engaged by the developers in five such cases to provide expert testimony and he opined (in a very intricate analysis) that the investors did not have standing and were not otherwise authorized to pursue winding up proceedings.
How did the case come out?  In the first decision to issue in these five cases, the Hon. Justice David Doyle in the Grand Court of the Cayman Islands ruled that the investors did not have standing or authority and he dismissed the winding up petition.  How we helped Justice Doyle of the Grand Court is evident in his opinion at pages 83-84:Mr. Glosband’s evidence correctly focused on the express terms of the Indenture, New York law, and the absence of any legal relationship between the Petitioner and the Company.  I get the impression that Mr. Glosband’s evidence would have been the same whichever side had instructed him, perhaps the true test of objective, reliable and independent expert evidence.  His evidence was, in the main, clear and easy to follow.  His opinions were consistent with the authorities and the clear wording of the Indenture.  I had no hesitation in preferring the expert evidence … of the experienced and well qualified Mr. Glosband to that of Mr. [Xxxxxx].The full 88-page decision is worth a read if you ever wondered how much expert opinions can affect the outcome of a case – Justice Doyle gives a point-by-point analysis of the expert opinions in reaching his decision.  A copy of the decision is at this link.

PS: The decision is the subject of a GRR article by Ben Clarke, published just after this CBI Newsletter was ready for print.  The GRR article can be viewed at this link.

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In a cross-border insolvency matter, if an expert opinion is required, if skilled mediation or arbitration can help resolve disputes, or if cross-border insolvency is simply unfamiliar territory, CBI can help

We will be pleased to discuss your cross-border insolvency issues and agree on a case-specific arrangement to assist you.  Please reach out to any of us for a quick and easy assessment of how we can help you. We welcome your thoughts, comments and questions. 

 Hon. Leif Clark (ret.) was a U.S. Bankruptcy Judge for over 25 years. He has an international reputation for influencing the development of insolvency law both domestically and internationally. He has broad experience in international legislative development, the training of lawyers and judges, scholarship and as a sought-after mediator of complex disputes involving finance and insolvency.

 Jack Esher has over 25 years of experience as a mediator, arbitrator and neutral adviser, including mediation of cross-border disputes in the country’s biggest cases. A pioneer in developing mediation as an innovative and effective dispute resolution process in insolvency matters, he has conducted mediation and negotiation trainings nationally and internationally for professionals, business leaders and judges. Dan Glosband has 45 years of sophisticated insolvency practice, focusing on cross-border cases. He was part of the small drafting group for the UNCITRAL Model Law on Cross-Border Insolvency, one of the primary draftsmen of Chapter 15 of the Bankruptcy Code and has been an expert witness on U.S. insolvency law in major foreign proceedings.
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By Dan Glosband