The Rule In Gibbs: Safeguarding Creditors’ Rights Or Aiding And Abetting "Hold Out" In Foreign Insolvencies?

by Orrick, Herrington & Sutcliffe LLP

Orrick, Herrington & Sutcliffe LLP

There is an English common law rule that a debt governed by English law cannot be discharged or compromised by a foreign insolvency proceeding. This rule is derived from a Court of Appeal case: Antony Gibbs and sons v La Société Industrielle et Commerciale des Métaux (1890) 25 QBD 399.

The rule has been heavily criticised. Many do not consider it to be relevant in modern day cross-border insolvency proceedings following the continuing trend towards recognition of foreign insolvency proceedings (and their effects). As explained further below, some commentators see the rule as assisting creditors to "hold out" from participating in collective insolvency measures which are designed to benefit the creditor class as a whole.

The English court recently had the opportunity to review whether Gibbs still applied in Bakhshiyeva v Sberbank of Russia [2018] EWHC 59 (Ch). The court considered an application by a foreign representative to the English court on behalf of a debtor, International Bank of Azerbaijan, for a permanent stay on a creditors' enforcement of claims in England under an English law governed contract contrary to the terms of the foreign insolvency proceeding. Under local law, the English creditors were purportedly bound. The Azerbaijani proceedings were not "terminal" liquidation proceedings and therefore, any stay would need to apply beyond the duration of the proceedings to properly bind the English creditors and to permanently give effect to the insolvency proceedings.

The foreign proceedings were conducted in Azerbaijan and had been recognised in England under the Cross-Border Insolvency Regulations 2006 (the "CBIR") (implementing UNCITRAL Model Law). The CBIR are a procedural mechanism whereby foreign insolvency proceedings (conducted outside the EU) can be recognised and foreign representatives can seek "assistance" from courts in other jurisdictions to effect the insolvency proceedings (subject to any restrictions on the exercise of such power under local law).

The English High Court found that the rule in Gibbs did apply to prevent the court granting a permanent (or indefinite) stay on the enforcement of creditors' English law governed contractual claims. Any stay granted by the court would be more than simply procedural and would go to the substance of creditors' claims - the court would, in effect, be ordering the discharge of the creditor's claim and was prohibited from doing this, following the rule in Gibbs.

The message for creditors with English law claims which are purportedly extinguished under a foreign (non-EU) insolvency process is therefore, to adopt a "hold out" position. Following the expiry of the foreign proceedings (and any related stay on creditor action), objecting creditors may then take steps to enforce English law governed contractual claims provided however, that they have not participated in the foreign insolvency proceedings (they may otherwise be deemed to have accepted the jurisdiction of the foreign proceeding).

We note many holders of English law governed bonds issued by the Greek government adopted a "hold-out" strategy knowing that the English courts would not recognise any provision of Greek law extinguishing or amending the sovereign debt.

The "territorial" nature of the rule in Gibbs is, arguably, "out of step" with trends in modern insolvency law. In the US, for example, in proceedings under Chapter 15 of the Bankruptcy Code (the US statute adopting UNCITRAL Model Law) ("Chapter 15"), US courts have enforced foreign court judgements made in foreign proceedings, including judgements which alter or vary US law governed debts or claims. Chapter 15 does however, include important public policy protections for creditors designed to forestall recognition of clearly abusive procedures.

The US has a longstanding policy of recognising restructurings of US law governed financings of foreign companies. The Supreme Court's 1883 decision in the famous Gebhard case (Canada Southern Railway Co v Gebhard [1883] 109 US 527) set the precedent for US recognition of foreign restructuring processes in which Chief Justice Waite endorsed the recognition of the implementation of a Canadian scheme of arrangement with the words "under these circumstances the true spirit of international comity requires that schemes of this character, legalised at home, should be recognised in other countries".

The "public policy" exception to recognition under Chapter 15 only applies in "exceptional circumstances" and includes, for example, circumstances where a creditor was denied due process and notice of the foreign insolvency proceedings of the debtor; and the denial of privacy rights. The fact that a creditor may make a more limited recovery, and the fact that the substantive law of the insolvency proceeding was not the same as US law, were not held to be "manifestly contrary" to public policy.

We note the Gibbs rule has been disapplied in the context of EU insolvency proceedings, on the basis that English courts recognise the jurisdiction of courts in respect of insolvency proceedings in Member States under the European Insolvency Regulation ("EIR"); and similar "public policy" exceptions apply. It is difficult to justify the radically different approach English courts take to non-EU insolvency proceedings particularly given the UK's recent decision to leave the EU.

Our view is that as part of any withdrawal treaty of the UK from the EU, the parties should look to negotiate a process for mutual recognition of insolvency proceedings based on the EIR "recognition" approach. Looking outside of its relationship with the EU, it would also seem sensible for the UK to look to adopt an approach similar to US Chapter 15, for the UK courts to recognise foreign insolvency proceedings with safeguards for creditors to avoid the application of such rules only if limited public policy reasons exist to void the application of the foreign insolvency proceedings. The English court will want to avoid "re-litigating" issues dealt with under foreign insolvency proceedings, and should not examine actual recoveries made by creditors. However, a carve out on "public policy" grounds could protect English creditors if it captured circumstances where the process was evidently "discriminatory" to foreign (English) creditors.

We acknowledge there are strong arguments to retain the Gibbs rule. By entering an English law contract, creditors may feel strongly that they wish to retain the impartiality, commerciality and due process English courts are well known for.

As we near BREXIT, in this issue as in so many others, the UK has a decision to make: adopt English “exceptionalism” or take a more 'universalist' view implied by the recognition of foreign insolvency proceedings exemplified by the current arrangements under the EIR? The choice is looming.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Orrick, Herrington & Sutcliffe LLP | Attorney Advertising

Written by:

Orrick, Herrington & Sutcliffe LLP

Orrick, Herrington & Sutcliffe LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.