Compromising English Law Debts: Has The Rule In Gibbs Had Its Day?

Author:Ms Hayley Çapani and Luci Mitchell-Fry

Under current English law, an English law debt can only be compromised by agreement or by the English courts. This is known as the "rule in Gibbs", after the 1890 Court of Appeal case which established the principle. It means an English court will not recognise the compromise of an English law debt under a foreign insolvency or restructuring procedure in which the creditor has not participated. (If a creditor has participated in the procedure, it may be deemed to have consented to its terms through that participation.) Though long-standing, this approach has proved controversial, raising questions of policy and legal theory. This note explains how two ongoing international restructurings have put the rule in Gibbs back under the spotlight and why creditors of English law debt owed by foreign entities should follow developments closely.

Pros and cons of the rule in Gibbs

The rule in Gibbs is potentially a source of comfort to a creditor of English law debt owed by a foreign entity. But it has been widely criticised as impractical, and inconsistent with:

the English courts' willingness to compromise or discharge non-English law claims through English schemes and other procedures; and the emphasis on cross-border recognition and co-operation in the UNCITRAL Model Law on Insolvency (and, in England, the Cross-Border Insolvency Regulations 2006 (the CBIR)). New York judgment in Agrokor

The rule in Gibbs also puts the English courts at odds with the approach of courts in many other jurisdictions, as illustrated in the recent New York judgment in Agrokor. In April 2017 the Croatian Agrokor group filed for protection under Croatian law. As part of the Croatian restructuring a settlement agreement was drawn up to restructure the group's debts. Just over two thirds of the debt subject to the Croatian settlement agreement was governed by English law, the remainder being governed by New York law.

In September 2017, the English courts recognised the Croatian restructuring as a foreign main proceeding (under the CBIR). However, the English courts have not yet been asked to recognise, or give effect to, the terms of the Croatian settlement agreement.

At the end of October 2018, the New York courts recognised the Croatian settlement agreement under Chapter 15 of the US Bankruptcy Code. In so doing, the US court ruled that recognition and enforcement of the Croatian settlement agreement was an appropriate exercise of comity and application of US law.


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