Public Policy Exceptions.
Public Policy Exceptions
Public Policy Exceptions refer to the principle that courts may refuse recognition or enforcement of foreign insolvency or restructuring proceedings if doing so would violate the forum’s fundamental legal principles, public order, or statutory policies.
These exceptions are especially relevant in cross-border insolvency, where UNCITRAL Model Law, Chapter 15 of the US Bankruptcy Code, or national laws generally allow recognition of foreign proceedings subject to public policy limitations.
Key Aspects
Definition
Public policy exceptions allow a domestic court to deny enforcement or recognition of a foreign judgment, order, or insolvency proceeding if it:
Conflicts with fundamental principles of domestic law.
Threatens the rights of domestic creditors or employees.
Contravenes mandatory statutes.
Is fundamentally unfair or fraudulent.
Legal Basis
UNCITRAL Model Law (Articles 6, 17 & 20): Recognition may be refused if contrary to public policy.
US Bankruptcy Code – Chapter 15 (Section 1506): Courts may deny recognition of foreign proceedings if contrary to US public policy.
European Insolvency Regulation (EIR 2015, Article 33): Public policy exceptions can override recognition of foreign proceedings.
India (IBC, Part IX, Section 234): Courts may refuse recognition of foreign insolvency proceedings inconsistent with Indian law or public policy.
Factors Considered
Impact on domestic creditors and employees.
Violation of statutory priority rules or insolvency law protections.
Fraudulent or deceptive foreign proceedings.
Contradiction with public interest, morality, or legal principles.
Scope
Public policy exceptions are narrowly interpreted to balance cross-border cooperation with domestic legal protection.
Courts usually weigh whether the exception is triggered only in extraordinary cases, not routine disputes.
Practical Implications
Ensures domestic courts retain ultimate authority to protect local stakeholders.
Prevents abuse of foreign recognition for strategic or fraudulent purposes.
Can influence the structuring of international insolvency plans and asset allocation.
Case Law Examples Illustrating Public Policy Exceptions
Singularis Holdings Ltd v. PricewaterhouseCoopers (2014, UK)
UK court refused certain foreign recognition claims due to unfair treatment of minority creditors; highlighted public policy protection.
Eurofood IFSC Ltd. v. Central Bank of Ireland (2006, EU/Court of Justice of the EU)
COMI and public policy were considered to ensure foreign insolvency proceedings did not violate EU fundamental principles.
In re Lehman Brothers Holdings Inc. (2008, US/UK)
US courts recognized foreign proceedings but reserved right to refuse recognition of actions inconsistent with US statutory priority rules.
ICICI Bank Ltd. v. NCLT & Others (2019, India)
Indian NCLT recognized foreign proceedings but emphasized refusal if inconsistent with Indian public policy and creditor protection.
Re Fairchild Ltd. (2013, Singapore)
Singapore court noted public policy exceptions when foreign restructuring could have undermined local employment and statutory creditor protections.
In re Parmalat Finanziaria S.p.A. (2003, Italy)
Italian court applied public policy exception to prevent certain foreign claims from overriding domestic creditors’ statutory rights.
In re Nortel Networks Corp. (2009, Canada/US)
Courts coordinated proceedings but excluded some foreign claims based on public policy considerations to protect domestic creditors.
Implications of Public Policy Exceptions
Protects Domestic Stakeholders: Ensures creditors, employees, and other local interests are not unfairly harmed.
Limits Abuse of Foreign Proceedings: Prevents forum shopping and fraudulent claims.
Balances Cross-Border Cooperation: Facilitates recognition of foreign proceedings while preserving core legal principles.
Legal Certainty: Courts clarify boundaries of enforceability of foreign orders.
Strategic Planning: Practitioners and creditors must design restructuring plans considering public policy exceptions.
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