Federal Court extends Corporations Act and PPSA provisions to foreign share escrow arrangement

In two related cases, Tucker, in the matter of Vector Resources Limited [2021] FCA 112 (Tucker No 1) & Tucker & Ors v Mongbwalu Goldfields Investment Limited & Ors [2021] FCA 135 (Tucker No 2), the Federal Court of Australia has today confirmed that the Corporations Act 2001 (Cth) (Corporations Act) has extraterritorial effect in the insolvent administration of Australian companies and has dealt with the tricky issue of cross border insolvency in circumstances where the UNCITRAL Model Law does not apply.


Vector Resources Limited (Vector), an Australian company, entered into a share sale and purchase agreement (SSPA) with Mongbwalu Investment (MGI), a company incorporated in the Seychelles, for the purchase of shares in Mongbwalu Investment Holdings 6 (MGIH6), a company incorporated in the British Virgin Islands (BVI).   MGIH6’s major asset is an interest in a gold mine in the Democratic Republic of Congo. Under the SSPA Vector purchased ~70% of the shares in MGIH6 from MGI for a total purchase price in excess of $100 million. Under the SSPA, while the shares were transferred, reversionary share transfers were to be held in escrow until full payment of the purchase price had been made. The escrow documents (which included share transfers signed by one of Vector’s directors) were held by the Third Defendant, Harneys Corporate Services, as security.

In September 2020, after a dispute arose between MGI and Vector about whether Vector was in default, Vector sought an injunction in the British Virgin Islands restraining MGI and Harneys from dealing with the share transfers and commenced arbitration proceedings in Paris in relation to the dispute. Vector subsequently appointed voluntary administrators (Administrators) and, in January 2021, the BVI court discharged the injunction, allowing Vector a further period before the discharge took effect.

The Administrators then applied to the Federal Court of Australia for:

  1. orders that the Defendants were prohibited, by reason of s. 440B of the Corporations Act from enforcing their security;
  2. an order that MGI’s security interest had vested pursuant to s. 267 of the Personal Property Securities Act 2009 (Cth) (PPSA); and
  3. (as a preliminary matter) leave to serve the Originating Process outside the jurisdiction.

Given that the existing injunction was due to be discharged in the BVI on 25 February 2021, the application was made on an urgent basis.



Most Australian courts allow service of originating applications on defendants out of the jurisdiction without leave (subject to certain “long arm” jurisdictional limits). The Federal Court, along with the Supreme Court of Western Australia, is an exception to the rule.

Consequently, in an initial ex parte application, the Administrators sought and obtained leave to serve the ultimate proceedings out of the jurisdiction.  Justice McKerracher was satisfied that the Corporations Act and the PPSA on their face purported to apply to the relevant property, relationships and people outsider the jurisdiction, that there was a prima facie case, and that the matter fell within the jurisdictional conditions set out in rule 10.42 of the Federal Court Rules 2011 (Cth).


Although the defendants had been served prior to the hearing, they each chose not to take part in the proceedings, at least in part in an effort to avoid submitting to the Federal Court’s jurisdiction.

Although the Court has not yet made any decision on the less urgent question about the complete vesting of the escrow arrangement as an unperfected security interest under the PPSA, McKerracher J did grant final relief to the effect that MGI were prohibited from effecting any transfer of shares during Vector’s voluntary administration, due to the moratorium provisions in the Corporations Act.

After making it clear that relief was discretionary (given that the application had been made under s. 90-15 of the Insolvency Practice Schedule), McKerracher J confirmed he was satisfied it should be granted. His Honour stated:

The Administrators are entitled to vindication as to their position on this hotly disputed issue, even if it is only by way of a declaration… they are right to seek the intervention of the Court for the benefit of all creditors in the administration of the Company.

Submission to jurisdiction by lodgment of a proof of debt

The matter raised an interesting question as to whether MGI had submitted to the jurisdiction. Although MGI had made clear, in correspondence put before the Court, that it claimed not to submit to the jurisdiction of the Court, it was argued by the Administrators that MGI had already done so by lodging a proof of debt in the Company’s administration.  In support of this argument the administrators relied on the UK Supreme Court case of Rubin v Eurofinance SA; In re New Cap Reinsurance Corporation Ltd (in liq) [2012] UKSC 46 in which the Court stated:

I would therefore accept the liquidators’ submission that, having chosen to submit to New Cap’s Australian insolvency proceeding, the Syndicate should be taken to have submitted to the jurisdiction of the Australian court responsible for the supervision of that proceeding.  It should not be allowed to benefit from the insolvency proceeding without the burden of complying with the orders made in that proceeding.

A similar line of reasoning was adopted in Akers v Deputy Commissioner of Taxation (2014) 223 FCR 8, where Allsop CJ (with whom the remaining members of the court agreed) said:

I am prepared to accept that formal submission of a proof of debt to the insolvency administration will generally be adequate to support a conclusion that the court supervising the administration thereafter has jurisdiction to make orders in matters connected with the administration against the creditor who has proved.

Nonetheless, as McKerracher J noted in Tucker No 2, Allsop CJ also distinguished “between the enlivening of jurisdiction upon proving in an administration, and a situation where a single forum assumes exclusive jurisdiction over such matters.”

Although McKerracher J did not make a final determination on whether submitting a proof of debt in a jurisdiction is a permanent submission to the jurisdiction of the court of that jurisdiction, his Honour did make the observation that the Administrators argument “has force”.  Ultimately, the question as to submission will be more relevant if and when any enforcement questions need to be dealt with in a Caribbean court.  In Australia, there was no need to show that there had been a submission to the jurisdiction in order for the court to be satisfied that it could make the relevant orders.

Blackwall Legal LLP acted for the Administrators in both proceedings, and partner Chris Pearce appeared as counsel for the Administrators.

We're in the business of solving problems. If you need a solution, reach out for a discussion today.