KBBO shareholders obtain recognition in England for Abu Dhabi bankruptcy

Introduction

Two shareholders of KBBO have obtained recognition in the English High Court of their Abu Dhabi bankruptcy process.

The judgment from January 2024 follows an unsuccessful recognition application in respect of the same onshore UAE bankruptcy process to the Dubai International Financial Centre (DIFC) Court in 2022. That application was refused, including on the basis that the DIFC insolvency legislation (incorporating the UNCITRAL Model Law on Cross-Border Insolvency) did not provide for recognition of bankruptcy proceedings relating to individuals and as the proceedings were not considered “foreign proceedings”.

 

Background

The KBBO Group comprises a conglomerate of businesses and investments headquartered in the UAE, with operations across the wider MENA region. It has a number of vertical groups including Emirates Hospital Group (operating hospitals and clinics), Consumer Products Group (focused on retail and consumer goods), Fresh Foods Group (focused on food and beverage) and Investments, (an investment group holding the Group's investment interests).

The KBBO Group filed for bankruptcy in the Abu Dhabi Court in 2021 following the collapse of NMC Health, in which the KBBO Group was one of the largest shareholders. In total, there were 30 applicants which included individuals, trading entities and body corporates.

Deloitte partners Paul Leggett and David Stark were appointed bankruptcy trustees together with the chairperson, Salem Ballama.

The restructuring of the KBBO Group includes 28 corporate applicants and two shareholder debtors, Khaleefa Butti Omair Yousif Almuhairi and Saeed Mohamed Butti Mohamed Khalfan Alqebaisi.

Creditor claims (which were frozen from the date of the bankruptcy appointment) total around USD4 billion and are considered likely to significantly exceed the value of assets.

The Group restructuring plans (comprising one main plan and eight sub-restructuring plans) provided for certain personal assets of Almuhairi and Alqebaisi to be transferred to two limited liability special purpose vehicles incorporated in Abu Dhabi. The Group restructuring plan envisages that these assets will then be sold with the proceeds of sale being distributed to the relevant creditors based on an entity priority model. Under the plan, Almuhairi and Alqebaisi are following the successful implementation of the terms of the plan, released from all creditor claims.

The terms of the plan included provisions for the distribution of assets to be supervised by the bankruptcy trustees and the Court, with input from the Co-Ordinating Committee. The Group restructuring plan was approved by the majority of creditors of the KBBO Group on 14 August 2023 and ratified by the UAE Court on 15 September 2023.

 

The recognition applications

The application to the English High Court was made by the two shareholder debtors, and can be distinguished from the application to the DIFC Court:

• The DIFC recognition application was made at a much earlier point in proceedings and, importantly, prior to the approval and ratification of the KBBO Group restructuring plans. All bar one of the sixteen creditors that had opposed the recognition application before the DIFC Court have since voted in favour of the restructuring plan.
• The basis for the two applications (and therefore the tests to be applied) differed. The DIFC recognition application was made pursuant to the UNCITRAL Model Law provisions contained within the DIFC Insolvency Law, which was held not to apply to the recognition of individual debtors (only foreign companies). However, the English recognition application was made pursuant to the UK's Cross-Border Insolvency Regulations (CBIR), which do apply to individuals.

The English Court was satisfied that the requirements for obtaining relief under the CBIR were met. This included findings that:

1. the bankruptcies of the shareholders could be recognised as foreign main proceedings in circumstances where the debtors' centres of main interests had always been in the UAE;
2. the trustees, when viewed as a whole, fell within the definition of foreign representatives following their appointment by the Abu Dhabi Court; and
3. the foreign proceedings constituted collective proceedings that were commenced under insolvency legislation, subject to the supervision of a foreign court and whose purpose was reorganisation or liquidation.

The trustees also requested additional relief by way of a stay of continuing proceedings, a stay of execution against assets of the debtor in the UK, and for the realisation of those assets (including properties) to be entrusted to the trustees.

In granting the application, the English Court considered the fact that there were no indications that the recognition application was opposed, and the automatic stay on proceedings upon recognition would not impact on existing proceedings in the English Court as they had already been stayed prior to the recognition application.

 

Comments

The KBBO restructuring represents the first large-scale use of the UAE onshore bankruptcy law and its utilisation represents a milestone in the onshore UAE bankruptcy regime. The onshore UAE bankruptcy law is primed for further changes following the issuance of a new UAE Bankruptcy Law on 2 October 2023 which is due to become effective from 1 May 2024. Although the new law is not considered to impact the effect of the shareholders' bankruptcies under the CBIR, the trustees agreed to undertake to return to the English Court in the event that it would.

The recognition by the English Court demonstrates the increasing trend for cross-border recognition of insolvency proceedings, as officeholders seek to benefit from the protections and information-gathering powers that recognition may entail.

DLA Piper provided UAE law advice in relation to the recognition application before the English Court.