IE CA 3 Holdings and IE CA 4 Holdings - Case Update

The Federal Court has recognised the bankruptcy of two Canadian subsidiaries of Iris Energy notwithstanding arguments by Iris that the recognition would be manifestly contrary to Australian public policy.

Iris is a public company registered in Australia and listed on the NASDAQ. It is the parent company of the Iris Energy Group, which owns and operates Bitcoin mining data centres. IE CA 3 Holdings Limited and IE CA 4 Holdings Limited, British Columbia-based subsidiaries of Iris, were originally placed into receivership in Canada in February 2023 on application by NYDIG ABL LLC. NYDIG financed the approximately 36,400 servers used by the IE CA companies to mine bitcoin. The companies were eventually declared bankrupt, and PwC Canada was appointed the bankruptcy trustee under Canada’s Bankruptcy and Insolvency Act (BIA) in June 2023.

The Canadian insolvency proceedings have been full of legal issues, including a dispute as to whether individuals resident in Australia could be compelled to attend examinations under oath in the Canadian bankruptcy proceedings without the need for letters of request. Certain examinations ultimately took place, but failed to produce the level of information required by the trustee to finalise its investigations into the IE CA companies.

The trustee sought recognition of the Canadian bankruptcy proceedings in Australia explaining that, due to the complexities of the matter, the trustee requires further time and assistance to understand certain matters identified by it to date, including questions concerning numerous operational and structural issues involving the IE CA companies. The trustee is of the view that its investigations may be more appropriately progressed in Australia and may result in bringing claims against directors and officers of the IE CA companies and their related entities, among others.

Iris opposed the recognition, arguing that recognition was sought for an improper purpose and would constitute an abuse of process. Specifically, Iris argued that a stated purpose of the application was to enable the trustee to carry out examinations in Australia, which would be an abuse of process since the British Columbia Supreme Court has jurisdiction in relation to, and has already ruled on, the extent to which the trustee can undertake examinations. According to Iris, to recognise the Canadian bankruptcy proceedings in Australia would be to allow the same matter to be re-litigated in a second jurisdiction.

The Court disagreed with Iris’ characterisation and recognised the Canadian bankruptcy proceedings. While the Court was sympathetic to Iris’ position, it found that Iris’ submissions ignored the obligations imposed on the trustee in completing its statutory duty. In accordance with those obligations, the trustee sought to continue its investigations into the affairs of two insolvent companies by undertaking further public examinations. It simply proposed to do so in Australia, rather than in British Columbia.

The Court also rejected Iris’ attempt to invoke the public policy exception, stating that the public policy exception is to be construed restrictively and only invoked in exceptional circumstances in relation to matters of fundamental importance for Australia. The trustee’s attempt to finalise its investigations into the affairs of the IE CA companies did not offend against public policy in Australia, much less in a way that was of fundamental importance to Australia. This was not a deliberate attempt to frustrate the Canadian insolvency proceedings, nor would it somehow cause a failure to comply with an order of an Australian court.

Finally, the Court ruled that the trustee’s desire to conduct examinations in Australia did not amount to an abuse of the Court’s processes in circumstances where it remains open for the trustee to seek further examinations in Canada.

Christopher Hill and David McGrath of FTI Consulting were entrusted with the administration and realisation of the IE CA companies’ assets located in Australia.

Read the decision HERE.

Professionals involved:

• Counsel for PwC in its capacity as foreign representative: Stewart Maiden KC of List G Chambers and Vicki Bell of List A Barristers

• Solicitor for PwC in its capacity as foreign representative: White & Case

• Counsel for Iris Energy: Jeremy Giles SC of 7 Wentworth Selborne and Alexander Di Stefano of List A Barristers

• Solicitor for Iris Energy: Norton Rose Fulbright Australia