Laying the groundwork to bypass the commercial activity exception of the Foreign State Immunities Act

Foreign state immunity is a significant principle of international law that seeks to respect the sovereignty of foreign states and reduce the risk of straining diplomatic<br/>relationships between countries. Defining the scope of foreign sovereign immunity is important in a range of issues, including property rights, which include the treatment of items of cultural significance, human rights, acts in cyberspace,4 and application to immunity<br/>to foreign officials. Yet, what is the scope of the impact of immunity in corporate insolvency?<br/><br/>In 2023, the New South Wales Court of Appeal found that state-owned or controlled entities, including national airlines, are afforded foreign state immunity against the<br/>commencement of involuntary winding up proceedings, eliminating winding up as a tool for creditors to seek compensation. The court scrutinised whether the insolvency proceedings initiated by a creditor, Greylag Goose Leasing 1410 Designated Activity Co (Greylag Goose)<br/>fell within the exceptions outlined in the Foreign State Immunities Act 1985 (Cth) (the Act), which would permit such actions against a debtor that was a state-owned entity, in this case PT Garuda Indonesia. The focal point of the scrutiny was whether Garuda’s commercial operations as an airline fall outside the scope of sovereign immunity, particularly under the provisions dealing with commercial activities and insolvency.