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On the Road to Universalism: A Comparative and Empirical Study of the UNCITRAL Model Law on Cross-Border Insolvency

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Abstract

The ability of the UNCITRAL Model Law on Cross-Border Insolvency to enhance unity in bankruptcy (i.e., universalism) has been doubted. Unlike the EC Regulation on Insolvency Proceedings, it does not provide rules on international jurisdiction and automatic recognition. Thus, both recognition of foreign proceedings and relief should be sought. The Model Law (like the EC Regulation) also lacks rules for corporate groups. For these reasons, commentators have predicted that countries implementing the Model Law will exploit the discretion and flexibility enshrined in this regime to protect local interest and will avoid maximum cooperation and deference to foreign jurisdictions. Nonetheless, this paper suggests that the Model Law has the potential of facilitating unified and centralised proceedings both for single and group companies. Moreover, the paper reports the results of a comparative empirical study (which investigated Model Law decisions) demonstrating that the Model Law is in fact on the road to universalism. Recognition under the Model Law has become something of a routine, group centralisations are being facilitated and a wide range of relief is being granted. The paper nevertheless points to the current shortcomings in the application of the Model Law and where it can be improved.

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References

  1. The terms ‘insolvency’ and ‘bankruptcy’ are used interchangeably here.

  2. The problem of cross-border insolvency of natural persons is outside the scope of this paper.

  3. I.F. Fletcher, Insolvency in Private International Law (OUP 2005, supplement 2007), at p. 7.

  4. Idem, at p. 11.

  5. See J.L. Westbrook, ‘A Global Solution to Multinational Default’, 98 Michigan Law Review (2000) p. 2276, at pp. 2283–8. Cf., L.M. LoPucki, ‘Cooperation in International Bankruptcy: A Post-Universalist Approach’, 84 Cornell Law Review (1999) p. 696 (arguing for a cooperative territorialist approach whereby insolvencies are handled on a state-by-state basis with a degree of cooperation).

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  6. Fletcher, supra n. 3; Westbrook, supra n. 5, at pp. 2284–2285.

  7. There may potentially be a conflict here with the corporate personality notion, but at least insofar as only procedural coordination of the proceedings is envisaged not much is at stake. See I. Mevorach, Insolvency within Multinational Enterprise Groups (OUP 2009), at pp. 187–9.

  8. Council Regulation 1346/2000 on Insolvency Proceedings, OJ 2000 L 160/1.

  9. United Nations Commission on International Trade Law (UNCITRAL), UNCITRAL Model Law on Cross-Border Insolvency with Guide to Enactment, U.N. Sales No. E.99.V.3.

  10. See further section 2 below.

  11. Except Denmark.

  12. Australia (2008); Canada (2009); Colombia (2006); Eritrea (1998); Greece (2010); Japan (2000); Mauritius (2009); Mexico (2000); Montenegro (2002); New Zealand (2006); Poland (2003); Republic of Korea (2006); Romania (2003); Serbia (2004); Slovenia (2007); South Africa (2000); United Kingdom (2006); United States (2005); British Virgin Islands, Overseas Territory of the United Kingdom of Great Britain and Northern Ireland (2003). See: <http://www.uncitral.org/uncitral/en/uncitral_texts/insolvency/1997Model_status.html> (accessed: May 2011).

  13. Idem. Note, though, that local legislations are sometimes inspired by the Model Law even where it has not been enacted as such (see, e.g., Article 220 of the Spanish Insolvency Act 2003).

  14. See section 2 below.

  15. See Fletcher, supra n. 3, at p. 13 (explaining that the notion of territoriality is usually applied to foreign proceedings involving debtors with property or other interests which lie within the jurisdiction of the state in question). ‘Territorialists’ have generally stressed that a territorial regime (which allows the opening of separate territorial proceedings in the different countries where the international enterprise has presence) not only maintains the unique distinctions between legal regimes but also corresponds with sovereignties’ tendency to insist on applying their own insolvency laws to domestic assets and claimants. See L.M. LoPucki, ‘The Case for Cooperative Territoriality in International Bankruptcy’, 98 Michigan Law Review (2000) p. 2216; R.S. Avi-Yonah, ‘National Regulation of Multinational Enterprises: An Essay on Comity, Extraterritoriality, and Harmonization’, 42 Columbia Journal of Transnational Law (2003) p. 5, at pp. 8–9 and 12; F. Tung, ‘Is International Bankruptcy Possible?’, 23 Michigan Journal of International Law (2001) p. 31.

  16. LoPucki, supra n. 5, at p. 700.

  17. Indeed, territorialists suggest that a territorial approach is a better fit with the way enterprises operate — through local subsidiaries organised in different legal regimes with assets in the country where they operate (idem, at p. 750).

  18. Westbrook, supra n. 5, at pp. 2301–2302; J.L. Westbrook, ‘Multinational Enterprises in General Default: Chapter 15, The ALI Principles and the EU Insolvency Regulation’, 76 American Bankruptcy Law Journal (2002) p. 1, at pp. 40–41.

  19. Of course, centralisation of group members’ proceedings in a single jurisdiction may not be always appropriate. It will be advantageous where the group was integrated and centralised and managed as a group from a single location. Yet, where the group operated in a more decentralised way (with autonomous and independently managed subsidiaries) other solutions may be more appropriate, e.g., coordination of the proceedings from a single jurisdiction or cooperation between multiple proceedings. See I. Mevorach, ‘The Home Country of a Multinational Enterprise Group Facing Insolvency’, 57 International and Comparative Law Quarterly (2008) p. 427. Recent new recommendations in the UNCITRAL Legislative Guide on the topic of enterprise groups (international aspects) focus only on this possibility, i.e., coordination of proceedings between group members. See pre-release (21 July 2010) of the new Part (Part Three) at: <http://www.uncitral.org/pdf/english/texts/insolven/pre-leg-guide-part-three.pdf> (accessed: May 2011).

  20. Focusing on the US experience. See J.L. Westbrook, ‘An Empirical Look at Chapter 15’, as presented to the National Conference of Bankruptcy Judges (October 2010) (arguing that the US version of the Model Law is highly successful in how it is applied); J. Leong, ‘Is Chapter 15 Universalist or Territorialist? Empirical Evidence from United States Bankruptcy Court Cases’ (11 August 2010), Wisconsin International Law Journal (forthcoming), available at SSRN: <http://ssm.com/abstract=1690545> (accessed: May 2011) (arguing that US courts are very territorialist).

  21. Which deals with insolvency law matters.

  22. UNCITRAL Working Group V (Insolvency Law), Report of Working Group V (Insolvency Law) on the work of its thirty-eighth session (New York, 19–23 April 2010), para. 104(a), U.N. Doc A/CN.9/691 (28 April 2010) (discussions of this project are ongoing). The author is adviser to the UK delegation in the deliberations of the Working Group, yet the views expressed in this paper are the author’s own.

  23. Article 3(1) and Recital 14 of the EC Regulation; In re Brac Rent-A-Car Inc [2003] EWHC (Ch).

  24. It is presumed here that this is the better approach. Of course, if one considers it best that territorialism will be the governing approach, then such results will demonstrate regression rather than progress. However, it seems that even territorialists believe that universalism is the ideal long-term solution, though arguing that universalism is not feasible in the foreseeable future and that territorialism (with cooperative elements) is a better transitional solution than any form of modified universalism (Westbrook, supra n. 5, at p. 2319).

  25. For comprehensive accounts of the Model Law, see Fletcher, supra n. 3, ch. 8; L.C. Ho, Cross-Border Insolvency, A Commentary on the UNCITRAL Model Law (Globe Law and Business 2009), at p. 256.

  26. Article 15 of the Model Law.

  27. Idem, Article 20. But note that some jurisdictions which adopted the Model Law did not adopt the concept of the automatic stay (see infra n. 63).

  28. Under Article 7 or 21 of the Model Law. If the proceedings are recognised as ‘non-main’ proceedings (see infra n. 52) any relief is discretionary (Article 21).

  29. The court also needs to be satisfied that creditors and other interested parties are protected (Article 22(1) of the Model Law). It can also subject such relief to conditions (idem, Article 22(2)).

  30. J. Luna, ‘Thinking Globally, Filling Locally: The Effects of the New Chapter 15 on Business Entity Cross-Border Insolvency Cases’, 19 Florida Journal of International Law (2007) p. 671, at pp. 689–695.

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  31. See infra nn. 49–50 and accompanying text.

  32. See J.L. Westbrook, ‘Priority Conflicts as a Barrier to Cooperation’, 27 Pennsylvania State University International Law Review (2009) p. 869, at p. 871.

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  33. Article 21(2) of the Model Law.

  34. Idem, Article 6.

  35. See Fletcher, supra n. 3, at pp. 489–490.

  36. See infra n. 63.

  37. See G. McCormack, ‘Jurisdictional Competition and Forum Shopping in Insolvency Proceedings’, Cambridge Law Journal (2009) p. 169, at p. 176.

  38. Article 3(1) of the EC Regulation.

  39. Idem, Articles 16–17.

  40. Idem, Article 18.

  41. Idem, Article 4 (subject to exceptions as delineated in Articles 5–15).

  42. Idem, Article 3(2) (and the law of the forum which governs the territorial proceeding will apply — Article 28).

  43. There is no definition of COMI, but it is presumed to be at the registered office of the company, which can be rebutted if the COMI is proved to be elsewhere (idem, Article 3(1)). The issue of the meaning of COMI is the subject of much debate, beyond the scope of this article. See, e.g., McCormack, supra n. 37; H. Eidenmüller, ‘Free Choice in International Company Insolvency Law in Europe’, 6 European Business Organization Law Review (2005) p. 423; I. Mevorach, ‘Jurisdiction in Insolvency — A Study of European Courts’ Decisions’, 6 Journal of Private International Law (2010).

  44. Article 3(2) and (3) of the EC Regulation.

  45. Article 2(b) and Articles 15–17 of the Model Law. Here too, there is no definition, and the same presumption applies (see supra n. 43).

  46. Idem, Article 17(3).

  47. Especially where reorganisation is sought a more extensive moratorium may be required, for example, such that stops creditors from enforcing their securities.

  48. Article 21(1) of the Model Law. Interim relief, prior to recognition, may also be granted under Article 19.

  49. As aforementioned, this is subject to the requirement that the court is satisfied that the interests of the local creditors are adequately protected (Articles 21(2) and 22 of the Model Law).

  50. See Fletcher, supra n. 3, at p. 469.

  51. Article 7 (additional assistance under other laws of the enacting state) and Articles 25–27 (cooperation) of the Model Law.

  52. Idem, Articles 2(f) and 17(2)(b). This is similar to the concept of opening territorial proceedings under the EC Regulation. Note that some of the jurisdictions which enacted the Model Law did not adopt the concept of distinguishing between main and non-main proceedings or the definition of non-main proceedings (see infra n. 63).

  53. The court must be satisfied that the relief relates to assets that, under the law of the recognising state, should be administered in the foreign non-main proceeding or concerns information required in that proceeding (Article 21(3) of the Model Law).

  54. Idem, Article 28. But note that some jurisdictions (see the Canadian version of the Model Law) did not adopt this provision. The Model Law also requires the court to seek cooperation and coordination with the foreign proceedings (idem, Article 29; a similar requirement is found in the EC Regulation in regard to the relationship between main and secondary proceedings (Article 31 of the EC Regulation)), and, thus, if concurrent proceedings do take place, at the least they should be coordinated.

  55. Based on Articles 3(1) and 16 of the EC Regulation as explained above.

  56. See, e.g., In re Daisytek-ISA Ltd [2003] BCC 562; Energotech SARL, Tribunal de Grande Instance, Lure (France), 29 March 2006, [2007] BCC 123; In re Hettlage KghA, District Court of Munich (Germany), 4 May 2004, ZIP 2004, 962 (AG München Beschl. v. 4.5. 2004-1501 IE 1276/04); Nortel Networks, High Court of Justice Chancery Division Companies Court (UK), 14 January 2009 (UK).

  57. Note that some laws did not adopt the distinction between main and non-main proceedings (see infra n. 63).

  58. See supra n. 43.

  59. See Mevorach, supra n. 7, at p. 186.

  60. See supra n. 34 and accompanying text. See also Article 26 of the EC Regulation.

  61. Articles 21 and 22 of the Model Law.

  62. Idem, Article 8.

  63. The Korean Act (infra n. 70) (though abolishing previous legislation which was very territorialist) does not adopt the automatic stay and the distinction between main and non-main proceedings for this purpose. Any relief should be sought and can be sought only following a recognition order. This is consistent with local insolvency proceedings where a stay does not automatically follow a bankruptcy petition. Recognition is therefore only a basis for seeking relief. In Japan, too, the new legislation (Japanese LRAFIP, infra n. 70) replaced a more territorialist regime, but the enactment of the Model Law was not verbatim — relief is not automatic and should be sought following recognition. Mexican Title XII (infra n. 70) also requires a recognition order before the grant of relief (but only if the debtor has an establishment in Mexico). The automatic stay may also have different meanings in order to comply with the local legislations. Thus, for example, in the US Chapter 15 (infra n. 70) the stay is a broad one, whereas in Mexico it does not operate to prevent pursuit of individual actions as opposed to enforcement (see Ho, supra n. 25, at p. 256; B. Wessels, International Insolvency Law (Kluwer Law International 2006), at pp. 194–5. A few other notable derogations from the Model Law can be found in the Canadian CCAA (infra n. 70), which did not adopt the definition of non-main proceedings provided in the Model Law. Instead, a non-main proceeding is a ‘foreign proceeding, other than a foreign main proceeding’. As mentioned above (supra n. 54), Canadian law also did not adopt the limitation in scope of concurrent proceedings opened following recognition of foreign proceedings as main proceedings (see D.S. Grieve, ‘The New Canadian Cross-Border Insolvency Regime — Reflections on the First Year’, Annual Review of Insolvency Law (2010) p. 299, at p. 305).

  64. G. King, R.O. Keobane and S. Verba, Designing Social Inquiry (Princeton University Press, Princeton, New Jersey 1994), at pp. 7–8.

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  65. As aforementioned, natural persons were excluded from the study. The reason is that the focus of this study is on unification and centralisation of businesses in default and the fact that the international bankruptcy of individuals may present different problems. However, occasionally, cases of individuals will be mentioned where the approach taken by the court sheds some light on the relevant issues investigated here, in particular in jurisdictions where the overall number of cases is very low.

  66. Note that countries may have adopted legislations or a common law approach inspired by the Model Law (see, e.g., the Cayman Islands’ approach to cross-border insolvency in Ho, supra n. 25, at p. 87; see also supra n. 13), or had cross-border provisions before the Model Law came into force or retained such provisions alongside their Model Law version. This study only focused on the jurisdictions which enacted the Model Law as such and are included in the UNCITRAL list of states that adopted the Model Law (supra n. 12). It also excluded cases of courts of these states (which adopted the Model Law) where the decisions were purely based on general private international law relating to bankruptcy.

  67. Several searches were performed over a period of a few months (June 2010–January 2011) for all decisions available under Model Law legislations between the entry into force of the legislation (see infra n. 70) and the end of 2010, using the following resources: CLOUT (Case Law on UNICTRAL Texts, which contains abstracts of some of the decisions under the Model Law), Westlaw, LexisNexis and the WorldLII (the World Legal Information Institute7#x2019;s website) (using the terms: ‘foreign proceedings’, ‘main proceeding’, ‘non-main proceeding’, ‘model law’, ‘cross-border insolvency’, ‘recognition’, ‘insolvency’, ‘bankruptcy’, ‘COMI’, ‘establishment’, name of country, title of legislation, and different combinations of these terms), as well as additional searches of trustees’ websites. US decisions were also gathered from <http://www.chapter15.com> (accessed: May 2011), which is a website that includes all filings under the US Model Law from 17 October 2005 up to June 2009 (since July 2009, the website stopped updating its documentations; the resources above were used to complete information on cases mentioned on the website where documentation was missing and to gather decisions given between July 2009 and the end of 2010) and from Bloomberg Law Reports (<http://media.bloomberg.com/bb/blawreport/kNTM2NjEyNDU>; accessed: May 2011) which provides lists of the significant Chapter 15 proceedings filed during 2009–2010. We did not have access to the US PACER system but managed to gather 145 US Chapter 15 company cases; another study of US cases based on PACER includes 94 cases (see Leong, supra n. 20) and a further study (Westbrook, supra n. 20) covers 378 cases (but this includes cases of individuals and separate group member filings whereas this study counts each group case once, see infra n. 71), both between 2005–2009; another empirical study of US Chapter 15 cases (B. Dawson, ‘Offshore Bankruptcies’, 88 Nebraska Law Review (2010) p. 317) includes cases between 2005–2008 but does not give exact numbers of the overall data. Canadian cases were also gathered from the website of the Office of the Superintendent of Bankruptcy, <http://www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/h_br02281.html> (accessed: May 2011). UK unpublished recognition orders were obtained from the London High Court on August 2010 (orders tracked through advertisements filed in the London and Edinburgh Gazettes) as well as from trustees or counsels to trustees. The assistance of local lawyers in gathering cases was especially valuable in regard to the Republic of Korea, Japan and Mexico, where we had technical difficulties conducting direct comprehensive searches. For these jurisdictions further information was gathered from books and articles (Ho, supra n. 25; Y. Tashiro, K. Fuse and K. Ohashi, ‘Foreign Insolvency Proceedings and Recognition and Assistance Proceedings in a Case of Hong Kong Liquor Makers’, 23 The Turnaround & Credit Management (2010) pp. 103–110 (free translation from Japanese); R. Silverman and Y. Ide, ‘Insolvency Law in Japan’, ABI Journal (October 2009), at pp. 52–53). Data were taken from the orders or decisions regarding recognition and/or relief as well as applications and affidavits filed in the cases, where available.

  68. I.e., cases not decided under the Model Law legislation, cases not concerned with inbound cases regarding recognition, relief or assistance, or cases concerning individuals.

  69. Each case may have contained a number of decisions (by the same court or several courts). The data were not confined to closed cases as this could have limited the dataset considerably, especially since for most jurisdictions the Model Law legislation is new and there are only a few cases employing it. However, if there was no recognition or relief (apart from interim) order yet (case was pending to this effect or there was otherwise no information about the recognition or relief petition) the case was excluded. In case of a reversal of decisions by the same or a higher court, the final decision available was recorded, though the fact that there were obstacles in obtaining recognition or relief was also coded (see infra n. 72). Group petitions (see infra n. 71) were amalgamated and counted as one case. One of the cases in the dataset was split into two as that case included two petitions regarding two different proceedings (in different jurisdictions) against the same debtor, generating two different decisions (one denying recognition as main proceedings and one granting recognition as non-main proceedings).

  70. UK Cross-Border Insolvency Regulations 2006, with effect from 1 April 2006 (‘UK Regulations’) (26 cases); Chapter 15 of the US Bankruptcy Code (11 USC, Sec. 1501, et seq.), with effect from 17 October 2005 (‘US Chapter 15’) (145 cases); Australian Cross-Border Insolvency Act 2008, with effect from 1 July 2008 (‘Australian Act’) (4 cases); Canadian Companies’ Creditors Arrangement Act (CCAA), amended by Chapter 47 of the Statutes of Canada 2005, with effect from 18 September 2009 (‘Canadian CCAA’) (10 cases); New Zealand Insolvency (Cross-Border) Act 2006, Schedule 1, with effect from 24 July 2008 (‘New Zealand Act’) (3 cases); Title XII of the Mexican Mercantile Insolvency Law, with effect from 12 May 2000 (‘Mexican Title XII’) (1 case); Japanese Law for Recognition and Assistance to Foreign Insolvency Proceedings, with effect from 1 April 2001 (‘Japanese LRAFIP’) (3 cases); and Chapter 5 of the Republic of Korea Debtor Rehabilitation and Bankruptcy Act 2005, with effect from 1 April 2006 (‘Korean Act’) (2 cases). No cases were found for the other 11 jurisdictions which adopted the Model Law. Note that the Model Law provisions in the South African and British Virgin Islands legislation have not yet been brought into force.

  71. A group case was defined as a petition regarding two or more affiliates (either filed together, filed separately and later consolidated or considered jointly, or where orders were granted on the same date in regard to the same insolvency representative and members of the same group), or as a petition regarding a single entity where the insolvency of other affiliates in the same jurisdiction was mentioned in the case (but not merely mentioning the entity’s relationship to other group members without information about the insolvency of those affiliates in the same jurisdiction) (An example is the case of Stanford (in the UK) where an application for recognition was made regarding the Antiguan company of the Stanford Group but its affiliation to other Stanford affiliates under receivership in the US was mentioned in the case (Stanford International Bank Limited [2009] EWHC 1441 (Ch), [2010] EWCA Civ 137)).

  72. Namely: objections by parties, appeals, conditions imposed by the court or stipulations agreed by the parties to which the order was subject.

  73. I.e., the court granted recognition (as foreign main or non-main proceedings) to proceedings against two or more affiliates in a foreign jurisdiction or to proceedings against a single company, mentioning its affiliation to another company under insolvency in the jurisdiction. Note that a case was coded as a ‘centralisation’ case even where it was concerned with part of a group, as long as the recognition order was granted in regard to all the group members petitioning for recognition. If one or more affiliates’ proceedings (included in the petition) were not recognised in that same jurisdiction, the case was coded as a ‘separation’ case.

  74. If information was not conclusive on this point, the case was coded as a ‘simple’ one where all group members were registered in the same jurisdiction.

  75. Supra n. 72.

  76. See section 2 above for a delineation of types of relief under the Model Law. Note that when the court granted both the ‘universalist’ relief and other relief, it was coded as ‘universalist’. Also note that the study did not code interim relief.

  77. See supra n. 67.

  78. See Grieve, supra n. 63, at p. 322.

  79. We have attempted to complete missing information by further investigating trustees’ websites and data gathered from practitioners, but this was not successful in all cases.

  80. Supra n. 69.

  81. See supra n. 70.

  82. See supra n. 67.

  83. See further infra n. 100. And see similar conclusions reached in studies of US Chapter 15 cases (Leong, supra n. 20, at p. 13; Westbrook, supra n. 20, at p. 2). Both mention that US courts recognise foreign proceedings as main proceedings in almost all Chapter 15 filings, but note that Leong further states that Chapter 15 nonetheless represents territorialism, as he argues that courts grant only limited relief, see infra nn. 163–165 and accompanying text).

  84. As mentioned above, in some jurisdictions (Republic of Korea, Japan) there is no distinction between main and non-main proceedings in the legislation. Note that where the court granted recognition (either in a group or single company case) both as main and non-main proceedings (to the same debtor or to some affiliates in a group case) the case was coded as granting recognition as main proceedings, see infra n. 85) for an indication of the number of cases where such type of recognition was granted.

  85. In one case, there was no decision yet on the matter. All these cases are US Chapter 15 cases. Note, though, that in an additional six cases the court recognised proceedings as non-main in addition to recognising main proceedings. Five of these cases are cases concerning jointly administered corporate groups where in regard to some affiliates recognition was as non-main proceedings.

  86. In re SPhinX Strategy Fund Ltd., 351 B.R. 103 (Bankr. S.D.N.Y., 2006), aff’d, 371 B.R. 10 (S.D.N.Y 2007) (US); In re Tradex Swiss AG, Nos. 07-17180-JBR, 07-17518-JBR, 384 B.R. 34 (Bankr. D. Mass., 2008) (US).

  87. Republic of Korea.

  88. Recognition was also granted in a case involving an individual debtor (which is therefore not included in the dataset), though only after a second petition was filed and following reopening of the insolvency proceedings in the US, as the first recognition petition was denied due to proceedings being already closed in the US (the Korean court’s conclusion in the first petition was that the applicant, who had formerly been a debtor in possession, no longer qualified as a foreign representative) (Seoul Central District Court 2006Gookseung1, 2007Gookseung2 (Republic of Korea)).

  89. In another case under the New Zealand Act which involved an individual (and is therefore not included in the dataset) and generated eight decisions thus far, the New Zealand court declined to recognise an English bankruptcy as either foreign main or foreign non-main proceedings under the New Zealand Act (Schedule 1), since the debtor’s centre was in New Zealand and not in the UK (nor did he have an establishment there). Nonetheless, the court made an order to assist the English Court under Section 8 of the Act (which preserves the old assistance remedies) entrusting the administration or realisation of the assets owned by the bankrupt located in New Zealand with the foreign representative (Williams v Simpson (No. 5) HC Hamilton CIV 2010-419-1174, 12 October 2010 (New Zealand)) and had previously granted various interim relief under the New Zealand Model Law provisions (before determining on the COMI issue; Williams v Simpson High Court of New Zealand, HC HAM CIV 2010-419-1174 (New Zealand)).

  90. Another case under the Mexican Model Law which involved an individual (and is therefore not included in the dataset) supports the positive approach regarding recognition — in this case recognition under the Mexican Act was affirmed by the Supreme Court, which concluded that recognition was not unconstitutional (unless it contravened some public policy) and was not as such discriminatory and harmful to local creditors. Thus, although there was a challenge to recognition (which is more understandable when bearing in mind that it was the first known case under the Model Law) it was, eventually, clearly affirmed (see Amparo en revisión 1588/2004. Jacobo Xacur Eljure y otros, 26 October 2005 (Mexico)).

  91. In one other case, though, an English court mentions a recognition application of a Liberian liquidator (in the course of its decision on an application by the other party for permission to serve out of the jurisdiction for the purpose of winding up the company) and casts strong doubt on the likelihood of success of the recognition application. The court mentions that it is not clear whether the Liberian proceedings are ‘foreign proceedings’ for the purpose of the English Model Law as they are only supervisory proceedings. It also mentions the considerable problems associated with the judicial and legal system in Liberia (see Flame SA v Primera Maritime (Hellas) Ltd [2010] EWHC 2053 (Ch); we could not locate the recognition application or decision on that application).

  92. In one case, the court recognised the proceedings either as main or as non-main proceedings.

  93. As aforementioned, cases where only some of the affiliates’ proceedings were recognised as non-main proceedings or where proceedings against the same debtor were also recognised as main proceedings were coded as ‘main proceedings’ cases. There are six such cases.

  94. Including the cases where recognition was not denied but was not granted either (see text preceding n. 83).

  95. Note that in one case (In re Stanford International Bank Limited [2009] EWHC 1441 (Ch) [2010] EWCA Civ 137 (UK)) the court denied recognition of the US receivership but at the same time (same case) granted recognition as main proceedings to the Antiguan liquidation in regard to the same company.

  96. 24 cases under US Chapter 15, two cases under the UK Regulations and one case under the Canadian CCAA. Only objections specifically targeted at the recognition of the foreign proceedings are included here.

  97. See supra n. 72.

  98. In one case, recognition excluded one entity of the group and the parties thereafter agreed to dismiss the petition regarding this entity (see infra nn. 139–140 and accompanying text), in another case the recognition was subject to a stipulation regarding safeguarding certain rights (see infra n. 136), and in a few others (2) objections resulted in the court recognising the proceedings as non-main proceedings (see supra n. 86).

  99. See section 3.1.

  100. In three cases, the court determined that there was no COMI or establishment in the foreign jurisdiction; in one case, the court denied recognition based on absence of ‘foreign proceedings’ (as well as on public policy considerations, see infra n. 103); in one case, the procedure was not complied with; and one case was closed following determination that the receiver was in contempt of a US sale order. As aforementioned (text preceding n. 83), two other cases were closed following an agreement to dismiss the petitions, and in another case the court gave the representative 60 days to file a petition complying with the formalities under the Model Law.

  101. In re Bear Stearns High-Grade Structured Credit Strategies Master Fund, Ltd., No. 07-12383, 374 BR 122 (Bankr. S.D.N.Y., 2007), aff’d 389 BR 325 (Bankr. S.D.N.Y., 2008) (US).

  102. See also In re Basis Yield Alpha Fund (Master), No. 07-12762, 381 BR 37 (Bankr. S.D.N.Y., 2007) (US); In re British American Insurance Company Ltd 425 B.R. 884 (Bankr. S.D. Fla, 2009) (US).

  103. The court determined that the Israeli receivership was in violation of the automatic stay under US Chapter 11 and thus recognition would contravene public policy; it also concluded that the Israeli receivership did not constitute foreign proceedings (In re Gold & Honey Ltd., 410 B.R. 357 (Bankr. E.D.N.Y., 2009) (US)).

  104. See also L.C. Ho, ‘Creative Uses of Chapter 15 of the US Bankruptcy Code to Smooth Cross-Border Restructurings’, 24 Journal of International Banking Law and Regulation (2009) p. 485, at p. 488.

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  105. Or recognition of proceedings with no distinction between main and non-main proceedings (see supra n. 63).

  106. The Republic of Korea recognised main proceedings from the Netherlands (1) and Hong Kong (1); Japan recognised main proceedings from the US (1) and Hong Kong (2). Mexico recognised main proceedings from the US (1). New Zealand recognised main proceedings from the US (1), the Republic of Korea (1) and Australia (1). Australia recognised main proceedings from the Republic of Korea (1), the UK (1), Japan (1) and the Cayman Islands (1). The UK recognised main proceedings from the US (6), the Republic of Korea (3), Poland (1), Antigua (1), Switzerland (2), the British Virgin Islands (1), Japan (2), Belize (1), Germany (1), the Cayman Islands (2), Kazakhstan (2), the Netherlands (1), Italy (1) and the Isle of Man (2). Canada recognised main proceedings from the US (7), Mexico (1), Japan (1) and the UK (1). The US recognised main proceedings from the UK (21), Hong Kong (1), Bermuda (5), Canada (50), the Cayman Islands (4), Saint Vincent and the Grenadines (1), the Republic of Korea (5), the Netherlands (1), France (3), Japan (7), Australia (6), Spain (2), Germany (5), Iceland (3), Singapore (1), Nevis (1), the British Virgin Islands (3), Kazakhstan (2), Denmark (1), Aruba (1), Mexico (3), Bahrain (2), Italy (1), Brazil (1), Russia (1) and Denmark (1). Note that some of these recognition orders were related to more than one company (i.e., to a group of companies).

  107. See A/CN.9/WG.V/WP.97 (United Nations Commission on International Trade Law, Working Group V (Insolvency Law)), Judicial Materials on the UNCITRAL Model Law on Cross-Border Insolvency, 1 September 2010, at p. 12.

  108. Supra n. 27.

  109. Supra n. 28. On relief, see further below.

  110. See supra nn. 7, 17 and 19 and accompanying text.

  111. See supra n. 17 and accompanying text.

  112. Of course, courts applying the Model Law can only facilitate centralisations by granting recognition to a centralised process opened in a foreign jurisdiction (see text accompanying nn. 57–59).

  113. See supra n. 73.

  114. I.e., at least one of the group members was incorporated in the recognising state.

  115. I.e., groups with members from different jurisdictions (but with no affiliate in the recognising state).

  116. I.e., where recognition (either as main or non-main proceedings) is not granted to all affiliates in the same jurisdiction (or to a single member in the foreign jurisdiction where another insolvent affiliate is under insolvency proceedings as mentioned in the case).

  117. See the meaning of groups used in this study, supra n. 71.

  118. 8 of 10 (80%) in Canada and 67 of 146 (46%) in the US (note that Westbrook, supra n. 20, shows that group cases only constitute a third of the total US Chapter 15 filings, but he seems to have employed a narrower definition, only including groups administered jointly (cf., n. 71 for the definition used here), and, in any case, a third is also quite significant). Also, our study may not have identified all the group cases as sometimes information was not comprehensive. The number of cases is therefore the minimum but there may be more group cases.

  119. Violation of an automatic stay, or an improper application which does not meet the formal requirements.

  120. Note that when information was not clear as regards the origin of an entity, we presumed that it was registered in the same foreign jurisdiction (i.e., that it was a ‘simple’ case).

  121. Table 2 shows the distribution of these results between the different jurisdictions.

  122. Only in 7 of the total of 75 cases did the court recognise some or all of the foreign proceedings as non-main proceedings (3 with locally registered subsidiaries, 3 with companies registered in different jurisdictions and 1 where all companies were registered in the same jurisdiction).

  123. See, e.g., In re Shermag Inc., No. 08-12015 (Bankr. M.D.N.C. Jan. 14, 2009) (US) (the court stated that ‘[t]he Canadian proceedings are pending in Canada which is the location of the Shermag group’s centre of main interests, and as such, constitutes foreign main proceedings…’).

  124. See supra n. 122.

  125. In re AXA Insurance UK Plc et al., Nos. 07-B-12110 — 07-B-12113 (Bankr. S.D.N.Y., 2007) (US).

  126. In all group cases involving recognition of non-main proceedings (see supra n. 122) (except for one where relief was denied in relation to all the group entities), relief was granted in relation to all group members included in the petition. In 5 cases, the court enforced foreign plans, schemes or orders concerning the group companies. In one other case, only a stay was granted (discretionary relief was not requested). On relief, see further below.

  127. As shown in Table 2, the separation cases are mostly US ones. These are few (5) and one does originate in Canada. US courts recognise centralised proceedings from many other jurisdictions (26 centralisation cases did not originate in Canada). Other recognising courts which dealt with group petitions granted recognition to all members in a single jurisdiction too (except in one UK case, as is shown in the Table).

  128. See J.S. Ziegel, ‘Corporate Groups and Crossborder Insolvencies: A Canada-United States Perspective’, 7 Fordham Journal of Corporate & Financial Law (2002) p. 367; R.K. Rasmussen, ‘The Problem of Corporate Groups, a Comment on Professor Ziegel’, 7 Fordham Journal of Corporate & Financial Law (2002) p. 395.

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  129. See supra n. 96.

  130. The other obstacles are mostly related to the factual determination of COMI in general and whether the proceedings are foreign proceedings, i.e., the application of the objective criteria.

  131. In re Gyro-Trac (USA) Inc., 2010 QCCS 1311 CarswellQue 2952 (Que. S.C.), In re Gyro-Trac (USA) Inc., 2010 QCCA 800, 2010 CarswellQue 3727, EYB 2010-172927, 66 C.B.R. (5th) 159 (Que. C.A.) (Canada).

  132. In re Gyro-Trac (USA) Inc., 2010 QCCS 1311 CarswellQue 2952 (Que. S.C.) (Canada).

  133. In re Gyro-Trac (USA) Inc., 2010 QCCA 800, 2010 CarswellQue 3727, EYB 2010-172927, 66 C.B.R. (5th) 159 (Que. C.A.) (Canada). For further details on this case, see Grieve, supra n. 63, at pp. 312–319.

  134. In re Main Knitting Inc. et al., Nos. 08 (11272, 11273, 274) (Bankr. N.D.N.Y., 2008) (US).

  135. See In re Main Knitting Inc. et al., Nos. 08 (11272, 11273, 274), Order Granting Recognition of Canadian Proceedings under 11 U.S.C. S.1515 (Bankr. N.D.N.Y. June 18, 2008) (US); Stipulation and Order Resolving Objection of HSBC Bank USA, National Association to Petition for Recognition of Canadian Proceedings under 11 U.S.C.

  136. In re Stanford International Bank Limited [2009] EWHC 1441 (Ch) [2010] EWCA Civ 137 (UK).

  137. But at the same time granted recognition as main proceedings to the Antiguan liquidation regarding the same company.

  138. In re S.N.C. Summersun et cie, et al., No. 06-10955 (SMB) (Bankr. S.D.N.Y.) (US).

  139. See Stipulation and Order in Aid of Chapter 11 and Chapter 15 Cases, 2 May 2007.

  140. In re Spansion Japan Limited, No. 09-11480 (Bankr. D. Del., 2009) (US).

  141. In re Mecachrome International Inc., No. 09-24076 (Bankr. C.D. Cal. June 5, 2009) (US).

  142. See In re Nortel Networks UK Limited, No. 09-11972 (Bankr. D. Del. June 8, 2009) (US); In re Nortel Networks Corporation, et al., No. 09-10164 (Bankr. D. Del. Jan. 14, 2009) (US).

  143. See Mevorach, supra n. 7, at pp. 158 and 189–94.

  144. Idem, at pp. 153–9 and 175–6. See also supra n. 19.

  145. See text accompanying nn. 29–34.

  146. This is apart from the automatic relief which follows recognition. Note that in Japan and the Republic of Korea where such relief is not automatic (supra n. 63) the courts did, at least, grant a stay of proceedings in all the cases in our dataset. Also note that, as mentioned above, in 6 cases (of all recognition cases) the court only recognised the foreign proceedings as non-main proceedings. In such cases any relief is discretionary. For 2 of these cases there was no information on relief. In the other 4 a stay of proceedings was granted as well as universalist relief (i.e., these cases were coded under ‘universalist’ discretionary relief).

  147. Either we had only basic information about the case (whether it involved a single company or a group, the group type, whether recognition was granted and what type of recognition was granted) or information about the case was more comprehensive but indicated a request for further relief with no order on this issue available.

  148. Entrustment of the distribution of assets to the foreign representative, deference to and application of the foreign law, enforcement of foreign judgments or orders directly in the recognising state.

  149. Providing information, examining witnesses, entrusting the administration or realisation of all or part of the debtor’s assets in the jurisdiction with the foreign representative, and other means of cooperation and assistance (which do not amount to relief under the first category).

  150. Either asked and not granted (6), or not asked (15), or no information about discretionary relief was available (44), or only final orders were available (according to which no discretionary relief was granted) but no information about the relief request (13).

  151. In one recognition case (Rubin v Eurofinance SA [2009] EWHC 2129 (Ch); [2010] EWCA Civ 895 (UK)) relief (enforcement of foreign judgment) was actually granted following recognition but by applying common law rules, even though the application for relief was under the UK Regulations (and while avoiding a conclusion on the possibility of granting the relief under the Model Law; see further text accompanying nn. 176–178). Therefore, the case was coded as a no relief (under the Model Law) case.

  152. In another UK Regulations case, the foreign liquidator asked the English court to open territorial proceedings in the UK. The case is not included in the recognition table since recognition was not sought, and it is not included in the relief table either, because although it is a case where the court granted discretionary relief, it was a ‘territorialist’ relief. The court did explain, though, that it was appropriate in the circumstances as it had been requested by the foreign representative and it was beneficial to the general body of creditors (see In re OJSC Ank Yugraneft [2008] EWHC 2614 (Ch) (UK)).

  153. In re Swissair [2009] EWHC 2099 (Ch) (UK).

  154. Akers v SAAD Investments Company Ltd [2010] FCA 1121 (Australia).

  155. In re New World Network International, Ltd, No. 06-10157 (ALG) (Bankr. S.D.N.Y., 2006) (US).

  156. In re Pope & Talbot, Inc., et al., No. 08-11933 (Bankr. D. Del., 2008) (US).

  157. In re Madill Equipment Canada, et al., No. 08-41426 (Bankr. W.D. Wa., 2008) (US).

  158. See, e.g., In re Archangel Diamond Corporation, 3 February 2010, No. CL-10-89559-00CL (Ont. S.C.J. [Commercial List]) (Canada); In re AXA Insurance UK Plc et al., Nos. 07-B-12110 — 07-B-12113 (Bankr. S.D.N.Y., 2007) (US); In re Tembec Industries Inc., Case No. 08-13435 (Bankr. S.D.N.Y., 2008) (US).

  159. Such as substantive consolidation; see, e.g., In re Trade and Commerce Bank, No. 05-60279 (Bankr. S.D.N.Y., 2005) (US); In re Fraser Papers Inc., et al., No. 09-12123 (Bankr. D. Del., 2009) (KJC) (US).

  160. In re Qimonda AG, No. 09-14766, 425 B.R. 256 (Bankr. E.D. Va., 2009) (RGM) (US).

  161. In re Condor Insurance Limited, 601 F.3d 319, 2010 WL 961613 (5th Cir. 2010) (US).

  162. Leong, supra n. 20.

  163. Note that there are several differences in dataset and categorisation between the Chapter 15 study and our study which may explain the slight difference in results. Our dataset of Chapter 15 cases contains cases regarding which there was no information about relief. In terms of categorisation, the Chapter 15 study focused specifically on the ‘entrusting the distribution of assets’ relief (which includes other relief, such as enforcement of schemes where the scheme included entrustment of distributions) whereas our category of universalist relief is broader (as it also includes deference to and application of the foreign law and enforcement of foreign judgments or orders directly in the recognising state).

  164. See also Westbrook, supra n. 20, who does not provide details on relief but does give indicative examples of the flexibility and openness of US courts in granting relief under Chapter 15.

  165. See, e.g., In re Gyro-Trac (USA) Inc., et al., Superior Court, District of Quebec, 1 April 2010, In re Gyro-Trac (USA) Inc., et al., Cour d’appel du Québec, 23 April 2010 (Canada); In re Redcorp Ventures Ltd., No. 09-12019 (Bankr. W.D. Wash., 2009) (US).

  166. See, e.g., In re Samsun Logix Corporation [2009] EWHC 576 (Ch) (UK); In re TPC Korea Co., Limited (High Court, Chancery Division, 29 October 2009, 19984/2009) (UK).

  167. See, e.g., Seoul Central District Court 2009Gookseung1, 2010Gookji 2, 3 November 2010 (Republic of Korea); AHK, Tokyo District Court (11 November 2003) (Japan).

  168. See 206/2004 Juzgado Cuarto en Materia Civil en el Distrito Federal (8 June 2005) (Mexico).

  169. See, e.g., In re Laurence, Scott & Electromotors Ltd., No. 07-12017 (Bankr. S.D.N.Y., 2007) (US); Omegatrend International Pty Ltd (in Liq) v New Image International Ltd NZHC Auckland CIV 2010-404-4098 (New Zealand).

  170. See, e.g., Picard v Film Advisers LLP [2010] EWHC 1299 (Ch) (UK); In re Pacific Northstar Property Group, NZHC Auckland CIV 2009-404-6312 (New Zealand).

  171. Only in 6 cases of the dataset was discretionary relief under the Model Law sought and not granted (though in one case it was granted under common law — see supra n. 151). In another 2 cases, the petition referred to ‘universalist relief’ but only ‘other’ relief was granted. General petitions for ‘any additional relief’ or ‘any relief the court may think fit’ and so forth were not coded though, since these do not represent an explicit request for universalist relief (however, including such requests, as was done in the empirical study of relief under Chapter 15 (Leong, supra n. 20), would certainly increase the number of cases where additional relief was requested and not granted). The dataset also contains cases involving requests for further relief but where orders on such requests were not available to us or where there was insufficient information about relief — such cases were coded under ‘no information on discretionary relief’ (see supra n. 147).

  172. Azabu Tatemono, Tokyo District Court, 3 February 2006 (Japan).

  173. The two parallel proceedings were then coordinated (see Silverman and Ide, supra n. 67).

  174. Perpetual Trustee v BNY [2009] EWHC 1912 (Ch) (28 July 2009); [2009] EWCA Civ 1160 (6 November 2009); [2009] EWHC 2953 (Ch) (17 November 2009) (UK).

  175. In the end, the parties reached a settlement. It should be noted, though, that the English and American courts communicated throughout the process and that the English court recognised the US proceedings as main proceedings.

  176. Rubin v Eurofinance SA [2010] EWCA Civ 895 (UK).

  177. Rubin v Eurofinance SA [2009] EWHC 2129 (Ch) (UK).

  178. Rubin v Eurofinance SA [2010] EWCA Civ 895, para. 63 (UK) [emphasis added].

  179. In re Condor (supra n. 161) the appellate court reversed the decisions of the first and second instance courts.

  180. This does not include assurances such as mentioning in the decision that the relief will not contravene public policy, or is fair and reasonable, or that stakeholders will not be affected and so forth (as we cannot know for sure what the court would have decided if some stakeholders might have been affected); see also Leong, supra n. 20, who mentions that in many of the ‘entrusting distribution’ cases (28) the US court imposed qualifications on this relief (but this seems to include various assurances to the court as well); cf., the findings on recognition (above) where there were less objections and the vast majority of objections were completely rejected (see supra nn. 96–98 and accompanying text).

  181. In re Samsun Logix Corporation [2009] EWHC 576 (Ch) (UK).

  182. Supra n. 134.

  183. In re ROL Manufacturing (Canada) Ltd., No. 08-31022 (S.D.Oh., 2008) (US).

  184. Supra n. 153.

  185. See also the approach expressed by the English court in a recent EC Regulation case (In re Alitalia Linee Aeree Italiane S.p.A. [2011] EWHC 15 (Ch)). The particular point raised in the case was whether assets located in the UK should be turned over to the Italian trustee and applied in discharge of liabilities which were not preferential as a matter of English law but which would be accorded priority under Italian law (even though secondary liquidation proceedings were opened in the UK). The court denied the main insolvency representative’s petition and mentioned that such a remedy would not accord with the EC Regulation scheme. Furthermore, it also stated that there was no inherent power in common law under which assets should be remitted to be applied otherwise than on a pari passu basis in accordance with English law principles. See also previously In re HIH Casualty and General Insurance Ltd [2005] EWHC 2125; [2006] EWCA Civ 732; McGrath v Riddel [2008] UKHL 21, decided before the entry into force of the UK Regulations, where in a second appeal the House of Lords agreed that assets should be turned over to Australia, yet the judges diverged in their reasoning for reaching that conclusion.

  186. Supra n. 160.

  187. See also In re Metcalfe & Mansfield Alternative Investments, 421 B.R. 685 (Bankr. S.D.N.Y. 2010), where the US court agreed to grant enforcement of Canadian discharges even though they contravened US law.

  188. See supra n. 63.

  189. Seoul District Court 2007Gookseung1, Gookji1, 18 October 2007 (Republic of Korea).

  190. See Seoul Central District Court 2007Gookseung2, 2008Gookji1; Seoul High Court 2008 Ra1524; Supreme Court 2010Ma1600 (Republic of Korea).

  191. See supra nn. 172–173 and accompanying text.

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    Irit Mevorach (Associate Professor)

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The author would like to thank the British Academy for funding the research on which this article is based. Thanks are also due to the many lawyers and accountants who have assisted in collecting information on relevant cases in their jurisdictions, and to the following research assistants: Nargiz Kishyeva, Ravil Kassilgov, Cristóbal Larraín Martínez and Gretchen Tucker. The author also benefited from discussions of the study with Professor Jay Westbrook during a visit to the University of Texas in September 2010 and from comments of Deborah Grieve. All views expressed in the paper are the author’s sole responsibility.

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Mevorach, I. On the Road to Universalism: A Comparative and Empirical Study of the UNCITRAL Model Law on Cross-Border Insolvency. Eur Bus Org Law Rev 12, 517–557 (2011). https://doi.org/10.1017/S156675291140001X

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