It has been communicated that UNCITRAL has agreed to study the possibility of developing a convention on selected aspects of international insolvency law. It is rather generally felt that in an international context the approach via soft law may have reached its limits of effectiveness. In matters of insolvency, (some say: only) 40 jurisdictions or so have enacted their versions of the Model Law. Consequently, the next step is being taken: we need binding legal instruments to provide greater assurance and legal certainty in cross-border insolvency situations, especially in proceedings involving international enterprise groups. I have been a supporter of soft law in this area for over 10 years, and seeing the benefit of it, I will continue to promote soft law rules. However, having said this, I believe that certain parts of the soft law machine should be promoted to a binding status. At the end of my inaugural lecture at Leiden University (see Judicial Coordination of Cross-border Insolvency Cases, Deventer: Kluwer 2008, p. 45) I said: ‘Such a convention should act as an aid for judges to navigate in uncharted waters, should ensure that all stakeholders in a restructuring or insolvency have the information they need to make informed decisions and should adopt procedural safeguards to ensure the integrity of all judgments given.’ Beautiful words, which seem a distant echo from recent history (since 2014 I am an emeritus), but Working Group V (Insolvency Law) of UNCITRAL has agreed to progress on the idea with a study that will consider a range of possible issues. Such issues include ‘world-wide convention’ matters, such as the time and cost required to negotiate a convention and for it to enter into force, reciprocity, interpretation, alignment with existing treaties in certain areas, an inventory to the matters that make States shy or reluctant to follow the Model Law, as well as an assessment into States’ support for an international insolvency convention.
A most interesting topic is of course the scope of such a convention. Presently on the agenda:
a. Granting foreign insolvency representatives access to courts;
b. Recognition of foreign insolvency proceedings (with the effect of granting the foreign proceeding the rights of a national proceeding or triggering a secondary proceeding);
c. Cooperation and communication between insolvency representatives and courts;
d. Direct competence (for commencement of proceedings, whether main or non-main);
e. Applicable law;
f. Multinational enterprise groups; and
g. Recognition and enforcement of insolvency-related judgments.
This agenda reflects current and future products of Working Group V. I would like to suggest 2 other topics to think about:
1 Restructuring plan
UNCITRAL Legislative Guide and UNCITRAL Practice Guide defines a reorganization as: the process by which the financial well-being and viability of a debtor’s business can be restored and the business continue to operate, using various means possibly including debt forgiveness, debt rescheduling, debt-equity conversions and sale of the business (or parts of it) as a going concern. A reorganization plan (or: plan of reorganization) is thus a plan by which the financial well-being and viability of the debtor’s business can be restored. In the EU, initiatives are ongoing to create (most probably) a Directive on ‘pre-insolvency’ preventive restructuring measures, including rules for facilitating, negotiating and drafting a ‘restructuring’ plan. In the world, a ‘restructuring craze’ seems to have set in. Japan is looking at the French sauvegarde, proposals have been issued in Australia, and restructuring rules in the OHADA countries have also been enacted.
This begs the question: how to involve ‘foreign’ creditors but also queries about ‘recognition’ of such plans. Do we need specific rules or would their success depend on PIL mechanisms, such as (in Europe) Rome I?
2. Protocol (or ‘insolvency agreement’)
In larger and complex cases, where hard law has no or only a vary tangled ball of law as an answer, ‘contractual’ solutions have guided the way, see e.g. Maxwell Communication Corporation Plc (1991), BCCI (‘Pooling Agreement’), Lehman Brothers Holding Inc. (2009), Bernie Madoff (2009), Nortel Networks. Isn’t it time to discuss a 3-stage development: from an ad hoc successful recipe for a multi-jurisdictional disaster (Maxwell) to a case-by-case model created by (wo)men that has been the standard ever since for cross-border cooperation and value maximization in multinational restructuring proceedings, and now ready to play the role as an alternative for ‘legislation’ in the form of legislative rules to facilitate the use of protocols? In last years’ Bankruptcy Code in India no Model Law rules were enacted. My LL.M. student from Bangladesh, Morshed Mannan, gave some reasons why in that area protocols on a case-by-case basis would work better. Having heard a discussion earlier this year, the same was preferred for China and Singapore.
Obvious questions to consider here are:
(i) What is the legal character of a protocol? Is it substantial and/or procedural; a mix of private law and pubic law; can it bind courts?
(ii) Which law governs the protocol? The lex forum concursus? Is – in the EU – Rome I applicable? Do parties have the freedom to choose applicable law? How does that relate to mandatory rules for instance on transparency of proceedings, protecting rights of creditors or a stay of proceedings?
(iii) Protocol parties: do all parties in an insolvency proceeding have permission to agree on a protocol? Must a court approve that an insolvency office holder will be bound by a protocol? What if this permission is lacking? What are the consequences of not using a protocol?
(iv) Treatment of creditors: does the protocol, agreed between insolvency office holders/debtors-in-possession and approved by courts ‘bind’ creditors? Do they still have additional rights? What is the effect on third parties? What if creditors are not pleased with the use or the content of a protocol?
There will be lots more questions, including some brain breakers if these topics were indeed placed on the UNCITRAL agenda.