Towards A Global Insolvency Convention?
UNCITRAL starts feasibility study for a global convention on matters of insolvency.
What was seen as a sheer impossibility for decades is now on the agenda: a global insolvency convention! The proposal has been made within UNCITRAL, the United Nations Commission on International Trade Law. For some twenty years now UNCITRAL has been active in the field of (international) insolvency law, with the important result of the UNCITRAL Model Law on Cross-Border Insolvency in 1997. This Model Law has been followed by some twenty countries, including Mexico, Japan, USA and England, and it is expected that countries such as Russia and Brazil will soon follow. Another fine result is UNCITRAL’s Legislative Guide on Insolvency Law. It contains a comprehensive statement of key objectives and core features for a strong insolvency, debtor-creditor regime, including considerations of out-of-court restructuring and a discussion of the alternative approaches possible and the perceived benefits and detriments of such an approach. The Guide can assist discussions on preferable changes in insolvency law from countries in transition economies and/or with legislation which is lagging behind in (cross-border) commercial developments, the organization of business and changing values within society (e.g. stressing the rescue of business in order to preserve employment as opposed to the straightforward liquidation of a company). Recently topics for possible future work have been discussed. In the international arena ‘conflict of law’ (or: private international law) has been suggested as part of a proposal for an insolvency convention. The suggestion was based on the need for binding norms to facilitate the execution of insolvency decisions, to coordinate many aspects of cross-border insolvencies, particularly in the group context, and to deal with concerns arising in the view of some States that application of the Model Law should be reciprocal. Although rejected as an approach during the negotiations of the Model Law, a number of countries have adopted provisions applying the Model Law on a reciprocal basis, although the nature of these reciprocity provisions varies: Argentina (draft), British Virgin Islands, Canada, Mexico, Romania and South Africa. Unrelated to the Model Law Belgium, Spain, Tanzania and Turkey apply reciprocity provisions in international insolvency cases. Within UNCITRAL, however, a number of reservations has also been expressed about the feasibility of negotiating a convention: (i) whether there would be sufficient support from States for such an instrument, (ii) what is the competence of Member States in regional economic integration organizations to participate in the negotiations, e.g. in the EU, (iii) what will be the time required for such negotiations, and (iv) what are the benefits of a convention over the existing Model Law. Within the Working Group it has been decided that it might be appropriate to study the feasibility of developing a convention, including gathering information on the issues facing States with respect to the adoption of the Model Law. For the time being the Working Group has agreed that there remain significant areas for possible future work in the field of insolvency law. It is expected that UNCITRAL will start work on the recognition and enforcement of insolvency-derived judgements (such as transactions detrimental to the estate and director’s liability). The Working Group was also of the view that the choice of law, review of the Legislative Guide chapter on insolvency treatment of financial contracts and netting, and the treatment of intellectual property contracts in cross-border insolvency cases were important issues that warranted consideration.
That a ‘conflict of laws’ is indeed a complex matter to address is evidenced by a symposium, held on Friday 7 March 2014, organised by New York’s Brooklyn Law School Center for the Study of Business Law and Regulation. Some fifteen professors, practitioners and judges discussed choice of law in cross-border bankruptcies. I was invited to speak on the law applicable to an undertaking given by an insolvency administrator in main proceedings to creditors in one or more other countries, that the distribution and priority rights which they as local creditors would have had if secondary proceedings had been opened will be respected in the main proceedings. Other topics were the scope of the ‘law’ applicable (scope of the lex fori), the role of the law of the location where certain assets are located or registers (lex situs) and the complex matter of applicable law in cases of corporate groups, with subsidiaries in many countries. Regarding this topic, it is a long way to go for any globally supported solutions. The papers discussed will be published this summer in the Brooklyn Journal of Corporate, Financial and Commercial Law.