Cross-border insolvency (sometimes called international insolvency) regulates the treatment of financially distressed debtors where such debtors have assets or creditors in more than one country.[1] Typically, cross-border insolvency is more concerned with the insolvency of companies that operate in more than one country rather than bankruptcy of individuals. Like traditional conflict of laws rules, cross-border insolvency focuses upon three areas: choice of law rules, jurisdiction rules and enforcement of judgment rules.[2] However, in relation to insolvency, the principal focus tends to be the recognition of foreign insolvency officials and their powers.
There are, broadly, three approaches to the administration of cross-border insolvency:[3]
The universalist approach remains largely a holistic ideal and, for the most part, countries are divided into those with a purely territorial approach, and those that apply some form of hybrid approach.
Historically, most legal systems have developed on a territorial basis, and this is as true in relation to bankruptcy laws as other areas. However, from an early stage there have been piecemeal attempts to develop cross-border cooperation in insolvency matters.[6]
But from a comparatively early stage common law jurisdictions recognised the desirability of ensuring that insolvency officers from different jurisdictions received the necessary support to enable the efficient administration of estates. Under English law one of the earliest recorded cases was Solomons v Ross (1764) 1 H Bl 131n. In that case a firm in the Netherlands was declared bankrupt and assignees were appointed. An English creditor had brought garnishee proceedings in England to attach certain sums owing to the Dutch firm but Bathurst J held that the bankruptcy had vested all the firm's assets (including debts owed by English debtors) in the Dutch assignees, and the English creditor had to surrender the fruits of the garnishee proceedings and prove in the Dutch bankruptcy. In Re African Farms 1906 TS 373 an English company with assets in the Transvaal Colony was in winding-up in England, and the Chief Justice of the Transvaal confirmed that the English liquidator would be recognised and that "recognition which carries with it the active assistance of the court", and that active assistance could include: "A declaration, in effect, that the liquidator is entitled to deal with the Transvaal assets in the same way as if they were within the jurisdiction of the English courts, subject only to such conditions as the court may impose for the protection of local creditors, or in recognition of the requirements of our local laws." In Galbraith v Grimshaw [1910] AC 508 Lord Dunedin stated that there should be only one universal process of the distribution of a bankrupt's property and that, where such a process was pending elsewhere, the English courts should not let actions in its jurisdiction interfere with that process.[11]
However, the first significant developments in relation to cross-border insolvency regimes which were widely adopted were (1) the UNCITRAL Model Law, and (2) the EC Regulation on Insolvency Proceedings 2000.
Two current regimes for international insolvencies have been implemented on something wider than a regional basis: the UNCITRAL Model Law on Cross-Border Insolvency, and the EC Regulation on Insolvency Proceedings 2000.[12] Both regimes locate the centre of main interest (or "COMI") of the debtor.
See main article: UNCITRAL Model Law on Cross-Border Insolvency. The United Nations Commission on International Trade Law adopted a model law relating to cross-border insolvency on 30 June 1997.[13] At present 46 jurisdictions have substantially implemented the Model Law into their domestic legislation, including a number of states with both significant economies and large volumes of cross border trade—such as the United States, Japan, the United Kingdom, Australia and Canada, as well as leading emerging economies such as Mexico and South Africa.
The basic concept of the Model Law is to establish what the "main proceedings" are in relation to any international insolvency. All other proceedings are referred to as the "non-main proceedings". The main proceedings are commenced where the debtor has its centre of main interest, or "COMI". Non-main proceedings may be commenced in any place where the debtor has a commercial establishment. The Model Law does not require reciprocity between states, but focuses upon (i) ensuring that states give assistance to insolvency officials from other countries in relation to main proceedings and non-main proceedings, and (ii) eliminating preferences for local creditors over international ones.[14]
The following countries have substantially implemented the Model Law into their domestic legislation.[15]
| State | Date of Ratification | State | Date of Ratification | |
|---|---|---|---|---|
| 2008 | 2015 | |||
| 2003[16] | 2015 | |||
| 2015 | 2005 | |||
| 2015 | 2015 | |||
| 2013 | 2006 | |||
| 2015 | 2015 | |||
| 2015 | 2015 | |||
| 2015 | 2015 | |||
| 2014 | 2010 | |||
| 2015 | 2015 | |||
| 2018 | 2000 | |||
| 2015 | 2015 | |||
| 2015 | 2009 | |||
| 2000 | 2002 | |||
| 2006 | 2015 | |||
| 2010 | 2003 | |||
| 2006 | 2002 | |||
| 2015 | 2004 | |||
| 2013 | 2017 | |||
| 2007 | 2000 | |||
| 2015 | 2011 | |||
| 2006[17] | 2005[18] | |||
| 2013 |
See main article: Insolvency Regulation (EC) 1346/2000.
The EC Regulation on Insolvency Proceedings 2000 was passed on 29 May 2000 and came into effect on 31 May 2002.[19] The EC Regulation, as its name applies, operates between member states of the European Union, and focuses upon creating a framework for the commencement of proceedings and for the automatic recognition and co-operation between the different member states. Unusually for a European regulation, the EC Insolvency Regulation does not seek to harmonise insolvency laws between the different member states.
Like the UNCITRAL Model Law, the EC Regulation also employs the concept of a centre of main interest (or "COMI"). The definition of the COMI is left to member states in their implementation of the Regulation, but paragraph (13) of the preamble states: 'The "centre of main interests" should correspond to the place where the debtor conducts the administration of his interests on a regular basis and is therefore ascertainable by third parties.' If the COMI of an entity is outside of the European Union then the insolvency proceedings are not subject to the Regulation.[20] In relation to companies there is a presumption that the registered office is the COMI of the company, but this presumption can be (and often is) rebutted.[21]
The EU Regulation does not define insolvency, but it does define insolvency proceedings as "...collective insolvency proceedings which entail the partial or total divestment of a debtor and the appointment of a liquidator."[22] Article 3 divides proceedings into main proceedings and territorial proceedings. Main proceedings are accorded extraterritorial effect throughout the European Union. One of the concerns expressed in relation to the EC Regulation is that (other than a reference to the European Court of Justice) it provides no mechanism for determining which set of proceedings are the main proceedings if two or more jurisdictions claim their proceedings are the main proceedings.[23] [24]
In any attempt to harmonise or facilitate cross-border administration of insolvent companies, national insolvency regimes can take widely divergent approaches on certain key points: