Academic journal article Texas International Law Journal

Multinational Financial Distress: The Last Hurrah of Territorialism

Academic journal article Texas International Law Journal

Multinational Financial Distress: The Last Hurrah of Territorialism

Article excerpt

Multinational Financial Distress: The Last Hurrah of Territorialism Lynn M. LoPucki, Courting Failure: How Competition for Big Cases Is Corrupting the Bankruptcy Courts, Ann Arbor: University of Michigan Press (2005), price: US$27.95.


Professor Lynn LoPucki devotes two chapters in his recent book to international insolvency.1 In them he invites us to prefer chaos to disorder, marshalling the considerable difficulties of managing multinational financial distress to persuade us to abandon hope of reform and be resigned to the vagaries of local responses to global financial crisis. His position is a counsel of despair that will attract little interest from those experienced in the practice and study of international bankruptcy.

Most of Professor LoPucki's book discusses domestic forum shopping. He devotes only two chapters in the book to international choice of forum, which is the subject I want to address in this review. His domestic claims and proposals have attracted many critiques.2 The only detailed response to his views on international insolvency fora was written by Judge Samuel Bufford3 in response to a version of the book chapter that appeared as an article in the American Bankruptcy Law Journal.4 Although Judge Bufford exposed some of the principal difficulties in the LoPucki analysis, I want to explore further some aspects of the argument that strike me as especially important.

One of the many commendable things about Professor LoPucki's scholarship is that it is often usefully contrarian. In discussing multinational bankruptcies, he has again chosen the road less traveled, championing the traditional idea of territorialism as against the generally accepted modem notion of universalism, although he would modernize territorialism by calling it "cooperative territorialism." As I am one of those who carries the standard of universalism, he and I have engaged in friendly but vigorous debate on this subject for more than a decade. His book for the most part makes the same arguments, often in the same terms, as he has made over the years. I am anxious in this review to avoid stultifying the reader with yet another rehearsal of well-known arguments and responses. I begin instead by mentioning just a few key elements of this prior debate for the benefit of those new to the subject.

Thereafter I will focus on three somewhat new points that Professor LoPucki's book brings to the discussion. One is integration of the international forum debate with the controversies over domestic forum shopping. A second is his discussion of the difficulties presented by consolidation of multinational corporate groups as reflected in recent European cases. The third is a series of policy arguments that conflate two quite distinct choice-of-law issues.


Territorialism, often called the "grab rule," describes the administration of a multinational insolvency case through the exercise of jurisdiction by each national court that has control of assets of the debtor. The courts act independently, applying their local law to the management and distribution of the assets they are able to seize. Professor LoPucki has updated territorialism to cooperative territorialism, where the courts involved cooperate to the extent cooperation benefits the local proceeding.5 By contrast, universalism, which today usually appears in a version styled "modified universalism," has been summed up as follows:

[U]niversalism has come to be understood as a system where one central court administers the bankruptcy of a debtor on a worldwide basis with the help and cooperation of courts in each affected country. Despite a recent vigorous defense of a cooperative version of territorialism,6 modern academic and professional opinion has come down overwhelmingly on the side of universalism.7

On the other hand, no country has adopted universalism in its pure form and it may not be practical now or for some time in the future. …

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