Academic journal article Texas International Law Journal

Managing Default by a Multinational Venture: Cooperation in Cross-Border Insolvencies

Academic journal article Texas International Law Journal

Managing Default by a Multinational Venture: Cooperation in Cross-Border Insolvencies

Article excerpt

INTRODUCTION

The insolvency or reorganization of a multinational enterprise experiencing financial trouble can present some of the most complex situations that international business and finance confront. Not only does each component of a multinational business have its own set of assets and liabilities in each of the jurisdictions in which it operates, but each may also have obligations and liabilities which are not contained within the borders of the countries in which business has been conducted. The current international legal structure for enterprises in financial difficulty is most kindly described as compartmentalized. When insolvency or financial failure affects a multinational business, it is most commonly dealt with through a variety of independent, separate, and often unconnected administrationsusually for different, if not conflicting purposes.

A multinational business operating profitably can quickly make decisions that affect its global operations, allocate resources internationally in the manner that best suits its objectives, and utilize its going-concern values to augment the value of its underlying operating assets on the basis that the whole is greater than the sum of the parts. In the event of a financial failure or reorganization, however, the picture changes dramatically. Management can be largely taken away from the corporation. As the administration of the business becomes localized in each of the jurisdictions in which the company formerly carried on business, different sets of creditors assert different sets of claims to different assets. Normal intercorporate transactions will, if they involve different geographical jurisdictions, become severely impeded or, at worst, come to an end entirely. The clash of interests and the myriad conflict of laws issues that arise in multinational liquidations or restructurings are such that it is remarkable that multinational reorganizations or cooperative liquidations are ever successful. Indeed, an outside observer of the current international regime for insolvencies might quickly conclude that it was structured to promote, rather than prevent, financial failure and liquidations.

The ultimate goals of a multinational regime dealing with international insolvencies should be to protect the interests of the stakeholders in a multinational enterprise from the consequences of insolvency and to allow it an opportunity to carry on in a financially restructured mode (if doing so is in the best interests of the creditors as a whole), or to accomplish a fair and equitable distribution of its property among its creditors if it cannot viably carry on or restructure. In an ideal world, these goals could be accomplished through international agreements, but we do not live in such a world. It is therefore left to insolvency professionals and the courts to develop and implement solutions.

II. THE INTERNATIONAL BAR ASSOCIATION AND COMMITTEE J

The best prospects for improvement of the regime dealing with international insolvencies and reorganizations seem to rest on the cooperation and coordination of the insolvency communities of many different countries. Historically, there has been a pronounced lack of attention among governments concerning effective implementation of multinational treaties in the insolvency area and the enactment and improvement of provisions in domestic legislation that would deal effectively with the cross-border impact of insolvencies and reorganizations.1 Because of this legislative void, the insolvency community has both the obligation and the opportunity to improve the current international regime for dealing with these problems.

Some of the most significant initiatives in cross-border insolvency are being pursued by the Insolvency and Creditors' Rights Committee of the Section on Business Law of the International Bar Association (IBA). The Committee is referred to as "Committee J" in IBA parlance. The IBA is the world's largest international organization of law societies, bar associations, and individual lawyers engaged in multinational legal issues. …

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