Academic journal article Texas International Law Journal

Cross-Border Insolvency Cooperation Protocols

Academic journal article Texas International Law Journal

Cross-Border Insolvency Cooperation Protocols

Article excerpt

I. INTRODUCTION

It is self evident that as the global marketplace continues to develop, business failures with global implications will become more common. Such failures will increasingly engender insolvency proceedings and/or collection litigation in multiple countries involving the same debtor. Inevitably, both practical and legal conflicts will ensue from such multiple proceedings. This article initially addresses the responses to such conflicts that have traditionally been used by courts and practitioners and then focuses primarily on the recent development and use of case-specific cross-border judicial agreements, or "Protocols," to address such conflicts. The article provides an in-depth analysis of how such Protocols are used by courts and practitioners to minimize jurisdictional conflicts in order to best achieve a fundamental goal of most countries' insolvency laws: the maximization of the economic return for the benefit of all parties involved.

II. TRADITIONAL APPROACHES TO MULTINATIONAL INSOLVENCY PROCEEDINGS

Territoriality and universality: These two themes have long been the major considerations guiding multinational insolvency jurisprudence. Pursuant to the dictates of territoriality, multinational insolvency proceedings are to be approached in any given forum from the perspective of the debtor's local creditors.1 From a territorial perspective, the protections afforded local creditors under local law, such as priority of distribution and local notions of due process, are held paramount in addressing multinational insolvency proceedings.2 By marked contrast, the considerations of universality promote the conduct of insolvency proceedings in a unified manner pursuant to one set of rules, possibly guided by the proceedings of one centralized forum, even where rights of local creditors in various fora may be impinged by so doing.3 Universality places an emphasis on the conduct of insolvency proceedings in a unified manner in the belief that such will promote efficiency and equity of process, thereby maximizing the aggregate distribution to parties involved and assuring equality of distribution.4

In the past, as compared with today, technological limitations restricted the ability of business to operate on a multinational scope and the level of understanding of foreign legal and business sytems. Perhaps, reflecting this, earlier jurisprudence tended to apply considerations of territoriality, focusing on local law, when confronted with multinational insolvency proceedings. However, as technology has permitted the level of international contact and business to increase, jurisprudence has increasingly utilized a universalist approach.

When mulitnational insolvencies first started to occur, often the primary effects of the insolvency would be centered in one country, with much more limtied effects being felt in other countries. Reflecting this, unversalist laws addressing multinational insolvencies attempted to resolve potential conflicts through a mechanism whereby one country's insolvency proceedings, often in a fairly wholesale fashion, would defer to or assist those in another where the insolvency was centered. In the United States, for example, Bankruptcy Code section 304 provides a mechanism whereby the U.S. insolvency court can defer to foreign insolvency proceedings and lend assistance to a representative of a foreign insolvency proceeding.5 U.K. law provides a similar mechanism in the form of section 426 of the Insolvency Act of 1986.(6) Likewise, Australian law contains Corporations Law sections 580 and 581.(7) A trend in favor of a broad application of universality can be discerned in the case law applying these laws. Indeed, the Australian statute itself makes clear that it is predisposed toward universality.8 Thus, where a debtor's insolvency appears to be centered in a foreign jurisdiction, these laws will be applied generally to defer to and/or lend assistance to, a pending foreign insolvency proceeding. …

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