The rapid growth in economic globalization has created new issues for creditors, debtors, insolvency professionals and the bankruptcy court. Less than a dozen years ago, it was unusual to find reorganizations or insolvencies that had significant international connections. Today, it is unusual to find a major case that does not have international aspects, and this trend is certain to accelerate.
In today's new economy, debtors restructuring their companies may have foreign assets and/or foreign subsidiaries and/or a foreign parent. Hence, cooperation amongst foreign courts is required in order to ensure the sanctity of the process.
The coordination of the insolvency process amongst countries has been an ongoing project by insolvency groups, such as the United Nations Commission on International Trade Law (UNCITRAL), the International Bar Association's (IBA) CrossBorder Insolvency Concordat, American Law Institute's (ALI) Transnational Insolvency Project and Insol Lenders Group (ILG), just to name a few. Because of the absence of international insolvency treaties and conventions that could deal effectively with multinational insolvencies and reorganizations, progress in the international insolvency area is highly dependent on the insolvency community to find structures and solutions to cross-border and multinational financial problems. These organizations have developed models of various protocols that have been adopted by the court systems in Canada, United States and abroad. We will highlight some of these protocols and the positive impact on creditors.
UNCITRAL, headquartered in Vienna, Austria, has undertaken exhaustive studies and reviews in many areas of international commercial law. It has recently produced the Model Law on Cross-Border Insolvency.
The primary goal of the Model Law is to facilitate domestic recognition of foreign insolvency proceedings and to increase international cooperation in multijurisdictional cases. The Model Law contemplates a high level of cooperation between courts in cross-border cases. The Model Law directs domestic courts to cooperate "to the maximum extent possible" with foreign courts and foreign insolvency representatives.
In May 2000, Mexico became the first major economy to officially adopt the UNCITRAL Model Law on Cross-Border Insolvency as part of its domestic insolvency legislation. In November 2000, the Parliament of South Africa passed legislation to enable South Africa to adopt the provisions of the UNCITRAL Model Law. The US has been poised for some time to enact the Model Law although progress seems to have slowed due to controversies in US domestic issues.
International Bar Association
The International Bar Association's Cross-Border Insolvency Concordat has led to an increasing use of protocols in crossborder cases. The concordat intends to suggest rules applicable to cross-border insolvencies and reorganization, which the parties or the courts could adopt as practical solutions in multinational proceedings. The concordat is based on the view that international trade and commerce could be enhanced and facilitated by an international understanding that particular principles and guidelines are available in the event of an international business failure or reorganization. Protocols based on the concordat have been used in several recent cross-border reorganizations.
Recent cross-border insolvency filings are characterized with a higher degree of respect by the courts of one country for the courts of another than ever before.
The increased use and acceptance by the courts of Cross-Border Insolvency Protocols is a very positive development for stakeholders involved in multinational businesses with financial difficulty. The solutions to cross-border issues that protocols deal with have the potential to develop into a set of rules and precedents which, in turn, may evolve into a form of "Common Law" of cross-border and multinational reorganizations. …