UNCITRAL Model Law on Cross-Border Insolvency: Procedural Approach to a Substantive Problem

By Cronin, Matthew T. | Journal of Corporation Law, Spring 1999 | Go to article overview

UNCITRAL Model Law on Cross-Border Insolvency: Procedural Approach to a Substantive Problem


Cronin, Matthew T., Journal of Corporation Law


I. INTRODUCTION

As businesses continue to expand internationally, the importance of an efficient and workable international insolvency regime that preserves as much of the debtor's assets as possible becomes increasingly evident.l It is in this light that the United Nations Commission on International Trade Law (UNCITRAL) formed a working group (the "Working Group") to formulate a workable regime for international insolvency proceedings. The Working Group's solution was the Model Law on Cross-Border Insolvencies (the "Model Law").2 Knowing it would be nearly impossible to formulate a workable and acceptable regime that changed the substantive insolvency laws of States, the Working Group, in essence, took advantage of the existing substantive insolvency laws of the States, leaving them untouched, but requiring access for all parties.3 The result is a purely procedural law,4 aimed not at changing insolvency law itself but at leveling the playing field by allowing a State to apply its own substantive law5 to property within its jurisdiction. The Model Law leaves each State to determine its own substantive insolvency laws,6 but requires that State, once it has established those laws, to allow foreign representatives7 equal, simple, and fast access to those laws.8

By examining the format, scope, and approach of the Model Law, it soon becomes clear that the theme of the Model Law is not to change the substantive law of the enacting State, but instead to change the enacting State's procedural law to allow equal, simple, and fast access for all foreign representatives. In evaluating the Model Law's likely effectiveness, one needs to examine three areas: (1) the general approach and provisions of the Model Law, (2) the reasons why a particular State should adopt the Model Law, and (3) problems the Model Law will pose with existing insolvency laws. Because the United States is seriously considering adopting the Model Law, this Comment will focus on the benefits of adoption to the United States, as well as the conflicts that the Model Law will present with existing United States insolvency law.

In an effort to analyze the Model Law's likely effectiveness, from primarily a United States perspective, this Comment will briefly outline how the Model Law works, including its format, focus, and process. Then, the Comment will discuss the reception the Model Law has received thus far. Next, the Comment will outline reasons supporting adoption of the Model Law, including its ability to greatly reduce administrative expenses in cross-border insolvency proceedings. Lastly, the Comment will point out some of the problems with the Model Law, as well as areas of potential conflict with United States substantive bankruptcy law.

II. BACKGROUND

UNCITRAL established the Working Group in April 1994 to study global international insolvency reform.9 In May 1997, UNCITRAL adopted the model law that the Working Group established and is now promulgating it for adoption.lo There are eight important points regarding the Model Law: (1) the format, (2) the scope, (3) the main focus, (4) the "main proceeding," (5) the "non-main proceeding," (6) the process, (7) the emphasis on equal treatment of creditors, and (8) the general acceptability of the Model Law.

A. The Model Law's Format

Most commentators recognize two principal views regarding the most effective way to handle cross-border insolvencies: universality and territoriality.11l Universality seeks to establish a uniform set of substantive insolvency laws governing all insolvency proceedings.12 Territoriality, on the other hand, leaves each State to determine for itself the substantive law regarding insolvency proceedings within its border, but limits the application of that substantive law to property within that State's jurisdiction.l3 The Model Law adopts what one could call a cooperative territorial approach. The Model Law does not seek to unify or change the substantive insolvency laws of the enacting State. …

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