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INSOL INTERNATIONAL CROSS-BORDER INSOLVENCY II A Guide to Recognition and Enforcement FOREWORD ALL 4.10.12_Cross Border template 16/10/2012 13:07 Page 1 CROSS-BORDER INSOLVENCY II A Guide to Recognition and Enforcement FOREWORD ALL 4.10.12_Cross Border template 31/10/2012 11:40 Page 2 Copies of this book are available from: INSOL International 6-7 Queen Street, London EC4N 1SP, UK Tel: (+44) (0)20 7248 3333 Fax: (+44) (0)20 7248 3384 Email: [email protected] www.insol.org Price £100.00 plus post & package ISBN: 978-1-907764-15-8 Copyright © No part of this document may be reproduced or transmitted in any form or by any means without the prior permission of INSOL International. The publishers and authors accept no responsibility for any loss occasioned to any person acting or refraining from acting as a result of any view expressed herein. Published October 2012 FOREWORD ALL 4.10.12_Cross Border template 16/10/2012 13:07 Page 3 One of the defining characteristics of human beings is the way that we specialise. Biologists have pointed out that if you take a chimpanzee from one tribe and place it in another, it will at least know what it is expected to do, what its role is. That is, it will get on with mutual grooming rituals, join in hunting for food etc. But take a lawyer and put him or her in a nuclear submarine and they will be lost. Similarly, if a shop-keeper were asked to fly a plane on a moment’s notice. Specialisation brought efficiency and led to barter. One person was good at collecting coconuts and another was good at weaving fishing nets - they swapped with each other. Bilateral swapping became multilateral trade. Money was invented to make keeping score easier. With the industrial revolution came a capacity to trade quickly and efficiently over vast distances. (And for the anthropologists among you who wish to point out that man had the capacity to travel long distances thousands of years earlier as can be demonstrated by the discoveries of Viking DNA on the east coast of Canada, I should say that I am focusing here on the speed and ubiquity of travel and trade.) So trade is international and a merchant in one country will have interests – goods, employees, claims – in other countries. There is and will be business failure (the only way not to fail is not to try). How are humans, the great co- operators, to deal with this? The cheapest and most efficient method is to have one main insolvency/bankruptcy and for other jurisdictions to recognise that proceeding and co-operate with its office-holder. UNCITRAL developed a Model Law to make it easier for countries to buy in to this approach. INSOL International was delighted to have been a central part of the process of developing the Model Law. Lord Hoffmann in an English case In re HIH Casualty and General Insurance Ltd [2008] 1 WLR, 852, used some rhetoric to explain the universalist approach. “The primary rule of private international law which seems to me applicable to this case is the principle of (modified) universalism, which has been the golden thread running through English cross-border insolvency law since the 18th century. That principle requires that English courts should, so far as is consistent with justice and UK public policy, co-operate with the courts in the country of the principal liquidation to ensure that all the company’s assets are distributed to its creditors under a single system of distribution”. i FOREWORD ALL 4.10.12_Cross Border template 16/10/2012 13:07 Page 4 This, then, is an expression of the ideal approach. But we are dealing with humanity in all its diversity and there are those who do not necessarily sign up to this. First, there are jurisdictions unable or unwilling to look up from the page containing their own domestic concerns. I was intrigued recently when I asked some academics in a country which had just introduced new restructuring laws whether the new laws applied to foreign companies. After some days’ study they weren’t sure they knew the answer. The point had never even been considered by the legislators. And another approach is that often ascribed to the Little Englander: “Abroad? I’ve been there once and I didn’t like it….”. That is, who knows what impurities or wickedness might we be importing if we recognise another jurisdiction’s restructuring or bankruptcy laws? Or a modified version of that is shown by those who insist on reciprocity. That is, we will only recognise jurisdictions which will recognise our insolvency procedures. You can see the point but life is too short for such a limited approach. Better to set an example and extend the hand of friendship and recognition. It’s better for your creditors. Neil Cooper has always been a practitioner who can see the big picture. The first edition of the book on which this is based – Recognition and Enforcement of Cross-border Insolvency (1996) which he co-authored with Rebecca Jarvis – was a seminal work. Many have followed in the path they first cleared. Much has been done to improve the law and practise of cross-border insolvency. Much still needs to be done but the way forward is now clear. Under the editorship of Neil, INSOL updated the book in 2003. Since then change has continued apace and this second edition published under the INSOL banner has much new material for members and will bring readers up to date on where 46 countries now stand in this important area. Gordon Stewart President, INSOL International ii FOREWORD ALL 4.10.12_Cross Border template 16/10/2012 13:07 Page 5 Cross-border Insolvency II Introduction This publication, the expanded third edition of this study, has been produced by INSOL International to help members seeking guidance as to the assistance they can expect when dealing with insolvency proceedings that span national borders. It is also hoped that it will provide a helpful stimulus to those responsible for the reform of insolvency laws and systems especially when considering the adequacy of the assistance that their courts are able to give foreign representatives. The need for such assistance has increased exponentially since the first edition of this work almost twenty years ago. The growth in global trade; the rapid expansion of foreign direct investment in the nineties and the start of the new millennium, shortly followed by the global financial crisis have contributed to an increased number of occasions when the assistance of foreign courts is necessary if insolvency proceedings are to achieve their desired objective. While time-consuming applications based upon comity or exequatur may have been almost adequate in times when insolvency procedures were mainly of the liquidation variety, the universal emphasis of insolvency law reform on the development of workable reorganisation procedures has made timely and predictable assistance essential. The background to this study The first edition of “Recognition and Enforcement of Cross-Border Insolvency – A Guide to International Practice” by Cooper and Jarvis1, was published by John Wiley and Son in 1996. The research for this book assisted the production of the report of the INSOL International Expert Committee2 to a symposium hosted by UNCITRAL and INSOL International in April 1994. We identified the needs as access for foreign representatives, recognition of the proceedings under which they were appointed, relief to protect assets, and judicial co-operation. The conclusions of that symposium led UNCITRAL to constitute the Working Group that prepared the Model Law on Cross-Border Insolvency. Due to the continuing law reform and extending jurisprudence in this area of law, in 2003 INSOL International published an updated second edition on which this book is based. The UNCITRAL Model Law – process and outcome Working Group V comprised representatives of the member nations and the two global insolvency bodies, INSOL International3 and the International Bar Association4. Among the representatives were a number of European nations that for many years had debated the European Bankruptcy Convention. For good or for 1 Rebecca Jarvis, now a partner in Linklaters, London. The researcher for this project was a young solicitor, Sonali Abeyratne, who is now technical director at INSOL International. 2 Chaired by Professor Ronald W Harmer, London University, formerly a partner in Blake Dawson Waldron and Evan Flaschen, now partner in Bracewell and Giuliani, New York. 3 Represented by Ron Harmer and the author. 4 Represented by Dan Glosband. iii FOREWORD ALL 4.10.12_Cross Border template 16/10/2012 13:07 Page 6 ill, and on balance I still think the former, the Working Group adopted some of the significant terminology of the Bankruptcy Convention working group. The definitions of “centre of main interest” (COMI) and “establishment” were utilised, while the concepts of territorial proceedings in the bankruptcy convention were not required at UNCITRAL. Some nations were strongly of the opinion that the COMI should invariably be the domicile of incorporation: others supported a wider definition although there was little support for the mere presence of assets or the existence of a bank account as the basis of jurisdiction to commence insolvency proceedings. Without doubt, no one foresaw the extent to which the subject of COMI would dominate the jurisprudence on the output of the Working Group. For the avoidance of doubt, we did not, as is sometimes reported, base the Model Law on the bankruptcy convention. Neither did the Working Group anticipate the adoption of the European bankruptcy convention in the near future.