Bankruptcy in the Global Village
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INTRODUCTION Neil B. Cohen,* Michael A. Gerber,** & Edward J. Janger*** his Symposium is a tribute to the late Professor Barry L. Zaretsky T(1950-1997). Barry was a member of the Brooklyn Law School faculty for nineteen years. He was a teacher and mentor to countless Brooklyn Law School students, as well as a distinguished bankruptcy and commercial law scholar. He was also a good friend to many of the authors who have contributed to this volume. In 1996, Barry and Ian Fletcher, then of Queen Mary and Westfield College, University of London, organized the first symposium entitled Bankruptcy in the Global Village. Professor Fletcher describes the con- text of that symposium in his contribution to this volume. That confer- ence occurred at a time when there was much lawmaking activity in the area of international insolvency. However, none of the ongoing projects had yet borne fruit. The American Law Institute’s NAFTA Insolvency Project was in full swing, but was years away from producing the influ- ential Principles of Cooperation Among NAFTA Countries. The Euro- pean Union’s Insolvency Convention had stalled, and was consigned to a limbo from which it emerged only in 2002. The United Nations Commis- sion on International Trade Law (UNCITRAL) Model Law on Cross- Border Insolvencies was still over a year away from endorsement by the General Assembly. Since 1996, much has changed. The initiatives of the first wave, in process in 1996, are now operational. The NAFTA Principles were pub- lished in 2003. The UNCITRAL Model Law has been adopted by nine countries, including—with the enactment of Chapter 15 in 2005—the United States. In 2000, the European Union promulgated a regulation based on the Insolvency Convention that went into force in 2002 and now governs insolvencies in EU member states. The first-wave initiatives had a common theme. Each of the various harmonization efforts was proce- dural in nature—designed to create rules and mechanisms that would allow courts to coordinate their efforts in cross-border insolvency cases. Substance, of course, was lurking just around the corner, and the second wave of international bankruptcy law reform efforts has focused in that direction. UNCITRAL has completed a Legislative Guide on insolvency law, and is preparing one on the law of secured credit, to name just two of the ongoing initiatives. UNIDROIT, the World Bank, and others have reform efforts underway in the areas of both bankruptcy and secured * Jeffrey D. Forchelli Professor of Law, Brooklyn Law School. ** Professor of Law and Associate Dean for Development, Brooklyn Law School. *** Professor of Law, Brooklyn Law School. 754 BROOK. J. INT’L L. [Vol. 32:3 credit. Meanwhile, practice has continued to develop with cross-border cases becoming increasingly common. The Articles in this volume are wide ranging, but we have organized them into four conceptual clusters. The first cluster consists of the Key- note by Professor Paulus, and Articles by Professors Fletcher, Pottow, and Janger. Professor Paulus explores and evaluates efforts by multilat- eral institutions to harmonize substantive bankruptcy law during the last decade. Fletcher, Pottow, and Janger also take stock of the developments of the last decade, and consider how best and how far to push multilateral harmonization efforts forward. The second set of papers focuses attention on the current efforts to harmonize substantive law. Professors Block- Lieb and Halliday explore the novel approach to harmonization used by UNCITRAL in the Legislative Guide on Insolvency. Professor Harris and Nick Segal each examine the interaction between bankruptcy law and the law of secured credit, with attention to the effect of substantive legal differences on bankruptcy cases. Finally, Professor Rasmussen suggests that market convergence may make legal harmonization unnec- essary. The third cluster looks at the role of choice of law in cross-border cases. Gabriel Moss explores recent cases under the EU Insolvency Regulation that have struggled with the problem of defining a debtor’s center of main interest, while Professor Westbrook explores both how the center of main interest should be determined and what questions should be determined by a debtor’s forum choice. Finally, the last cluster of papers is in the nature of two epilogues: one focused on practice and the other on lawmaking. Professor Ziegel explores the evolution of Can- ada-U.S. cross-border cases under the NAFTA principles and the newly adopted Chapter 15, while Professor Halliday explores the determinants for a successful international insolvency lawmaking initiative and makes some predictions and suggestions for the various ongoing lawmaking efforts. The Articles build on the work of the first symposium, and we hope that they are as helpful to the ongoing development of global bankruptcy law and practice. Those of us who participated in the symposium this past October were continually aware of Barry Zaretsky’s absence, and of his presence. He would have enjoyed himself. We missed him, and we thank him for providing, yet again, an opportunity to explore a topic that he found (and made) interesting. GLOBAL INSOLVENCY LAW AND THE ROLE OF MULTINATIONAL INSTITUTIONS Christoph G. Paulus∗ he topic of this symposium, Bankruptcy in the Global Village: The TSecond Decade, is grand and demanding. The concept of a “global village” implies something beyond the technicalities of particular na- tional laws; instead, it conjures a view of bankruptcy that transcends na- tional legal systems—bankruptcy at a meta-level. But this conference is not only geographically “meta.” It is also temporally “meta.” It seeks to transcend time as well as space. The reference to “the second decade” harks back to an earlier symposium at Brooklyn Law School organized by Professors Barry Zaretsky and Ian Fletcher that still forms an impor- tant cornerstone for many insolvency-related discussions.1 The topic of this symposium thus includes past and present, national institutions and multinational lawmaking efforts. With these multiple dimensions in mind, I would like to trace a few themes as a prelude to the discussion of the next few days. I. THE FIRST DECADE Choosing 1996 as a starting point does some injustice to the decades that came before. The introduction of Chapter 11 into the U.S. Bank- ruptcy Code in 1978 initiated a worldwide re-thinking of the options that bankruptcy law can offer.2 Similarly, the invention of “protocols” by creative judges and practitioners created a powerful tool to overcome the stalemate situations that arise frequently in cross-border bankruptcies as a result of conflicts among national bankruptcy laws.3 But choosing 1996 ∗ The author is a Professor of Law at the Humboldt Universität zu Berlin of Civil Law, Civil Procedure Law, Insolvency Law, and Ancient Roman Law. He is a member of the International Insolvency Institute, the American College of Bankruptcy, the Interna- tional Association of Procedural Law, and the International Academy of Commercial and Consumer Law. He has worked as a consultant both for the International Monetary Fund (IMF) and the World Bank. 1. Symposium, Bankruptcy in the Global Village, 23 BROOK. J. INT'L LAW 1 (1997). 2. Outside the United States, the stigmatizing effect of a bankruptcy proceeding has been—and in many regions of this world still has—a powerful blocking impact on the efficiency of a reorganization option. The idea of a fresh start to be offered to a debtor through the bankruptcy proceeding has been for quite a long time unique to the United States. 3. The beginning of this invention is marked by the Maxwell case. See Evan D. Flaschen & Ronald J. Silverman, The Role of the Examiner as Facilitator and Harmon- izer in the Maxwell Communication Corporation Insolvency, in CURRENT DEVELOPMENTS IN INTERNATIONAL AND COMPARATIVE CORPORATE INSOLVENCY LAW 621 (Jacob S. 756 BROOK. J. INT’L L. [Vol. 32:3 also recognizes that the mid-nineties saw bankruptcy law elevated to a central position in the globalizing world. The East Asia crisis brought the world perilously close to a global economic breakdown when Japan, Russia, and finally Brazil, one after the other, followed the so called Ti- ger States to the brink of economic collapse. This threat led the then-G7 States (now G8) to form a new multilateral institution, the Financial Sta- bility Forum, to develop tools to prevent a similar crisis in the future. The efforts made by this forum are reported on its Web site.4 One of its most prominent products is the articulation of twelve legal attributes that are crucial for a country’s financial stability, such as accounting and au- diting standards, fiscal transparency, and banking and insurance supervi- sion as well as insolvency and creditor rights. The inclusion of insol- vency law on the list is a new development; insolvency law is newly seen and understood as a safeguard and anchor for the stability of a country’s financial health. The task of supervising and fostering legal developments in each one of the twelve areas is entrusted to various institutions such as the Interna- tional Monetary Fund (IMF), the Organisation for Economic Co- operation and Development (OECD), or the World Bank. At the peak of the crisis in early 1998, the IMF was pushed to take care of this area and in 1999 it published its description of a fundamental pattern for orderly and effective insolvency procedures.5 Thereafter, however, responsibility shifted to the World Bank, which developed a more detailed set of prin- ciples for insolvency law and creditors’ rights. The ultimate result, the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems, was made public in 2001.6 The perception of insolvency law’s global importance extended be- yond the Bretton Woods institutions. Initiated by an Australian proposal, the United Nations—more precisely, the United Nations Commission on International Trade Law (UNCITRAL)—sought to draft yet another guidebook for insolvency legislation.