Readers may be familiar with the continuing debates over universalism (one court and one insolvency law) vs. territorialism (many courts and many insolvency laws) that have dominated discussions of cross-border insolvencies in recent years.[1] Realizing that true universalism is an ideal that is unlikely to come to pass in the real world, universalists have generally embraced a modified universalism that acknowledges circumstances that make it proper and (practically and politically) necessary to recognize and protect certain local interests. Given the differing social policies and normative judgments reflected by various bodies of insolvency law around the world, true substantive harmonization of insolvency law seems as improbable as true universalism (although some progress has been made[2]).
Short of a strong universalist trend or substantive harmonization of insolvency law, harmonized insolvency choice-of-law (HICOL) rules would offer the potential for enhanced predictability and responsiveness to the ex ante expectations of parties. Under a truly harmonized choice-of-law rule, as to any given issue of law and how it may relate to any particular asset, the same rule of insolvency law would apply regardless of whether the matter is addressed by the court in a debtor’s main proceeding opened in its center of main interests (COMI), in a non-main (or secondary) proceeding or in another forum in which the relevant insolvency law must be determined.[3] For example, HICOL rules could address the matters as to which the insolvency law of the COMI applicable in a debtor’s main proceeding would apply and those as to which the insolvency law of the jurisdiction in which a non-main proceeding is pending would apply. HICOL rules also could address what assets would be subject to the insolvency law of a non-main proceeding jurisdiction.
The development of HICOL rules would not emerge from a clean slate. It would build on choice-of-law rules found in the UNCITRAL Legislative Guide and those in the European Insolvency Regulation. [4] More recently, a comprehensive set of insolvency choice of law rules — Global Rules on Conflict-of-Laws Matters in International Insolvency Cases — was published as an Annex to the American Law Institute/International Insolvency Institute Global Principles for Cooperation in International Insolvency Cases.[5] Although the Global Rules are not a product of an intergovernmental organization, they were compiled by two highly respected scholars.[6] The Global Rules consist of general choice-of-law rules, rules for determining the location of a debtor’s assets, and certain exceptions to the general rules for in rem rights (security interests), setoff, reciprocal (executory) contracts and employment contracts. While the Global Rules are intended to provide a point of departure for any project by an intergovernmental organization for the harmonization of rules,[7] they also may provide persuasive guidance for courts in the absence of formal harmonization. Choice-of-law rules in insolvency proceedings were also explored in depth at a March 2014 symposium and articles generated by that symposium will be published later this year.[8]
Only time will tell whether a formal process for developing HICOL rules will materialize, but the prospects appear promising. For example, UNCITRAL’s Working Group V, on insolvency law, is interested in the subject:
The Working Group noted that choice-of-law issues formed part of the proposal for a convention … and that some of the elements to be addressed in the context of further work on enterprise groups (such as synthetic secondary proceedings and directors’ obligations) raised choice-of-law questions that would need to be addressed in the course of that work. However, paragraphs 12 to 16 of document A/CN.9/WG.V/WP.117 outlined a proposal for articulating principles on choice of law that could constitute possible future work. The Working Group expressed support for that proposal, noting that choice of law issues were key to many of the topics discussed in [that] document.[9]
It also remains to be considered what type of product would (or should) emerge from such a harmonization project. One could imagine the generation of a supplement to the UNCITRAL Legislative Guide, Model Rules, a Model Law or even a multilateral convention. Moreover, even if there were widespread support in principle for such a project, it is entirely plausible that consensus would not be reached on the content of harmonized rules.
[1] For a collection of literature on the territorialism-universalism debates, see Jay Lawrence Westbrook, “A Comment On Universal Proceduralism,” 48 Colum. J. Transnat'l L. 503, 504 n.2 (2010).
[2] See United Nations Commission on International Trade Law (UNCITRAL) Legislative Guide on Insolvency Law (2004) (UNCITRAL Legislative Guide).
[3] The author borrows terminology from the UNCITRAL Model Law on Cross-Border Insolvency (1997) (Model Law). See Model Law Art. 2(b) (defining “foreign main proceeding”), 2(c) (defining “foreign non-main proceeding”). The Model Law does not define “COMI.”
[4] UNCITRAL Legislative Guide, Recommendations 30-34; Council Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings (EUR), Arts. 4-15.
[5] III/ALI Global Principles for Cooperation in International Insolvency Cases (May 23, 2012), Annex, available at www.iiiglobal.org/component/jdownloads/viewdownload/36/5897.html (last visited July 29, 2014).
[6] The reporters were Profs. Ian Fletcher of the University College London and Bob Wessels of the University of Leiden.
[7] The reporters contemplated that a more formal procedure would follow. “It is envisaged that the proposed Global Rules could serve as the basis for international negotiation under the auspices of one or more appropriate organizations.” Global Rules, Statement of the Reporters.
[8] Symposium, “Choice of Law in Cross-Border Bankruptcy Cases,” 9 Brook. J. Corp. Fin. & Com. L. (forthcoming December 2014).
[9] UNCITRAL, Report of Working Group V (Insolvency Law) on the work of its 44th session (Vienna, 16-20 December 2013) ¶ 24, A/CN.9/798 (Jan. 8, 2014) (emphasis added).
