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The idea of, and problems created by, cross-border and international insolvency sprang into existence with the simultaneous bankruptcy proceedings filed in December, 1991, in the UK and United States by Maxwell Communication Corp. plc. It was only 17 years later that the financial markets were thrown into turmoil by the chapter 11 case of Lehman Brothers Holdings, Inc., filed in New York City. While Maxwell was one company filing insolvency proceedings in two countries, Lehman presents the situation of 90 affiliates in insolvency proceedings pending in 16 countries. “International Bankruptcy: From Maxwell to Lehman” consists of an intensive study of how countries have reacted to the modern world of an increasing number of trans-border insolvencies.
Given this history, it is not surprising that the recent recession has pushed bankruptcy, and particularly cross-border bankruptcy, into the forefront of the business lexicon. But the financial and legal worlds have not been as unprepared as they were before Maxwell. As described below, the World Bank, International Monetary Fund, UNCITRAL (United Nations Commission on International Trade Law) and other governmental and quasi-governmental organizations recognized that a working insolvency regime is essential for a thriving economy. The existence of such a regime not only encourages entrepreneurship but also invites an inflow of debt capital by lenders who like to be certain that, upon default, they will be able to exercise their remedies (or at least know that their borrower does business in a country with a modern and predictable insolvency regime). Thus, the first segment of the course will be devoted to the ingredients necessary for such an insolvency statute. The constituent parts of such a statute include such things as what debtors are eligible to file, the prerequisites to filing (balance sheet insolvency; inability to pay debts), whether involuntary petitions as well as voluntary petitions are permitted, whether an automatic stay of creditor action comes into existence upon filing, whether the judicial system or some kind of administrative agency is involved in administering the case, whether management or an independent fiduciary operates the debtor’s business; whether reorganization as well as liquidation is permitted, as well as a host of other matters, including director liability.
Having established what a modern insolvency system should encompass in general, we shall then turn to particulars, and compare how various developed countries have responded to the need to modernize their legislation. First, an intensive examination will be made between the Danish and United States statutes. (Professor Bang-Pedersen will join Professor Broude in the sessions that deal with these two countries.) The insolvency regimes of other Western European countries will then be scrutinized.
The focus of the course will then turn to international and cross-border insolvencies. The two major approaches to international cases—universalism and territorialism—and what they mean for debtors and creditors will be addressed. The trend toward something called “modified universalism” and the reasons for the trend will be examined. The second part of this segment will explore the genesis and development of model laws to address rationally the nature of modern insolvency practice, which seldom centers around one debtor filing one case in one country. As Maxwell illustrated, most corporations have operations and assets in more than one country. And, as we have learned from Lehman, it is corporate groups that frequently run into financial trouble, groups that have affiliated entities operating in numerous countries, many of which will file their own insolvency proceeding in their country of incorporation.
The need for a better way to handle multi-national bankruptcies has led to two major legislative initiatives for dealing with cross-border insolvencies--the Model Law on Cross-Border Insolvency promulgated by UNCITRAL and the European Union Regulation on Insolvency Proceedings (Denmark has not adopted either of these initiatives). Together, these legislative regimens deal with, among other things, the recognition of foreign representatives charged with the administration of insolvency proceedings pending in one country who wish to pursue assets of their debtors or seek other relief in another country, what countries constitute a proper venue, and what law should govern the proceedings. The course will closely study the European Union Insolvency Regulation and cases interpreting it. Similar treatment will then be given to the Model Law and court cases (many of which have been decided under Chapter 15 of the United States Bankruptcy Code, which is the U.S. version of the Model Law).
The course will conclude with a treatment of efforts currently underway to develop a sensible approach to corporate group bankruptcies. |
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A. Cross-Border Cases: The Beginning
1. Julian A.E. Pottow, The Maxwell Case
2. Barclays Bank v. Homan, [1992]B.C.C. 757
3. In re Maxwell Communications Corp., 93 F.3d 1036 (2d Cir. 1996)
4. Lehman Brothers Holdings, Inc. Cross-Border Insolvency Protocol
B. Designing Insolvency Systems
5. The World Bank, Principles for Effective Insolvency and Creditor Rights Systems (2005)
6. International Monetary Fund, Orderly and Effective Insolvency Procedures (1999)
7. Jenny Clift, Developing an international regime for multinational enterprises: the importance of insolvency law to sustainable recovery and development, __ Transnational Corporations ___ (2011)
C. A Comparison of Some Insolvency Regimes
8. Descriptions of the insolvency legislation of the United Kingdom, France and Germany
D. Managing Cross-Border Cases: The EU Regulation
9. EU Regulation on Insolvency Proceedings, 29 May 2000
10. Ian F. Fletcher, The European Regulation on Insolvency Proceedings
11. Re Eurofood IFSC Ltd., [2006] Ch. 508 (ECJ 02 May 2006)
12. In the Matter of BRAC Rent-A-Car International, Inc., 2003 WL 117146 (High Court 2003)
E. Managing Cross-Border Cases: The UNCITRAL Model Law
13. UNCITRAL Model Law on Cross-Border Insolvency with Guide to Enactment (both available at http://www.uncitral.org/uncitral/en/uncitral_texts/insolvency/html)
14. In re Betcorp Ltd., 400 B.R. 266 (Bankr. D. Nev. 2009)
15. In re Stanford International Bank Ltd., 2010 EWCA Civ. 137 (High Court 22 Jan. 2011)(pp. 1-42)
16. In re Bear Stearns High-Grade, Structured Credit Strategies Master Fund, Ltd., 389 B.R. 325 (S.D.N.Y. 2008), affirming 374 B.R. 122 (Bankr. S.D.N.Y. 2007).
17. Hertz Corp. v. Friend, 130 S. Ct. 1181 (United States Supreme Court 2010)
18. Fogarty v. Petroquest Resources, Inc. (In re Condor Ins. Ltd.), 601 F.3d 319 (5th Cir. 2010)
19. In re Atlas Shipping A/S, 404 B.R. 726 (Bankr. S.D.N.Y. 2009)
F. Groups of Companies
20. UNCITRAL: Treatment of Enterprise Groups in Bankruptcy (21 July 2010)
The required reading will have a maximum of 500 pages.
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