CROSS-BORDER INSOLVENCY The UNCITRAL Model Law on Cross-Border Insolvency by Ronald W Harmer or TRIVIAL PURSUIT Abroad, states one of Nancy Mitford s characters, Is unutterably bloody and foreigners are fiends. 1 Like a number of Mitford s characters, this one was an undisguised eccentric, undeniably xenophobic and, probably, quite mad 2. One might therefore question his sanity in making the statement. That does not, however, necessarily destroy its validity. So, is the statement true or false? Since the content of this book is largely about the prospect of going abroad and seeking favours and other indulgences from foreigners, one might, in the context of that content, ask that question and seek to answer it by determining just how bloody and how fiendish the reception might be. That is the pursuit. Now for the trivia. 1 The Pursuit of Love. 2 The character was also given to the habit of describing people to whom he took exception as sewers! 5
CONSIDER THE FOLLOWING QUESTIONS IN RELATION TO THE CROSS-BORDER REGIMES THAT ARE PRESENTED IN THIS BOOK Standing Under which, if any, of those regimes is there express legislative authority that enables a foreign representative to maintain standing to apply to a foreign court? Direct application Under which, if any, of those regimes is there express legislative authority that enables a foreign representative to apply directly to a foreign court? Formalities enables a foreign representative to apply with a minimum of formality? Evidentiary presumptions enables certain material evidentiary presumptions to be applied? Expedition requires a court to hear and determine an application for recognition at the earliest possible time? Recognition enables a court to recognise a foreign insolvency proceeding? Interim relief enables a court to grant interim relief? Automatic relief gives automatic effect to certain basic protective relief? Additional relief enables a court to grant other, additional relief? Distribution enables a foreign representative to distribute the assets of a debtor? 6
Communication, coordination and cooperation Under which, if any, of those regimes, is there express legislative authority for a court to communicate directly with a foreign court and otherwise engage in cooperation and coordination? ANSWERS The legislation of not one country would satisfy all those issues. Only a few countries would satisfy just some of the issues. It follows that going abroad to seek recognition and assistance is most likely to be bloody. Judgement as to whether those who inhabit those domains are fiends may be postponed. A LAW THAT ADEQUATELY PROVIDES FOR ALL OF THOSE ISSUES The issues may be conveniently grouped into four reasonably well-defined areas access, recognition, assistance and cooperation. Imagine a law that provided for all of the issues in all of the areas. It might deal with them in the following way. ACCESS Standing On this issue a relevant article 3 might provide that: A foreign representative may apply, coupled with an article 4 that defined: a foreign representative as a person or body authorised to administer the reorganisation or the liquidation of the debtor s assets or affairs or to act as a representative of the foreign proceeding. Then, to complete the picture, a further article 5 might define a foreign proceeding as: a collective judicial or administrative proceeding in a foreign State.pursuant to a law relating to insolvency in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganization or liquidation. Often the unilateral cross-border insolvency regimes fail to identify just who has standing to initiate an application for recognition and assistance. Yet, quite clearly, it has to be the person or body that has the overall responsibility and authority for the 3 [15(1)] 4 [2(d)] 5 [2(a)] 6 [15(1)] 7
conduct of the administration of an insolvent debtor. So it should be stated clearly. Right of direct application. On this issue a relevant article 6 might provide that: A foreign representative may apply to the court for recognition of the foreign proceeding in which the foreign representative has been appointed. It would be necessary to couple that with an article 7 defining and identifying the court and which might provide that: The functions referred to in this law relating to recognition of foreign proceedings and cooperation with foreign courts shall be performed by [identity of court]. Simply stated, a foreign representative may apply directly to the relevant court. Importantly, that court is identified. A considerable amount of the guesswork is avoided, as are inconvenient jurisdictional issues. Formalities to be satisfied On this issue a relevant article 8 might provide that: An application for recognition shall be accompanied by: (a) a certified copy of the decision commencing the foreign proceeding; or (b) a certificate from the foreign court affirming the existence of the foreign proceeding and of the appointment of the foreign representative Gone are the requirements for unnecessary formalities such as diplomatic requests and protocols, letters rogatory, letters of request and the like together with their attendant irrelevant formality, inappropriate language, cost and time consumption. A simple application supported by minimal documentary proof is all that is required. Evidentiary presumptions The more important of these might be contained in articles 9 providing that: (1) If the decision or certificate referred to in [relevant article] indicates that the foreign proceeding is a proceeding within the meaning of [relevant article] and that the foreign representative is a person or body within the meaning of [relevant article], the court is entitled to so presume. (2) The court is entitled to presume that documents submitted in support of the application for recognition are authentic, whether or not they have been legalised. (3) In the absence of proof to the contrary, the debtor s registered office, or habitual residence in the case of an individual, is presumed to be the centre of the debtor s main interests. A presumption is nothing more than a procedural and evidentiary device that, absent anything that calls the fact, matter or thing that is presumed into question (evidence or proof to the contrary), entitles a court to treat the fact, matter or thing as established, 7 [4] 8 [15(2)] 9 [16(1) (3)] 10 [17(3)] 8
without the need for the cost and delay of further proof, examination and enquiry. Expedition On this issue a relevant article 10 might provide that: An application for recognition of a foreign proceeding shall be decided upon at the earliest possible time. Too often, courts are not directed to the need for urgent or, at least, prompt consideration of cross-border matters. Urgency or immediacy will often be important and, indeed, sometimes vital in such cases. The ability to apply is one thing. But a benefit thus given can be all too easily taken away and rendered ineffective or worthless in the face of the prospect of a passage of weeks or, even, months without due consideration and determination of an application for recognition. RECOGNITION Recognition On this important issue a relevant article 11 might provide that: a foreign proceeding shall be recognised if: (a) The foreign proceeding is a proceeding within the meaning of [relevant article]; (b) The foreign representative applying for recognition is a person or body within the meaning of [relevant article]; (c) The application meets the requirements of [relevant article]; and (d) The application has been submitted to the court referred to in [relevant article]. It is recognition that holds the key to cross-border insolvency. One simple provision should be sufficient to deal with it. The conditions to be satisfied need to be clear, unambiguous and not overly technical or taxing. If they are satisfied there is then a need for certainty and predictability in the result. The act or declaration of recognition needs to be as close to a mandatory requirement as possible. ASSISTANCE Interim relief On this issue a relevant article 12 might provide that: From the time of filing an application for recognition until the application is decided upon, the court may, at the request of the foreign representative, where relief is urgently needed to protect the assets of the debtor or the interests of the creditors, grant relief of a provisional nature, including: (a) Staying execution against the debtor s assets; (b) Entrusting the administration or realization of all or part of the debtor s assets located in this State to the foreign representative or another person 11 [17(1)] 12 [19] 9
designated by the court, in order to protect and preserve the value of assets that, by their nature or because of other circumstances, are perishable, susceptible to devaluation or otherwise in jeopardy; (c) Any relief mentioned in [relevant article]. Despite the legislative direction for an early judicial response to an application for recognition, some cases will require urgent steps to be taken in the interests of both the debtor and the creditors. It is not difficult to imagine, for example, local creditors at the gates of the citadel or those inside committing desperate acts of desperate men (fraud, tunnelling and the like). This article would arm both an insolvency representative and the court with the necessary authority and power to endeavour to address and possibly prevent such behaviour. It is an essential provision. Automatic relief, effective upon recognition In this other key area, a relevant article 13 might be drafted so as to provide that: Upon recognition of.a foreign main proceeding: (a) Commencement or continuation of individual actions or individual proceedings concerning the debtor s assets, rights, obligations or liabilities is stayed; (b) Execution against the debtor s assets is stayed; and (c) The right to transfer, encumber or otherwise dispose of any assets of the debtor is suspended. The usual assistance that is required and is most necessary is to stay/suspend enforcement action against the debtor and its property, stay and suspend execution processes and prohibit transactions affecting the assets of the debtor (particularly transfers of and the creation of encumbrances over such assets). It may seem basic relief, but it is normally sufficient to create the desired order of a holding pattern. Moreover, it would be consistent with the type of moratorium provided for under most insolvency law regimes upon the commencement or opening of a case. So why not provide for it as an effect or consequence of a declaration or order for recognition? It is more efficient to do so. It is far better than requiring yet a further determination and order of a court as to what, if any, relief will be granted. More importantly, automatic self-executing assistance provides, again, for much needed transparency, certainty and predictability Additional relief On this issue a relevant article 14 might provide that: Upon recognition of a foreign proceeding where necessary to protect the assets of the creditors, the court may, at the request of the foreign representative, grant any appropriate relief, including: (a) Staying the commencement or continuation of individual actions or individual proceedings concerning the debtor s assets, rights, obligations or liabilities, to 13 [20] 14 [21] 10
the extent they have not been stayed under [relevant article]; (b) Staying execution against the debtor s assets to the extent it has not been stayed under [relevant article]; (c) Suspending the right to transfer, encumber or otherwise dispose of any assets of the debtor to the extent that this right has not been suspended under [relevant article]; (d) Providing for the examination of witnesses, the taking of evidence or the delivery of information concerning the debtor s assets, affairs, rights, obligations or liabilities; (e) Entrusting the administration or realization of all or part of the debtor s assets located in this State to the foreign representative or another person designated by the court; (f) Extending any relief granted under [relevant article]; (g) Granting any additional relief that may be available to [an insolvency administrator] under the laws of this State. The assistance or relief that flows from recognition may not be enough. It is, after all, reasonably basic relief, and, as mentioned, simply puts in place a holding pattern to preserve assets and prevent competition between creditors. Once things have settled, other more investigative relief and assistance may be required and it may be necessary to effect some form of management control or supervision over the affairs of the debtor. It is for this reason that other assistance should extend to the gathering of information concerning the debtor and the possibility of effectively managing and controlling the affairs of the debtor. Distribution This might be provided for in a relevant article 15 that provided: Upon recognition of a foreign proceeding. the court may, at the request of the foreign representative, entrust the distribution of all or part of the debtor s assets located in the State to the foreign representative or another person designated by the court, provided that the court is satisfied that the interests of creditors in this State are adequately protected. There is a possibility that assets may have to be sold and a possibility that the proceeds used in furthering the common good. An additional form of relief or assistance may be required to provide for such matters. There should be no objection to an interests of creditors caveat COOPERATION Communication, coordination and cooperation This area might be covered in articles 16 that provide: 15 [21(2)]] 16 [25, 26 & 27] 11
1. In matters referred to in [relevant article], the court shall cooperate to the maximum extent possible with foreign courts or foreign representatives, either directly or through [a local insolvency representative]. 2. The court is entitled to communicate directly with, or to request information and assistance directly from, foreign courts or foreign representatives. Cooperation referred to [above] may be implemented by any appropriate means, including: (a) Appointment of a person or body to act at the direction of the court; (b) Communication of information by any means considered appropriate by the court; (c) Coordination of the administration and supervision of the debtor s assets and affairs; (d) Approval or implementation by courts of agreements concerning the coordination of proceedings; coordination of concurrent proceedings regarding the same debtor. Since, in most jurisdictions, there may be little or no prospect of judicial cooperation and coordination without legislative authority, it is vital to provide for it. Even in jurisdictions in which judges have relatively extensive freedom, liberality and independence, it would be best to provide for it because one suspects that many of them would prefer express legislative power to become involved in communication and case management cooperation with their counterparts abroad. This fourth key area of cross-border insolvency is likely to assume considerable importance and attention. In cross-border insolvency cases as well as other areas of the law (for example, cases involving custody of children and cases of forum dispute involving more than one jurisdiction), there is a growing body of largely judge made communication and cooperation precedent. With the extra advantage of legislative authority, that body of pragmatic jurisprudence can only grow and become a very relevant factor in cases of cross-border insolvency. THE UNCITRAL MODEL LAW ON CROSS-BORDER INSOLVENCY It will come as no surprise to most to reveal that the above hypothetical articles of a hypothetical unilateral legislative enactment on cross-border insolvency law are in fact real 17.They have been taken directly from the UNCITRAL model law 18. The model law seeks to guide countries in legislating a unilateral approach to crossborder insolvency. It was prepared and drafted with the four elements of access, recognition, assistance and cooperation very much in mind. If it was necessary to describe the essential nature and characteristics of the UNCITRAL Model Law in a word or two, the expression it empowers may not be far from the mark. It empowers insolvency representatives, courts and judges by simply providing the necessary authority and power to take relevant proceedings and power 17 References in square brackets in the preceding footnotes are to the articles of the UNCITRAL Model Law on Cross- Border Insolvency. 18 The full text of the model law appears as annexure. 12
to do relevant things as a result. Simple though it may seem, this is what is missing from much of the content of this book. For as long as that state of affairs continues one may continue, in a number of jurisdictions, to engage in pursuit of trivia. 13
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