Cross-Border Bankruptcy Cases

World Bank

INTERNATIONAL INSOLVENCY

Cross-Border Bankruptcy Cases

and

COURT TO COURT COMMUNICATIONS

IN CIVIL, COMMERCIAL AND INSOLVENCY CASES

May 4, 2005

International Insolvency cases, where businesses, their creditors, suppliers, assets, transactions, employees, and customers are located in two or more countries, are increasing in frequency and size, and impacting many more countries as trade and commerce expands around the world. This process, coupled with the need of all countries to have a stable and predictable commercial legal system which will attract investment and foster economic development, inevitably affects courts and judges throughout the world.

This has prompted new and diverse ways of dealing with the more complex and, potentially, more contentious and difficult legal issues created by cross-border insolvency cases. Perhaps the leading and most important initiative in this area of international law is the Model Law on Cross-Border Insolvency established by the United Nations Commission on International Trade Law (UNCITRAL). Created over several years of work by hundreds of judges, academics, practitioners and other insolvency experts, it is intended to be a proposed framework for managing cross-border insolvency cases in a cooperative, streamlined, effective and fair manner.

Some of its principal features are as follows:

!It is a proposed law, only, which may be adopted, in whole or part, by any country, tailored to meet each country’s own legal structure, culture and traditions.

!It has been adopted by several countries including Mexico, South Africa, Japan, Eritrea and Romania, and it will be the law in the U.S. within the next few weeks.

!It (a) provides for more timely, effective and efficient procedures for recognizing a foreign insolvency proceeding, (b) authorizes designated representatives from one country to participate in foreign courts and proceedings, and (c) mandates cooperation by courts and designated representatives in one country with courts and representatives in another country with related proceedings.

!It applies to all “foreign proceedings” which are collective judicial or administrative proceedings pursuant to a law relating to an insolvency in a foreign country, and it applies to “liquidations” and business “reorganizations”, as well. The law provides that where an insolvent business has assets, interests, operations, transactions and/or creditors in two or more countries, then it may be subject to concurrent insolvency proceedings in each of those countries, and each of those proceedings are to work cooperatively, collectively and complementary.

!Concurrent insolvency proceedings in different countries will, generally, be denoted either a “main proceeding” or a “non-main proceeding”. The main proceeding is to be primarily responsible for managing the debtor’s estate and administering the bankruptcy case.

!Generally, but not always, a business is presumed to have a “center of main interests” and it is there, where the business has its registered office, that it is presumed the “main proceeding” will be conducted.

!Critical to all cross-border cases is the requirement of fair and adequate notice to all creditors and other “parties in interest” of the filing of the case, and of important events in the case.

!An “automatic stay”, or moratorium on creditors, is implemented in all cases.

In all types of court cases and dispute resolution, civil, commercial and insolvency, communications between courts with common questions or related issues may be essential. While the substantive rights of the parties are not to be diminished, compromised or modified in any fashion, the framework and procedures for undertaking court-to-court communications in a smooth, transparent, effective and fair manner should be adopted.

The principal features of Guidelines Applicable to Court-to-Court Communications in Cross-Border Cases thus far adopted and utilized by various courts include the following:

!The current Guidelines Applicable to Court-to-Court Communications are intended to be adopted to complement and assist the court, not supersede or substitute other domestic laws or procedural rules governing the court.

!Courts are encouraged to communicate with courts in other jurisdictions, where necessary and appropriate, in order to facilitate, coordinate or harmonize proceedings. Communication may be direct or indirect through authorized representatives.

!Such court-to-court communication should be undertaken only with a full measure of notice and transparency to all interested parties to the fullest degree possible under the circumstances.

!To the fullest degree reasonable, interested parties should have the right and be given the opportunity to participate in substantive or procedurally consequential court-to-court communications.

!Written, recorded and/or digital records of such communication should be timely made, filed in the record, and made available to all interested parties at a reasonable cost.

!Courts may conduct joint, concurrent hearings with another court so long as (a) timely notice is given to all, (b) audio, video or other transmission is fair, of adequate quality and readily available, (c) evidence is fully accessible to all participating parties and both courts, (d) due process is followed.