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Cross-Border Bankruptcy: Main Issues

Cross-border bankruptcy involves several main issues: 1. The scope of application, which considers factors like the debtor having assets or creditors in multiple countries. 2. Conflicting approaches between territoriality, where each country controls assets within its borders, and universalism, where one country's bankruptcy proceedings apply globally. 3. Under universalism, challenges include potential conflicts over jurisdiction, protecting local interests in other countries, and reconciling different bankruptcy laws. Limited universalism aims to balance these issues.

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Chiluka Karunaker
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44 views

Cross-Border Bankruptcy: Main Issues

Cross-border bankruptcy involves several main issues: 1. The scope of application, which considers factors like the debtor having assets or creditors in multiple countries. 2. Conflicting approaches between territoriality, where each country controls assets within its borders, and universalism, where one country's bankruptcy proceedings apply globally. 3. Under universalism, challenges include potential conflicts over jurisdiction, protecting local interests in other countries, and reconciling different bankruptcy laws. Limited universalism aims to balance these issues.

Uploaded by

Chiluka Karunaker
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Cross-border bankruptcy

MAIN ISSUES

DR MAREK PORZYCKI
Scope of application – an international element

the debtor has some assets abroad


the debtor has creditors abroad
the debtor carries out his activities on a cross-border
basis
the debtor is a multinational entity, with
establishments in several countries
the debtor is a multinational entity, carrying out
business in several countries under legal form of
local subsidiaries and in other countries by
establishments
Conflicting approaches

UNIVERSALISM vs. TERRITORIALITY

Territoriality – traditional approach, based on state


sovereignty

Universalism – modern approach, based on cross-


border effects of bankruptcy proceedings
Territoriality

state’s sovereignty  bankruptcy decisions issued by


foreign authorities are neither effective nor
enforceable within this state
decisions issued by the state’s authorities are neither
effective nor enforceable abroad
insolvency proceedings are strictly limited to assets
of the debtor situated within one jurisdiction
Weak point:
Isolated country-based efforts are not able to solve
complex cross-border cases.
Universalism

insolvency proceedings opened in relation to a


debtor affect his entire estate (including assets
located abroad)
foreign insolvency proceedings are recognized and
their effectiveness is guaranteed

Advantage: possible coordination of liquidation or


restructuring efforts in all relevant jurisdictions
Main problems under universalist approach

possibility of conflicts over jurisdiction


taking into account local interests in other
jurisdictions, e.g.
- employees in a debtor’s foreign establishment
- creditors with collateral rights on the debtor’s assets
situated abroad
highly divergent solutions adopted by substantive
insolvency laws – are results of application of foreign
insolvency law acceptable under the basic concepts
of our law?
Solution: limited universalism

Limitations by measures to safeguard local interests,


e.g.
requirement of a formal recognition of foreign
insolvency proceedings by a local court
additional territorial proceedings over the debtor’s
local assets
modification to effects of foreign insolvency
proceedings in order to take into account local
interests
Varying degree of limitations to universalism

European Insolvency Regulation - almost unlimited


universalism – automatic recognition of foreign
insolvency proceedings
UNCITRAL Model Law - more limited version –
formal recognition by local court required
some national laws - narrower grounds for
recognition or even territoriality
Main questions to be regulated under
universalism

Jurisdiction
- which country’s courts have jurisdiction to open
insolvency proceedings against a debtor?
Possible grounds for jurisdiction: registered office,
center of main interests (COMI), possessing assets in
the country, possessing establishment in the country,
domicile, habitual residence (natural persons)
Avoiding overlapping jurisdictions – is a country’s
jurisdiction exclusive? How are proceedings in
various countries coordinated?
Main questions to be regulated under
universalism
Applicable law
which material law is applicable to the effects of
foreign bankruptcy proceedings? Extent of the
application of the law of the state of the opening of
the proceedings (lex fori concursus). Exceptions –
application of local law in some cases.
Additional reading

I. Fletcher, Insolvency in Private International Law,


2nd edition, OUP 2005 – Chapter 1: Theory and
Principle in Cross-Border Insolvency, parts 1.1 and
1.2 (pp. 3-17)
S.M. Franken, Three Principles of Transnational
Corporate Bankruptcy Law: A Review, European
Law Journal Vol. 1, No. 2, March 2005, pp. 3-9
(available at http://arno.uvt.nl/show.cgi?fid=12172 )

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