Vol 1 (2004) - Issue 3

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Achieving Success in Transatlantic Restructuring

Introduction

The figures speak for themselves: from 1994 to 2002 the UK has consistently received the highest percentage of US worldwide direct investment for any one country. During 2002, US direct investment in the UK was USD 18.9 billion, representing 15.8% of the US direct investment worldwide, almost double that in 1994.
The investment is reciprocal: during 2002, UK investment in the US was USD 14.9 billion (49.5% of UK worldwide direct investment). The US ranked as the first or second highest recipient of UK overseas investment between 1994 and 2002 in eight out of nine years. Perhaps even more pertinent is the concentration of the UK’s investment in the US. While direct investment in the US had increased by 2002 to approximately 150% of that in 1994, total worldwide investment had decreased by almost a third.
With such volume of investment, it is inevitable that failures will occur. However, there is currently no established set of international rules to govern the interaction of US and UK insolvency and restructuring methods.


UNCITRAL

In 1997, the United Nations Commission on International Trade (‘UNCITRAL’) began to take steps towards global convergence with regard to insolvency legislation through the creation of a Model Law (the ‘Model Law’). The model is intended for use during cross-border insolvency proceedings where there is court intervention and/or supervision - ideal for UK/US scenarios. It attempts to move away from a territorial approach to insolvency procedures to a more universal approach by preventing local realization of assets.
The Model Law provides a template for uniformity of approach without intruding on the sovereignty of individual states with an inappropriate ‘one size fits all’ remedy. It is, however, only a model, and its flexibility is also its weakness. To date, neither the US nor the UK have incorporated it into insolvency or restructuring legislation, although there are changes on the horizon. The US is proposing to introduce legislation in accordance with the Model Law as Chapter 15 to the Bankruptcy Code (‘the Code’). Although the UK has not adopted it, there is provision in IA 2000 to give effect to the Model Law with or without modification.
The Model Law, while not providing an immediate remedy to the mismatches that exist between domestic procedures in international insolvencies and restructuring cases, has created a meeting ground for insolvency practitioners around the world to assist in the move towards a congruent global insolvency system.
This is a slow evolution, perhaps evidencing resentment towards lengthening the reach of foreign jurisdiction. However, as international investment has grown and international companies have failed, the need for synthesis in legislation between different jurisdictions is becoming clearer. Implementation of global legislation and global jurisdiction would promote equity and expediency, creating incentives for investors and lenders. However, this is inevitably at the cost of replacing a domestic regime that in all likelihood protects and favours domestic companies and creditors.
The cultural divergence between the attitude towards failing businesses in the UK and that held in the US is reflected in the presentation of restructuring procedures. As these differences have arisen, legislation has developed to support two different judicial systems which have become familiar to their domestic business population. During international reorganizations, professionals are left to depend upon the national laws of one or other or both of the jurisdictions that are both unfamiliar to non-domestic creditors and may actually conflict with the domestic legislation.



Chapter 11 and Administration

Until such time as there is internationally recognized legislation, investors are instead left hoping to recoup as much as they can using the procedures available, namely Chapter 11 of the Code in the US and Administration in the UK.