Vol 7 (2010) - Issue 6

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The Need for an Effective Approach to Cross-Border Insolvency

Introduction
The growth of international enterprise over the past two decades has been truly prolific. While business has encountered relatively few obstacles in transcending national borders, the same cannot be said for the legal regimes that attempt to govern such activity. There has always been a game of regulatory catch-up in this regard. For a cross-border system to effectively address the failures of a multinational company it must recognise the need for cooperation and coordination. The recent financial climate has regenerated interest in the study of international insolvency law and calls into question the validity of the present position. The purpose of this article is to explore the need for an effective approach to cross-border insolvency. In measuring the extent to which current responses meet expectations this article will examine the difficulties that underscore any attempt to devise a valid international insolvency regime.

What is International Insolvency?
A cross-border insolvency situation will arise where a debtor's operations fall within a multiplicity of jurisdictions. International insolvency proceedings therefore transpire where '… the dispersal of the debtor's assets and activities generates a spread of interests and claims involving the potential application of more than a single system of law'. Such an occurrence means important decisions must be made over three fundamental issues – namely; the jurisdiction in which proceedings can be initiated; the particular country's rules of law to be applied and; the effect these rules will have on the proceedings at hand (including the recognition and enforcement of these rules). Given the absence of a homogeneous and universally accepted legal framework, these factors have been incorporated within private international law so as to enable any office holder to determine how to handle a debtor’s affairs in the event of insolvency. The growing importance of an effective approach to cross-border insolvency has, however, '… fuelled the quest for improved solutions'. Attempts to effect such improvements have included the revision of domestic legislation to further a more 'international' stance and the introduction of multilateral or bilateral conventions to coordinate State responses to common cross-border insolvency concerns.
Historically, two perspectives have governed how to approach the subject of cross-border insolvency. The 'territoriality' approach refers to jurisdiction being limited to that of the State where proceedings were initiated. The effect of this would be to confine the office holder’s reach to that of the respective State's borders. Any assets or liabilities of the debtor in another country will, accordingly, fall outside the remit of the insolvency proceedings in question and remain intact. Alternatively, the 'universalist' approach permits insolvency proceedings opened in one State to take effect wherever the debtor's assets or liabilities may lie. These polarised approaches are now largely viewed as '… too extreme, and [not]… a realistic option for states'. In reality, there have been a number of alternative perspectives put forward which attempt to bridge the two paradigms.