Vol 5 (2008) - Issue 1

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UNCITRAL Model Law Gathers Momentum in Australia

The UNCITRAL Model Law on Cross-Border Insolvency (‘Model Law’) has been introduced into Parliament in Australia. The Cross-Border Insolvency Bill 2007 (‘Bill’) had its second reading speech on 20 September 2007 in the last sitting of Parliament under the current Coalition Government. By the time this article is published, the general election on 24 November 2007 will have occurred.

Whether a new Government is elected or the current Government re-elected, it seems unlikely that the Bill will be enacted in 2007.

The adoption of the Model Law in Australia was first canvassed in a Treasury paper entitled CLERP8 and released in 2002. The Model Law has since seen a raft of legislative changes in the insolvency and restructuring sphere float by, most notably the recent amendments to the Corporations Act 2001 contained in the Corporations Amendment (Insolvency) Act 2007. The Bill anticipates that, once passed, it will have effect upon a day to be fixed by Proclamation, and if no such Proclamation is made, following a period of six months after Royal Assent. Even if passed in the near future, the Bill may not take effect until late 2008.

Readers of this journal will be familiar with the Model Law conceptually, particularly following adoption in the UK and USA. As a general comment, the Bill takes a conservative line by annexing the Model Law in its entirety, but with comments on its application in the operative parts of the Bill. The Bill is generally consistent with the original intention of the drafters with minimal changes, mainly to meet local conditions.

For those unfamiliar with the Model Law and as a refresher for those who are, the objectives of the Model Law are:

(a) Cooperation between the courts and other competent authorities of the State and foreign States involved in cases of cross-border insolvency;
(b) Greater legal certainty for trade and investment;
(c) Fair and efficient administration of cross-border insolvencies that protects the interests of all creditors and other interested persons, including the debtor;
(d) Protection and maximisation of the value of the debtor’s assets; and
(e) Facilitation of the rescue of financially troubled businesses, thereby protecting investment and preserving employment.

To achieve these objectives, the Model Law:
(a) Sets out the conditions under which persons administering a foreign insolvency proceeding have access to local courts;
(b) Sets out the conditions for recognition of a foreign insolvency proceeding and for granting relief to the representatives of such a proceeding;
(c) Permits foreign creditors to participate in local insolvency proceedings;
(d) Permits courts and insolvency practitioners from different countries to co-operate more effectively; and
(e) Makes provision for co-ordination of insolvency proceedings that are taking place concurrently in different States.

The Bill anticipates that regulations will be drafted; a draft of the regulations was not provided although some of the intended contents are alluded to in the Explanatory Memorandum. The Bill also is intended to apply to both personal insolvency and corporate insolvency, which are dealt with separately under Australian Law. The Bankruptcy Act 1996 addresses personal insolvency and the Corporations Act 2001 addresses corporate insolvency.

Some of the notable aspects of the manner in which the Bill proposes to enact the Model Law are set out below. We focus on only the corporate insolvency provisions for the purposes of this article.