International Insolvency

Samuel L. Bufford

Louise DeCarl Adler

Sidney B. Brooks

Marcia S. Krieger

Federal Judicial Center 2001

This Federal Judicial Center publication was undertaken in furtherance of the Center’s statutory mission to develop and conduct education programs for judicial branch employees. The views expressed are

those of the authors and not necessarily those of the Federal Judicial

Center.
iii

Contents

Preface v

I. Introduction 1

A. Nature of International Insolvencies 1

B. Universality vs. Territoriality 3

II. Domestic Cases and Proceedings with Transnational Aspects 7

A. Domestic Subject-Matter Jurisdiction for Main Case 7

1. Assets in the United States 8

2. Foreign Affiliates 9

3. Sharing Jurisdiction: District and Bankruptcy Courts 9

B. Creditors Abroad 10

C. Assets Abroad 11

1. Extraterritorial Application of U.S. Bankruptcy Laws 13

2. Reach of the Automatic Stay and the Discharge

Injunction 15

3. Exercising Avoidance Powers 19

4. Debtor in Possession 21

5. Foreign Proceeding to Assist Domestic Case 22

III. Foreign Cases with Domestic Aspects 25

A. Ancillary Proceedings Under Section 304 26

1. Features of a Section 304 Proceeding 26

2. Powers of the Court 32

3. Nature of Foreign Proceeding 34

4. Order of Distribution of Estate Assets 35

5. International Comity 36

6. Choice of Venue 43

7. Procedure 44

B. Personal Jurisdiction Over Domestic Parties 47

C. Declining to Exercise Domestic Jurisdiction 48

1. Abstention 49

2. Forum Non Conveniens 51
International Insolvency

iv

IV. International Conventions and Other Sources of International

Bankruptcy Law 53

A. UNCITRAL Model Law on Cross-Border Insolvency 55

1. Definitions 57

2. Application of the Model Law 59

3. Access of Foreign Representatives and Creditors to

Courts 60

4. Recognition of Foreign Proceeding and Relief 61

5. Cooperation and Communication with Foreign Courts and

Foreign Representatives 65

6. Concurrent Proceedings 66

B. North American Free Trade Agreement (NAFTA) 68

1. General Principles 69

2. Procedural Principles 70

C. European Union Regulation on Insolvency Proceedings 75

1. Jurisdiction and Choice of Law 78

2. Recognition of Main Proceedings 80

3. Secondary Proceedings 81

4. Receiving Information and Filing Claims 83

5. Entry into Force and Retroactivity 84

D. Concordat 85

E. Protocols 88

V. Procedural Issues in Transnational Insolvency Cases 91

A. Appropriate Venue for the Transnational Case 91

B. Notice to Creditors 92

C. Communication Between Judges 93

D. Conflict of Laws in International Insolvency Cases 94

E. Distribution to Creditors 96

Appendices

A. Cross-Border Insolvency Concordat 99

B. UNCITRAL Model Law on Cross-Border Insolvency 119

C. European Union Regulation on Insolvency Proceedings 133
v

Preface

This monograph was conceived by the International Law Relations

Committee of the National Conference of Bankruptcy Judges while

Judge Marcia S. Krieger was chair of the committee. The purpose of

this monograph is to provide a ready reference for federal judges, including federal bankruptcy judges, on the law governing insolvency

cases with transnational dimensions and, where appropriate, to provide some guidance. With the growing internationalization of economic relations and business empires, these issues arise with increasing frequency in the federal courts.

This monograph summarizes the statutory and case-law authority

on international insolvency. The sources of law on this subject are

undergoing rapid change. While U.S. statutes and case law traditionally have been the primary sources of law in this area, they are being

supplemented by a model law in many countries and by regulation in

the European Union.

About the Authors

The authors are U.S. bankruptcy court judges: Samuel L. Bufford,

Central District of California; Louise DeCarl Adler, Southern District

of California; Sidney B. Brooks, District of Colorado; and Marcia S.

Krieger, District of Colorado. They serve on the International Law

Relations Committee of the National Conference of Bankruptcy

Judges.

The authors are grateful to the many people who assisted in the

preparation of this monograph. Judge Bufford is especially grateful to

his wife Julia Metzger, who endured the long evenings and weekends

while Judge Bufford was writing the lion’s share of the monograph.

Judge Bufford also acknowledges particularly the able assistance provided by his law clerks Chelsea Sneed, Rafael Zahralddin, and Deana

Chuang, and by his judicial assistant Gloria Fouse. Judge Adler

gratefully acknowledges the assistance of her law clerk Ole Oleson

and judicial extern Raquel Koch in preparing her portion.
1

I. Introduction

The insolvency or reorganization of a multinational enterprise facing

financial difficulties can present extremely complex international legal

problems. This monograph deals with transnational or cross-border

insolvencies and the legal regime that governs the resolution of these

controversies.

A. Nature of International Insolvencies

In its simplest form, a transnational insolvency may involve an insolvency proceeding in one country, with creditors located in at least

one additional country. In the most complex case, it may involve

subsidiaries, assets, operations, and creditors in dozens of nations.1 

One of the most noteworthy features of international bankruptcy

law is the lack of legal structures, either formal or informal, to deal

with an insolvency that crosses national borders. In addition, problems unique to transnational insolvency cases require special consideration.

A number of large international insolvencies in recent years have

brought to the forefront the importance of developing a system for

dealing with such insolvencies. For example, Maxwell Communication

Corp. v. Société Générale (In re Maxwell Communication Corp.)2 involved

a media empire headquartered and managed in England with corporate entities and assets in the United Kingdom, the United States, and

Canada, and thus involved numerous insolvency proceedings in both

1 . See, e.g., Maxwell Communication Corp. v. Société Générale (In re Maxwell Communication Corp.), 93 F.3d 1036 (2d Cir. 1996) (involving two main proceedings, one in the

United States and one in the United Kingdom). See also United States v. BCCI Holdings (Luxembourg) S.A., 48 F.3d 551 (D.D.C. 1995) (involving subsidiary banks operating in some 75

countries and proceedings in the United Kingdom and the United States); In re Olympia &

York Dev. Ltd., [1993] 12 O.R.3d 500 (Ont. Gen. Div.) (proceedings in Canada and the

United States); In re Maruko Inc., 160 B.R. 633 (Bankr. S.D. Cal. 1993) (proceedings in the

United States, Japan, and Australia); In re Axona Int’l Credit & Commerce Ltd., 88 B.R. 597

(Bankr. S.D.N.Y. 1988) (proceedings in Hong Kong and the United States).

2 . 93 F.3d 1036 (2d Cir. 1996).
International Insolvency

2

the United Kingdom and the United States.3 United States v. BCCI

Holdings (Luxembourg) S.A.4 involved the liquidation of a parent bank

headquartered in Luxembourg with banking establishments in some

seventy-five countries.5 In re Olympia & York Developments Ltd.6 involved real estate empires in both the United States and Canada. In re

Maruko7 involved a Japanese corporation with businesses in Japan,

Australia, and the United States, and insolvency proceedings in each

of those countries. In each of these cases, and in many others, the

existing insolvency regimes of the applicable countries were insufficient to deal with the transnational legal problems.

Cross-border insolvency problems are not limited to the failure of

major international businesses. Even in small cases, assets may be located in various countries, for good or for bad reasons. A domestic

business may have foreign branches or subsidiaries, or a foreign business may have domestic branches or subsidiaries. Property located in a

foreign country may provide security for a debt so that domestic assets can be used to pay unsecured creditors. Foreign creditors may

have valid claims in domestic bankruptcy cases, and domestic creditors may have valid claims in foreign bankruptcy cases. Any one of

these situations raises a transnational insolvency problem.

The increase in transnational insolvencies arises from the growth

in international trade. Traditionally, banking institutions financed

international transactions through letters of credit and resolved any

problems that arose when particular debtors were unable to settle

their international accounts. The growth of multinational businesses

in the twentieth century has largely bypassed the banking system and

created the possibility of transnational insolvencies.

3 . Maxwell presents perhaps the most innovative solution to these problems: The U.S.

bankruptcy judge appointed an examiner to harmonize the British and U.S. proceedings to

permit a reorganization under U.S. law that would maximize the return to creditors. Maxwell,

93 F.3d at 1042. The examiner ultimately succeeded in negotiating a joint plan of reorganization under U.S. law and a scheme of administration under English law that provided for the

partial reorganization and partial liquidation of the Maxwell empire.

4 . BCCI Holdings, 48 F.3d at 551.

5 . Id.

6 . In re Olympia & York Devs. Ltd., [1993] 12 O.R.3d 500 (Ont. Gen. Div.).

7 . In re Maruko Inc., 160 B.R. 633 (Bankr. S.D. Cal. 1993).
I. Introduction

3 

The impact of international insolvency law is not limited to the

legal issues involved in the pathology of failed and failing businesses.

International insolvency law is also a major front-end factor in international investment and the extension of international credit. The

availability and effectiveness of insolvency procedures is an important

point in assessing nonmarket risk:8 It is thus an important investment

consideration for both private investors and public institutions such as

the World Bank and the International Monetary Fund.

The legal rules governing insolvency law and practice are rooted

deeply in the legal traditions of individual countries.9 In part this

arises because insolvency law preempts and supersedes many rules of

both substantive and procedural law. Moreover, the importance of

national economic interests varies from country to country, resulting

in very different insolvency laws.

B. Universality vs. Territoriality

Multinational insolvency proceedings frequently result in competing

interests among the jurisdictions involved. The two dominant models

for addressing international insolvency problems are universality and

territoriality. Under the universality approach, toward which U.S.

courts are moving, an international insolvency case is treated, insofar

as possible, as a single case and the creditors treated equally wherever

they might be located. Under the territoriality approach, each country looks out for its own creditors before contributing assets to pay

creditors in other countries.

Under the territoriality approach, each nation conducts its own

insolvency proceeding with respect to the assets located within its

jurisdiction and disregards any parallel proceedings in a foreign nation. The court uses “local assets to satisfy local claimants in local proceedings with little regard for proceedings or parties elsewhere . . . .”1 0 Territoriality takes the pessimistic view that local

8 . See Harold S. Burman, Private International Law, 32 Int’l Law. 591, 592 (1998).

9 . See Manfred Balz, The European Union Convention on Insolvency Proceedings, 70 Am. Bankr.

L.J. 485, 486 (1996) [hereinafter Balz].

1 0 . Maxwell Communication Corp. v. Barclays Bank (In re Maxwell Communication

Corp.), 170 B.R. 800, 816 (Bankr. S.D.N.Y. 1994), aff’d, 186 B.R. 807 (S.D.N.Y. 1995), aff’d,

93 F.3d 1036 (2d Cir. 1996). See generally Charles Booth, Recognition of Foreign Bankruptcies: An
International Insolvency

4

claimants ultimately will not receive their fair share of the assets in a

foreign insolvency. Consequently, under this approach a local court

must provide for these creditors as well as possible, given the assets

within the court’s jurisdiction.

Under the universality approach, a single forum should apply “a

single legal regime to all aspects of a debtor’s affairs on a worldwide

basis.”1 1 Universality is based on the assumption that, without coordination of laws and courts of different jurisdictions in transnational

cases, the optimal use and distribution of assets cannot be accomplished, and asset waste and turmoil are certain to result.1 2 

In practice, no country applies either the universality or territoriality approach without modification.1 3 United States bankruptcy law

follows a modified form of universality, which accepts as its central

premise that assets should be collected and distributed on a worldwide basis.1 4 This view rests on the assumption that, in a system of

international cooperation, any loss to local interests in one case will

be roughly balanced by a gain in another case, while commerce in

general will benefit greatly from the application of predictable rules.1 5 

However, U.S. law reserves to local courts the discretion to evaluate

the fairness of home country procedures and to protect the interests

of local creditors in certain circumstances.1 6 The enactment of BankAnalysis and Critique of the Inconsistent Approaches of United States Courts, 66 Am. Bankr. L.J. 135,

137–38 (1992); Lawrence J. Westbrook, Choice of Avoidance Law in Global Insolvencies, 17 Brook.

J. Int’l L. 499 (1991).

1 1 . See Maxwell, 170 B.R. at 816; see also In re Hourani, 180 B.R. 58, 63 n.9 (Bankr.

S.D.N.Y. 1995).

1 2 . See Hourani, 180 B.R. at 63–64.

1 3 . See André J. Berends, The UNCITRAL Model Law on Cross-Border Insolvency: A Comprehensive Overview, 6 Tul. J. Int’l & Comp. L. 309, 314 (1998) [hereinafter Berends].

1 4 . See id.; Bank of New York v. Treco (In re Treco), 240 F.3d 148, 154 (2d Cir. 2001).

But see Hong Kong & Shanghai Banking Corp. v. Simon (In re Simon), 153 F.3d 991, 998 (9th

Cir. 1998) (taking the view that the U.S. Bankruptcy Code adopts neither a universalist nor a

territorialist theory, but instead adopts a flexible approach dependent on the circumstances of

each individual case), cert. denied, 525 U.S. 1141 (1999).

1 5 . See Hourani, 180 B.R. at 64–67; Jay Westbrook, Theory and Pragmatism in Global Insolvencies: Choice of Law and Choice of Forum, 65 Am. Bankr. L.J. 457, 464–66 (1991).

1 6 . See Hourani, 180 B.R. at 64–70; Simon, 153 F.3d at 998.
I. Introduction

5 

ruptcy Code § 3041 7 was a substantial step in the direction of the universality approach.1 8 

1 7 . 11 U.S.C. § 304 (2000).

1 8 . See Treco, 240 F.3d at 154.
7

II. Domestic Cases and Proceedings

with Transnational Aspects

Two kinds of bankruptcy proceedings are available in the United

States for transnational insolvency cases. The most typical case is a

main bankruptcy case, which may be filed under any chapter of the

U.S. Bankruptcy Code. Such a case invokes all of the provisions of

the Bankruptcy Code applicable to the case under the chapter selected. Transnational issues typically arise in such a case where there

are foreign creditors or estate assets located abroad.

The second kind of proceeding is an ancillary proceeding under

Bankruptcy Code § 3041 9 —such a proceeding is designed to be ancillary to a main insolvency case pending in another country.2 0 A proceeding under section 304 permits a domestic court to take a wide

variety of actions in aid of a foreign insolvency proceeding. However,

a section 304 proceeding is not a bankruptcy “case” in the United

States, and the range of applicable Bankruptcy Code provisions is

limited.

While there is substantial case law interpreting this statute, there

are few secondary sources to alert a judge or lawyer to the issues

arising thereunder.

A. Domestic Subject-Matter Jurisdiction for Main Case

A U.S. court has its greatest power in a transnational case when the

main case is filed in a U.S. court. Such a case may arise under U.S.

bankruptcy law or under a U.S. nonbankruptcy insolvency system for

banking institutions or insurance companies that are not eligible for

relief under the Bankruptcy Code.2 1 

1 9 . 11 U.S.C. § 304 (2000); In re International Admin. Servs., Inc., 211 B.R. 88 (Bankr.

M.D. Fla. 1997). See infra text accompanying notes 125–47.

2 0 . The term ancillary proceeding describes an auxiliary or subordinate proceeding that aids or

attends upon another proceeding considered as principal. See Black’s Law Dictionary 86 (6th

ed. 1990).

2 1 . An insolvent banking institution is put into receivership in federal or state court (depending on whether the bank is chartered by the federal or a state government) and adminis-
International Insolvency

8

1. Assets in the United States

Any person who resides or has a domicile, place of business, or property in the United States is eligible to file a main bankruptcy case in

the United States.2 2 Even minimal connections with the United States

are sufficient to meet these standards, absent bad faith.2 3 United States

jurisdiction may be based on a single bank account in the United

States.2 4 A “dollar, a dime or a peppercorn” may even provide a sufficient basis for U.S. jurisdiction for a main case.2 5 

If the debtor engages in bad faith, however, minimum contacts

may not suffice. For example, the opening of a bank account in the

United States in an effort to create U.S. bankruptcy court jurisdiction

may not provide a sufficient basis for U.S. jurisdiction.2 6 In addition,

the ownership of property, such as a vacation home in the United

States, may not provide a sufficient basis for jurisdiction if the debtor

is engaging in a bad faith effort to avoid choice-of-forum and choiceof-law clauses in contracts with the principal creditors.2 7 

tered by the Federal Deposit Insurance Corporation. 12 C.F.R. §§ 300–312 (2000). An insolvent insurance company is taken over by its state insurance commissioner and administered in a

state court receivership. See, e.g., Cal. Ins. Code §§ 1010–1062 (West 2000).

2 2 . See 11 U.S.C. § 341(a) (2000).

2 3 . But see In re Phoenix Summus Corp., 226 B.R. 379, 381 (Bankr. N.D. Tex. 1998)

(dismissing case because debtor had no assets in the United States or abroad).

2 4 . In re Iglesias, 226 B.R. 721, 722–23 (Bankr. S.D. Fla. 1998) (bank account containing

$522); Bank of Am. v. World of English, N.V., 23 B.R. 1015, 1022 (N.D. Ga. 1982) (bank

account); In re Spanish Cay Co., 161 B.R. 715, 721–22 (Bankr. S.D. Fla. 1993) (storage of

marketing information, advertising materials, and equipment on a sailboat, together with maintaining a bank account).

2 5 . See In re McTague, 198 B.R. 428, 431–32 (Bankr. W.D.N.Y. 1996) (finding that bank

account of $194 was sufficient to support U.S. jurisdiction for a bankruptcy case filed by a

Canadian citizen, where the debtor had other transactions in the United States). But see In re

Head, 223 B.R. 648 (Bankr. W.D.N.Y. 1998) (finding Canadian citizens with insubstantial

U.S. ties could not invoke U.S. bankruptcy court jurisdiction to avoid choice-of-law and

choice-of-forum clauses in contracts with Lloyds of London. The fact that all parties were doing

business in the United States, in the court’s view, was not a sufficient basis for U.S. jurisdiction.).

2 6 . See Head, 223 B.R. at 652.

2 7 . See id. The court found that the debtor had engaged in bad faith, based on the following factors: (1) Canadian nonbankruptcy litigation with Lloyds of London was going badly for

the debtor, and (2) similarly situated U.S. citizens had lost similar nonbankruptcy litigation in

U.S. circuit courts in six circuits. Lloyds is one of the oldest and most prominent insurance

associations in the world. Very significant amounts of its insurance were backed on an unlimited

liability basis by wealthy investors (who became known as Lloyds “Names”). Lloyds experi-
II. Domestic Cases and Proceedings with Transnational Aspects

9 

2. Foreign Affiliates

A question that frequently arises in a transnational insolvency is

whether a foreign affiliate of an entity eligible for bankruptcy in the

United States can be brought into the U.S. bankruptcy courts. Two

requirements must be met to bring such an entity into a U.S. bankruptcy court: First, the affiliate must have sufficient minimum contacts with the United States to satisfy Fifth Amendment due process

concerns;2 8 second, if the affiliate does not voluntarily appear in the

bankruptcy court, it must be capable of being brought there through

the service of process under Federal Rule of Bankruptcy Procedure

7004(a), which incorporates by reference Federal Rule of Civil Procedure 4(f).

3. Sharing Jurisdiction: District and Bankruptcy Courts

United States district courts, not the bankruptcy courts, have original

and exclusive jurisdiction over all bankruptcy cases.2 9 A district court

is authorized to refer bankruptcy cases to the bankruptcy court in its

district,3 0 and in fact each judicial district has issued a general order

referring all bankruptcy cases to the bankruptcy court of the district.

A district court has the power to withdraw this reference for an individual case or a portion thereof, and thereafter the case or proceeding

is heard in the district court rather than in the bankruptcy court.3 1 A

district court may also withdraw its general order of reference, but no

court has done so since a general order of reference was authorized in

1984.3 2 

enced a period of major claims, and looked to its Names to cover the losses on their particular

policies. This led to significant litigation, and ultimately the bankruptcy of some of the Names.

2 8 . Levant Line, S.A. v. Marine Enters. Corp. (In re Levant Line, S.A.), 166 B.R. 221,

233–34 (Bankr. S.D.N.Y. 1994).

2 9 . See 28 U.S.C. § 1334(a) (2000).

3 0 . See id. § 157(a); see also In re Kingscroft Ins. Co., 138 B.R. 121, 123 (Bankr. S.D. Fla.

1992).

3 1 . See 28 U.S.C. § 157(d) (2000).

3 2 . In 1997 the District of Delaware withdrew its general order of reference as to Chapter

11 cases only, and thereafter has referred such cases to the bankruptcy court in the district on a

case-by-case basis. The general order of reference was reinstated effective February 1, 2001, was

again withdrawn as to Chapter 11 cases on April 6, 2001, and was reinstated again effective

October 6, 2001.
International Insolvency

10

Under this same sharing of jurisdiction, federal district courts and

bankruptcy courts have original but not exclusive jurisdiction over all

civil proceedings arising under the Bankruptcy Code or arising in or

related to a bankruptcy case.3 3 

If a proceeding (i.e., a dispute or controversy) in a bankruptcy case

arises under the Bankruptcy Code, or arises in a bankruptcy case, it is

a “core” proceeding, and the bankruptcy court has full jurisdiction to

adjudicate the proceeding.3 4 The adjudication is subject to review

only by appeal. In contrast, in a proceeding that is only “related” to a

bankruptcy case, the bankruptcy judge must submit proposed findings

of fact, conclusions of law, and a judgment to the district court,

which reviews de novo any matters to which a timely objection has

been made.3 5 A proceeding is “related” to a bankruptcy case if the

proceeding could have been filed in another court absent the bankruptcy case but its outcome could conceivably affect the estate being

administered in bankruptcy,3 6 or it could alter the debtor’s rights, liabilities, options, or freedom of action (either positively or negatively).3 7 A U.S. bankruptcy court has no subject-matter jurisdiction

over a matter that is neither a core matter in a bankruptcy case nor a

related matter.3 8 

B. Creditors Abroad

The most common form of transnational reach in a domestic bankruptcy case occurs where a domestic debtor has foreign creditors. In

such a case, the main problems arise in connection with giving notice

to these creditors and giving them a meaningful opportunity to make

claims in the case.3 9 

3 3 . See 28 U.S.C. § 1334(b) (2000).

3 4 . See id. § 157(b)(1).

3 5 . See id. § 157(c)(1).

3 6 . See, e.g., Honigman, Miller, Schwartz & Cohn v. Weitzman (In re DeLorean Motor

Co.), 155 B.R. 521, 525 (B.A.P. 9th Cir. 1993); American Hardwoods, Inc. v. Deutsche

Credit Corp. (In re American Hardwoods, Inc.), 885 F.2d 621, 623 (9th Cir. 1989).

3 7 . See, e.g., American Hardwoods, 885 F.2d at 623.

3 8 . See, e.g., Congress Credit Corp. v. AJC Int’l, Inc., 42 F.3d 686, 690 (1st Cir. 1994);

Gallucci v. Grant (In re Gallucci), 931 F.2d 738, 741 (9th Cir. 1991).

3 9 . For a more detailed discussion of notice, see infra text accompanying notes 575–77.
II. Domestic Cases and Proceedings with Transnational Aspects

1 1 

Notice to domestic creditors of the filing of a bankruptcy case is

normally given by U.S. mail.4 0 For most U.S. bankruptcy cases, this

notice is generated by the Bankruptcy Noticing Center in Northern

Virginia and mailed to all creditors named on the list provided by the

debtor at the time the case is filed. This notice also informs creditors

of the date, time, and location of the meeting of creditors, where the

debtor must appear to be examined under oath.4 1 Similarly, the Noticing Center sends notices of the deadline for filing claims and for a

number of other purposes.

The notice to creditors of the filing of a bankruptcy case is sent

only in English, even though the foreign creditor may have no

knowledge of the language. Thus a foreign creditor may have to obtain a translation of the notice (which is quite lengthy) in order to

learn about the creditor’s rights. By the time the notice is translated it

may be too late to participate in the meeting of creditors4 2 and perhaps even too late to file a timely claim.4 3 

C. Assets Abroad

The filing of a bankruptcy case in the United States creates an estate,4 4 

which is a separate legal entity that owns (with minor exceptions) all

of the property belonging to the debtor at the time of filing,4 5 including assets located outside the United States.4 6 However, the trustee (or the debtor in possession in a Chapter 11 case) may have diffi4 0 . See Fed. R. Bankr. P. 2002.

4 1 . See 11 U.S.C. § 341(a) (2000).

4 2 . The meeting of creditors must be scheduled between 20 and 40 days after the filing of

the bankruptcy case (except in a Chapter 13 case, where the meeting may be scheduled as late

as 50 days after the filing of the case). See Fed. R. Bankr. P. 2003.

4 3 . The deadline for filing a claim in a Chapter 7, 12, or 13 case is 60 days after the date

first set for the meeting of creditors. See Fed. R. Bankr. P. 3002. In a Chapter 11 case, the

deadline is set by court order individually in each case. A late claim in a Chapter 7 case is subordinated to all timely filed claims. A plan in a Chapter 11, 12, or 13 case usually provides for

the non-payment of any late claim.

4 4 . See 11 U.S.C. § 541 (2000).

4 5 . See Hanover Nat’l Bank v. Moyses, 186 U.S. 181, 191 (1902).

4 6 . See 11 U.S.C. § 541(a) (2000); 28 U.S.C. § 1334(e) (2000); Lykes Bros. S.S. Co. v.

Hanseatic Marine Serv. (In re Lykes Bros. S.S. Co.), 207 B.R. 282, 287 (Bankr. M.D. Fla.

1997); Maxwell Communication Corp. v. Barclays Bank (In re Maxwell Communication

Corp.), 170 B.R. 800, 811 (Bankr. S.D.N.Y. 1994), aff’d, 186 B.R. 807 (S.D.N.Y. 1995), aff’d,

93 F.3d 1036 (2d Cir. 1996).
International Insolvency

12

culty in a foreign country obtaining recognition that the assets belong

to the estate and are subject to administration in the U.S. bankruptcy

court.

A bankruptcy case in the United States is essentially an in rem proceeding, involving the treatment of the assets of the estate created by

the bankruptcy filing.4 7 If the debtor is an individual, the debtor is

entitled to exclude from the estate any property that is exempted

from execution4 8 to enforce a court judgment.4 9 

The recovery of assets located abroad poses a typical problem of

jurisdiction over foreign entities. Because bankruptcy law provides

for nationwide service of process,5 0 minimum contacts with a particular state are not required to establish bankruptcy court jurisdiction.5 1 However, minimum contacts with the United States are required.5 2 In addition, process must be validly served,5 3 which may

require service abroad under Federal Rule of Civil Procedure 4(f).5 4 If

sufficient contacts with the United States do not exist, the estate representative must go to a country with sufficient jurisdictional grounds

to proceed against the holder of the assets.5 5 This country will usually

be the country where the assets are located.

4 7 . See Hong Kong & Shanghai Banking Corp. v. Simon (In re Simon), 153 F.3d 991, 996

(9th Cir. 1998), cert. denied, 525 U.S. 1141 (1999).

4 8 . “Execution” is the enforcement procedure by which a judgment creditor can force the

judgment debtor to pay a money judgment.

4 9 . United States exemption law is complex. The Bankruptcy Code sets forth a system of

federal exemptions. See 11 U.S.C. § 522 (2000). However, it also permits states to opt out of

the federal exemption system and to apply their state-law exemptions instead. Thirty-five states

have opted out of the federal system. 14 Collier on Bankruptcy, Intro 4 (Lawrence P. King ed.,

15th ed. 2000) [hereinafter Collier]. Thus, in most cases the exemptions that an individual

debtor enjoys are those provided by the state of the debtor’s domicile.

5 0 . See Fed. R. Bankr. P. 7004(d).

5 1 . See Ace Pecan Co. v. Granadex Int’l Ltd. (In re Ace Pecan Co.), 143 B.R. 696, 698

(Bankr. N.D. Ill. 1992); see infra text accompanying notes 273–80.

5 2 . See id. at 700.

5 3 . While Fed. R. Bankr. P. 7004(b) authorizes service by mail on domestic defendants,

this does not apply for defendants located abroad. See Bonapfel v. Cascade Imperial Mills, Ltd.

(In re All American of Ashburn, Inc.), 78 B.R. 355, 356 (Bankr. N.D. Ga. 1987). Instead, Rule

7004(a) incorporates by reference the international service provisions of Fed. R. Civ. P. 4(f).

5 4 . See also Convention on the Service Abroad of Judicial and Extrajudicial Documents in

Civil or Commercial Matters, Nov. 15, 1965, 20 U.S.T. 361, 658 U.N.T.S. 163 (Hague Convention).

5 5 . See All American, 78 B.R. at 356.
II. Domestic Cases and Proceedings with Transnational Aspects

1 3 

A special problem regarding assets located abroad has arisen with

respect to “asset protection plans.”5 6 Under an asset protection plan, a

domestic entity transfers assets into a foreign jurisdiction with laws

that make the recovery or collection of judgments or debt obligations

extremely difficult. In such circumstances, it is usually necessary to

proceed in the jurisdiction where the assets are located.

1. Extraterritorial Application of U.S. Bankruptcy Laws

Two canons of statutory construction are important in determining

the extraterritorial application of U.S. bankruptcy laws.5 7 First, there

is a long-standing principle of U.S. law that congressional legislation

is meant to apply only within the United States unless a contrary intent appears.5 8 Contrary intent may appear in the statute itself, in its

legislative history, or in any administrative interpretations of the statute.5 9 If congressional intent concerning the extraterritorial application of a statute cannot be divined from these sources, the court may

examine other factors to determine whether the presumption against

extraterritorial application should be applied.6 0 

Two general exceptions to the rule of territorial applicability are

recognized. First, the presumption generally does not apply “where

the failure to extend the scope of the statute to a foreign setting will

result in adverse effects within the United States.”6 1 Second, the presumption does not apply where the regulated conduct is “intended

to, and results in, substantial effects within the United States.”6 2 

5 6 . See, e.g., FTC v. Affordable Media, LLC, 179 F.3d 1228, 1238–43 (9th Cir. 1999)

(describing asset protection plan where assets were deposited in Cook Islands trust, and affirming order holding parties in civil contempt for failure to repatriate funds pursuant to court order).

5 7 . See Hartford Fire Ins. Co. v. California, 509 U.S. 764, 813–15 (1993).

5 8 . See id. at 813–14; see also EEOC v. Aramco, 499 U.S. 244, 248 (1991); Foley Bros. v.

Filardo, 336 U.S. 281, 285 (1949).

5 9 . See Aramco, 499 U.S. at 248, 258–59 (statute or legislative history); Foley, 336 U.S. at

288–90.

6 0 . See Hong Kong & Shanghai Banking Corp. v. Simon (In re Simon), 153 F.3d 991, 995

(9th Cir. 1998), cert. denied, 525 U.S. 1141 (1999).

6 1 . See id. (quoting Environmental Defense Fund, Inc. v. Massey, 986 F.2d 528, 531 (D.C.

Cir. 1993)).

6 2 . See id. (quoting Laker Airways, Ltd. v. Sabena, Belgian World Airlines, 731 F.2d 909,

925 (D.C. Cir. 1984)).
International Insolvency

14

If the presumption against extraterritoriality has been overcome or

is otherwise inapplicable, a second canon of statutory construction

comes into play: An act of Congress should never be construed to

violate the law of nations if any other construction is possible.6 3 This

canon is wholly independent of the presumption against extraterritoriality.6 4 

There are a number of provisions of U.S. bankruptcy law that

may apply outside the United States.6 5 While case law has addressed a

few of these provisions, many Bankruptcy Code provisions remain

untested in this regard.

The most important Bankruptcy Code provision with extraterritorial effect is the definition of the bankruptcy estate, which includes

all of the assets of the debtor, wherever the assets may be located,

whether within the United States or abroad.6 6 Therefore, the debtor’s

property located outside the United States constitutes property of the

estate, and the bankruptcy court may exercise jurisdiction over it.6 7 If

the domestic court has sufficient personal jurisdiction over the party

in possession of the property, the court may order the party in possession to transfer the property to the trustee (or the debtor in possession), or may order the transfer of the property to the United States.6 8 

It may be necessary to obtain the assistance of a foreign court in

obtaining control of such property.6 9 To obtain assistance, the do6 3 . See Hartford Fire Ins. Co. v. California, 509 U.S. 764, 814–15 (1993); Murray v.

Schooner Charming Betsy, 6 U.S. (2 Cranch) 64, 118 (1804).

6 4 . See Aramco, 499 U.S. at 264 (Marshall, J. dissenting).

6 5 . See, e.g., Simon, 153 F.3d at 996 (stating generally that the Bankruptcy Code has extraterritorial application); see also Maxwell Communication Corp. v. Société Générale (In re Maxwell Communication Corp.), 170 B.R. 800, 811 (Bankr. S.D.N.Y. 1994), aff’d, 186 B.R. 807

(S.D.N.Y. 1995), aff’d, 93 F.3d 1036 (2d Cir. 1996) (foreign bank defendants conceded that

Congress has authority to enforce its laws beyond the territorial boundaries of the United

States).

6 6 . See 11 U.S.C. § 341(a) (2000); see also Simon, 153 F.3d at 996; Hobson v. Travelstead

(In re Travelstead), 227 B.R. 638, 654–55 (D. Md. 1998); In re International Admin. Servs.,

Inc., 211 B.R. 88, 93 (Bankr. M.D. Fla. 1997); In re National Safe Ctr., Inc., 41 B.R. 195, 196

(Bankr. D. Ha. 1984).

6 7 . See, e.g., International Admin. Servs., 211 B.R. at 93.

6 8 . See, e.g., id.; Travelstead, 227 B.R. at 655.

6 9 . See International Admin. Servs., 211 B.R. at 93 (pointing out the necessity of obtaining

foreign judicial assistance); Travelstead, 227 B.R. at 655 (same); see generally infra text accompanying notes 115–18.
II. Domestic Cases and Proceedings with Transnational Aspects

1 5 

mestic trustee or debtor in possession would have to commence an

appropriate proceeding in the foreign court. If the nation where the

property is located has adopted the UNCITRAL Model Law on

Cross-Border Insolvency,7 0 this statute contains a number of provisions to facilitate such assistance. Alternatively, the domestic court

may consider it appropriate to defer jurisdiction to a foreign court for

the determination of the rights of the parties.7 1 

If a creditor files a claim in a bankruptcy case in the United States,

the creditor thereby submits itself to the general jurisdiction of the

bankruptcy court. This gives the bankruptcy court the power to enforce its orders, including the automatic stay, against the creditor with

respect to any assets of the debtor or the estate located anywhere,

domestically or abroad, and with respect to any legal proceeding in

any country.7 2 The Ninth Circuit, for example, has held that a foreign

bank, by filing its bankruptcy claim, forfeits any right to claim that

the bankruptcy court lacks power to enjoin it from proceeding

against non-estate assets in a Hong Kong court.7 3 

The exercise of jurisdiction over a citizen of the United States

does not involve the extraterritorial application of U.S. laws.7 4 United

States law applies to U.S. citizens, wherever they may be located.

2. Reach of the Automatic Stay and the Discharge Injunction

The provision of U.S. bankruptcy law that is most likely to be invoked abroad is the automatic stay resulting from the filing of a

bankruptcy case in the United States. The filing of a bankruptcy case

in the United States imposes an automatic stay,7 5 arising by operation

7 0 . See infra text accompanying notes 323–97.

7 1 . See International Admin. Servs., 211 B.R. at 94 (applying standard of reasonableness).

7 2 . See Simon, 153 F.3d at 997.

7 3 . See id.

7 4 . See Underwood v. Hilliard (In re Rimsat Ltd.), 98 F.3d 956, 961 (7th Cir. 1996).

7 5 . 11 U.S.C. § 362(a) (2000), the automatic stay section, provides:

[Subject to exceptions not relevant here] a petition filed under . . . this title . . .

operates as a stay, applicable to all entities, of–

(1) the commencement or continuation, including the issuance or employment

of process, of a judicial, administrative, or other action or proceeding against the

debtor that was or could have been commenced before the commencement of

the case under this title, or to recover a claim against the debtor that arose before

the commencement of the case under this title;
International Insolvency

16

of law, that prohibits all creditors from taking or continuing any activity to obtain assets of the bankruptcy estate or to collect a debt

owed by the debtor.

In due course, the automatic stay is normally replaced by a discharge injunction, which permanently prohibits all creditors (with

certain exceptions7 6 ) from taking or continuing any activity to collect

a debt from the debtor or the debtor’s assets.7 7 The impact of the discharge injunction is the same as that of the automatic stay.7 8 It thus

has the same extraterritorial effect.7 9 

The automatic stay is the broadest form of injunction available in

a U.S. court. Its application is automatic: It applies from the moment

a bankruptcy case is filed, whether or not a creditor has notice of the

filing.8 0 Any action taken in violation of the stay is either void or

voidable (depending on the judicial circuit in the United States where

the domestic case is filed).8 1 

Under U.S. law, the automatic stay applies worldwide,8 2 whether

or not this is consistent with domestic law in the relevant foreign

country. If a creditor violates the stay anywhere in the world, that

creditor is subject to sanctions in the bankruptcy court in the United

(2) the enforcement, against the debtor or against property of the estate, of a

judgment obtained before the commencement of the case under this title;

(3) any act to obtain possession of property of the estate or of property from

the estate or to exercise control over property of the estate;

(4) any act to create, perfect, or enforce any lien against property of the estate;

(5) any act to create, perfect, or enforce against property of the debtor any lien

to the extent that such lien secures a claim that arose before the commencement

of the case under this title;

(6) any act to collect, assess, or recover a claim against the debtor that arose

before the commencement of the case under this title;

(7) the setoff of any debt owing to the debtor that arose before the commencement of the case under this title against any claim against the debtor . . . .

7 6 . See 11 U.S.C. §§ 523 & 524(b) (2000).

7 7 . See id. § 524(a).

7 8 . See Hong Kong & Shanghai Banking Corp. v. Simon (In re Simon), 153 F.3d 991, 996

(9th Cir. 1998), cert. denied, 525 U.S. 1141 (1999).

7 9 . See id.

8 0 . See 3 Collier, supra note 49, ¶ 362.02.

8 1 . Compare Soares v. Blockton Credit Union (In re Soares), 107 F.3d 969 (1st Cir. 1997)

(action void), with Easley v. Pettibone Mich. Corp., 990 F.2d 905 (6th Cir. 1993) (action voidable). See generally 3 Collier, supra note 49, ¶ 362.11[1] & nn. 1–2.

8 2 . See, e.g., Nakash v. Zur (In re Nakash), 190 B.R. 763, 768 (Bankr. S.D.N.Y. 1996).
II. Domestic Cases and Proceedings with Transnational Aspects

1 7 

States.8 3 Sanctions may include the denial of the creditor’s claim and,

in an extreme case, injunctive relief.8 4 

Such a broad extraterritorial extension of U.S. jurisdiction may be

problematic because a foreign country may consider that the application of the United States’ automatic stay within the foreign country’s

borders is a violation of its sovereignty.8 5 Nonetheless, the automatic

stay is not an unusual notion in bankruptcy law. The bankruptcy laws

of most other countries provide for a similar stay or moratorium

against creditor collection activities after the commencement of an

insolvency proceeding.8 6 

Some U.S. bankruptcy courts have taken a broad view of the extraterritorial application of the automatic stay. In Lykes Bros. S.S. Co.

v. Hanseatic Marine Serv. (In re Lykes Bros. S.S. Co.),8 7 for example, the

court found that a German corporation willfully violated the automatic stay when it caused the post-petition arrest in Belgium of a ship

belonging to the debtor to enforce pre-petition debts resulting from

the charter of two other ships. Although the German corporation had

no direct contacts with the debtor or the United States, the court

found that the corporation was formed and the debts were transferred

to it secretly by the original two creditors after the bankruptcy filing,

in a blatant effort to avoid the automatic stay and to disrupt the

Chapter 11 plan.8 8 The court found that it had personal jurisdiction

over one of the original creditors because the creditor had filed a

claim in the bankruptcy case, and thereby had submitted to the juris8 3 . See 11 U.S.C. § 105 (2000).

8 4 . See Underwood v. Hilliard (In re Rimsat, Ltd.), 98 F.3d 956, 962 (9th Cir. 1996); Lykes

Bros. S.S. Co. v. Hanseatic Marine Serv. (In re Lykes Bros. S.S. Co.), 207 B.R. 282, 287

(Bankr. M.D. Fla. 1997); but see Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund,

Inc., 527 U.S. 308, 318–33 (1999) (holding that preliminary injunction cannot be issued to

prohibit transfer of unencumbered assets prior to entry of money judgment).

8 5 . See, e.g., Marcos v. Hilao (In re Marcos), 94 F.3d 539, 543 n.5 (9th Cir. 1996) (reporting that Switzerland took the view that U.S. courts handling litigation over the decedent estate

of Ferdinand Marcos, deposed dictator of the Republic of the Philippines, lacked jurisdiction

over Marcos’s bank accounts in Switzerland).

8 6 . See, e.g., Lindner Fund, Inc. v. Polly Peck Int’l PLC, 143 B.R. 807, 809 (Bankr.

S.D.N.Y. 1992) (describing automatic stay under English reorganization law).

8 7 . 207 B.R. 282 (Bankr. M.D. Fla. 1997).

8 8 . Id. at 287.
International Insolvency

18

diction of the court.8 9 It found that the second creditor was likewise

subject to the personal jurisdiction of the court because the transactions at issue had sufficient contacts with the United States.9 0 

Even though the domestic court may have in rem jurisdiction over

the assets of the estate, the court must have in personam jurisdiction

over a creditor before the court may enforce sanctions for interfering

with estate property.9 1 A bankruptcy court has such jurisdiction over

any U.S. creditor for this purpose, and all domestic creditors are subject to the automatic stay with respect to assets located abroad.9 2 

If a foreign creditor has assets that are subject to the jurisdiction of

a U.S. court or has filed a claim in the bankruptcy case,9 3 the bankruptcy court will be able to enforce sanctions for violation of the

automatic stay even if the violation occurred outside the United

States. However, if the creditor is beyond the jurisdictional reach of a

U.S. court, the debtor or trustee may have difficulty enforcing the

automatic stay. Indeed, in several cases foreign creditors have seized

foreign assets after the filing of a U.S. Chapter 11 case, and thereby

have dismembered the estate and prevented a reorganization.9 4 

In addition to the automatic stay, a U.S. bankruptcy court may

issue an injunction with application abroad in aid of its jurisdiction.9 5 

Such an injunction may also aid in the application of the automatic

stay.9 6 

8 9 . Id. at 285–86 (citing Langenkamp v. Culp, 498 U.S. 42 (1990) (finding without briefing that creditors who file proofs of claim in a bankruptcy case thereby submit to the equitable

jurisdiction of the bankruptcy court)).

9 0 . See id. at 286–87; see also United States Lines, Inc. v. GAC Marine Fuels Ltd. (In re

McLean Indus., Inc.), 68 B.R. 690, 698 (Bankr. S.D.N.Y. 1986) (same).

9 1 . Hobson v. Travelstead (In re Travelstead), 227 B.R. 638, 654–55 (D. Md. 1998).

9 2 . See id.; Underwood v. Hilliard (In re Rimsat, Ltd.), 98 F.3d 956, 961 (7th Cir. 1996); In

re McTague, 198 B.R. 428, 430 (Bankr. W.D.N.Y. 1996).

9 3 . See Hong Kong & Shanghai Banking Corp. v. Simon (In re Simon), 153 F.3d 991, 997

(9th Cir. 1998) (filing proof of claim in bankruptcy case submits creditor to general jurisdiction

of the bankruptcy court), cert. denied, 525 U.S. 1141 (1999).

9 4 . See Lykes Bros. S.S. Co. v. Hanseatic Marine Serv. (In re Lykes Bros. S.S. Co.), 207

B.R. 282, 285 (Bankr. M.D. Fla. 1997).

9 5 . Id.

9 6 . Id. at 288.
II. Domestic Cases and Proceedings with Transnational Aspects

1 9 

3. Exercising Avoidance Powers

Both the U.S. Bankruptcy Code and the laws of individual states that

are incorporated by reference in the Bankruptcy Code permit a

bankruptcy trustee or a debtor in possession to recover certain assets

that had been transferred away before the case was filed.9 7 However,

these laws may not apply to a foreign defendant if the defendant has

insufficient contacts with the United States.9 8 

The in rem jurisdiction rules for property of the bankruptcy estate

do not apply to property recoverable (but not yet recovered) under

the avoidance powers. Property recoverable under the exercise of

avoidance powers does not become property of the estate until the

avoidance is completed.9 9 Thus the law applicable to the exercise of

the avoidance power must be governed by traditional notions of

choice of law.1 0 0 

The requirements for personal jurisdiction over a defendant for

the purpose of exercising avoidance powers parallel the general requirements for personal jurisdiction.1 0 1 A two-part test must be satisfied. First, the defendant must have at least “minimum contacts” with

the relevant jurisdiction. Second, the exercise of jurisdiction over the

defendant must be “fair and reasonable.”1 0 2 

Personal jurisdiction may be general or specific.1 0 3 Specific jurisdiction applies where the litigation arises out of the defendant’s action

in the relevant forum. In such a case, jurisdiction may be exercised

where the defendant has purposefully directed its activities toward the

forum.1 0 4 For example, if a foreign corporation enters into a major

commercial relationship with a U.S. corporation, it is subject to

bankruptcy court jurisdiction for the return of preferential transfers

9 7 . 11 U.S.C. § 547 (preferences); § 548 (fraudulent transfers) (2000).

9 8 . See Maxwell Communication Corp. v. Société Générale (In re Maxwell Communication Corp.), 186 B.R. 807 (S.D.N.Y. 1995), aff’d, 93 F.3d 1036 (2d Cir. 1996).

9 9 . See FDIC v. Hirsch (In re Colonial Realty Co.), 980 F.2d 125, 131 (2d Cir. 1992);

Grossman v. Murray (In re Murray), 214 B.R. 271, 278–79 (Bankr. D. Mass. 1997); Klingman

v. Levinson, 158 B.R. 109, 113 (N.D. Ill. 1993); In re Saunders, 101 B.R. 303, 305 (Bankr.

N.D. Fla. 1989).

1 0 0 . See generally infra text accompanying notes 578–88.

1 0 1 . See Burger King Corp. v. Rudzewicz, 471 U.S. 462, 476 (1985).

1 0 2 . Id.

1 0 3 . See Helicopteros Nacionales v. Hall, 466 U.S. 408, 414 n.8 (1984).

1 0 4 . See Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 774 (1984).
International Insolvency

20

arising out of this relationship.1 0 5 Moreover, if there is no other forum

where such an action could be brought, this factor may weigh heavily

in favor of a bankruptcy court’s exercise of jurisdiction over a foreign

defendant in such an action.1 0 6 

General jurisdiction, in contrast, is required if the litigation does

not arise out of the defendant’s forum-related activities. General jurisdiction may only be exercised where the defendant has had continuous and systematic contacts with the forum jurisdiction.1 0 7 

The applicability of U.S. bankruptcy laws to payments made

abroad is controversial. In Maxwell Communication Corp. v. Société Générale (In re Maxwell Communication Corp.),

1 0 8 for example, the debtor

sued several foreign banks for preferential transfers that would have

been avoidable under U.S. law but not under English law. The Second Circuit Court of Appeals found that the contacts with the

United States were insufficient to permit the application of U.S. law

to the avoidance of the preferential transfers.1 0 9 

The district court’s analysis on the first-level appeal in Maxwell is

instructive. In the district court’s opinion, the fact that the transfer

was made outside the United States was insufficient to avoid the application of U.S. law.1 1 0 Otherwise, the court stated, any domestic

creditor in a wholly domestic transaction could arrange for the transfer to take place outside the United States and thereby avoid U.S.

law. The court held that more ties to a foreign jurisdiction, and

looser ties to the United States, are necessary to avoid the application

of U.S. law to a transaction.1 1 1 

1 0 5 . See Schwinn Plan Comm. v. AFS Cycle & Co. (In re Schwinn Bicycle Co.), 192 B.R.

461, 473 (Bankr. N.D. Ill. 1996).

1 0 6 . See id. at 476. In contrast, if there is a choice of forum where such an action may be

brought, both courts should evaluate the best forum to bring such an action under a standard of

reasonableness. In re International Admin. Servs., Inc., 211 B.R. 88, 94 (Bankr. M.D. Fla. 1997).

If the interest of one country is greater, the country with a lesser interest should consider deferring jurisdiction to the other. See id. (citing Restatement of Foreign Relations § 403 (deferring

to jurisdiction of the Isle of Guernsey because the assets at issue were located there, and any

order would have to be enforced in a Guernsey court)).

1 0 7 . See Helicopteros, 466 U.S. at 416.

1 0 8 . 93 F.3d 1036 (2d Cir. 1996).

1 0 9 . Id. See also Schwinn, 192 B.R. at 476–77.

1 1 0 . Maxwell Communication Corp. v. Société Générale (In re Maxwell Communication

Corp.), 186 B.R. 807, 817 (S.D.N.Y. 1995), aff’d, 93 F.3d 1036 (2d Cir. 1996).

1 1 1 . See id.
II. Domestic Cases and Proceedings with Transnational Aspects

2 1 

In contrast, in a different case the Ninth Circuit found that the

looting and wasting of the assets of a domestic corporation by a foreign parent corporation was sufficient to confer personal jurisdiction

over the parent corporation in an adversary proceeding brought by

the trustees of a litigation trust established by a Chapter 11 plan

(which was the successor to the bankruptcy estate).1 1 2 

4. Debtor in Possession

Foreign courts frequently have difficulty recognizing a reorganization

case under Chapter 11 of the U.S. Bankruptcy Code as an insolvency

proceeding similar to one under their domestic laws. The insolvency

regimes in most countries require the appointment of an administrator (similar to a case trustee in the U.S. bankruptcy system) who takes

possession of the assets of the debtor and administers them for the

benefit of creditors.1 1 3 Leaving the debtor in possession of the assets,

as is typical in a Chapter 11 case in the United States, is uncommon

(but not unknown) outside the United States.

The failure of a foreign court to recognize a Chapter 11 case in

the United States may have several consequences. A foreign court

may not confer upon the debtor in possession rights similar to those

of an administrator under local law in that country, or it may not accord the U.S. case dignity and treatment similar to a local insolvency

case. A foreign court may refuse to recognize the standing of the U.S.

Chapter 11 debtor in possession, either to participate in proceedings

in that court or to initiate proceedings to collect assets belonging to

the bankruptcy estate in the United States.1 1 4 Moreover, a foreign

court may permit non-U.S. creditors to obtain local assets in violation

of the automatic stay and without regard to the U.S. case and the

rights of creditors (both foreign and domestic) who have filed their

claims in the United States. Finally, a foreign court may not be willing to entertain avoidance actions against local creditors, even where

1 1 2 . Goodson v. Rowland (In re Pintlar Corp.), 133 F.3d 1141, 1146–47 (9th Cir. 1998).

1 1 3 . See Convention on Insolvency Proceedings, Art. 2(b), Nov. 23, 1995, 35 I.L.M. 1223

(1996).

1 1 4 . The refusal to recognize a debtor in possession as the appropriate representative of an

insolvency estate is an unnecessarily narrow view, a view that both the UNCITRAL Model

Law and the European Union Regulation reject.
International Insolvency

22

such actions are permitted in an insolvency case under local law in

that country.

5. Foreign Proceeding to Assist Domestic Case

Very few countries have statutory provisions similar to U.S. Bankruptcy Code § 304, which permits a limited insolvency proceeding in

the United States in the aid of a foreign insolvency case.1 1 5 Two

choices are generally available to a bankruptcy trustee appointed in a

U.S. case. First, the trustee may bring a full-blown insolvency case in

the foreign country where assets are located to administer them for

the benefit of creditors in the United States or worldwide. Second,

the trustee may bring a civil action in the foreign country’s courts to

resolve issues relating to assets located in that country.1 1 6 

1 1 5 . The bankruptcy law of the United Kingdom recognizes comity with the Commonwealth countries. Section 426(4) of the Insolvency Act of 1986 provides in relevant part:

The courts having jurisdiction in relation to insolvency law in any part of the

United Kingdom shall assist the courts having the corresponding jurisdiction in any

other part of the United Kingdom or any other relevant country for the purposes of

§ 426(4).

The “relevant countries” are: Anguilla, Australia, the Bahamas, Bermuda, Botswana, Canada, Cayman Islands, Falkland Islands, Gibraltar, Guernsey, Hong Kong, Republic of Ireland,

Montserrat, New Zealand, St. Helena, Turks and Caicos Islands, Tuvalu, and Virgin Islands.

Donna McKenzie, International Solutions to International Insolvency: an Insoluble Problem?, 26 U.

Balt. L. Rev. 15, 19 n.6 (1997). In addition, section 426(4) mandates assistance between the

courts of the United Kingdom and those of the Channel Islands and the Isle of Man. Id.

Australia has a similar provision in its Corporations Act:

In all external administration matters, the court:

(a) shall act in aid of, and be auxiliary to, the courts . . . of prescribed countries,

that have jurisdiction in external administration matters; and

(b) may act in aid of, and be auxiliary to, the courts of other countries that have

jurisdiction in external administration matters.

Corporations Act, 1989, § 581(2) (Austl.). Under this statutory provision (commonly known as

the “generous provision”), Australian courts are required to act in aid of and be auxiliary to

foreign courts handling insolvency cases (which are included in “external administration matters,” see id. § 580) in the following “prescribed countries”: Canada, Jersey, Malaysia, New

Zealand, Papua New Guinea, Singapore, Switzerland, the United Kingdom, and the United

States. See 1990 No. 455 Corporations Regulations 5.6.74 (Austl.). For all other countries,

Australian courts have discretion to provide such aid and auxiliary support.

1 1 6 . See, e.g., In re International Admin. Servs., Inc., 211 B.R. 88, 92–96 (Bankr. M.D.

Fla. 1997) (sustaining bankruptcy court decision to defer jurisdiction to court in Isle of Guernsey respecting debtor’s assets located there, and rejecting challenge by debtor’s sole shareholder

to pursuit by creditor’s committee of assets there); cf. In re Hakim, 212 B.R. 632 (Bankr. N.D.
II. Domestic Cases and Proceedings with Transnational Aspects

2 3 

A third type of proceeding may be developed to provide foreign

assistance in a domestic case. The United Nations Commission on

International Trade Law has recently promulgated a model law that

provides for the coordination of parallel insolvency proceedings in

various countries.1 1 7 Under the model law, a special procedure is established, similar to that provided in Bankruptcy Code § 304.

Additional authority for such a special proceeding is provided in

the European Union Regulation on Insolvency Proceedings,1 1 8 which

goes into effect on May 31, 2002. The regulation provides for the

recognition within the European Union of a main bankruptcy case in

the country where a business is incorporated or has its principal place

of business, and for the filing of subsidiary bankruptcy cases in the

other European Union countries.

Cal. 1997) (granting relief from stay to permit the Chapter 11 debtor and his creditors to complete pending litigation in Switzerland on the ownership of funds located there).

1 1 7 . This model law is discussed in greater detail, infra, at text accompanying notes 323–97.

1 1 8 . European Union Convention on Insolvency Proceedings, 2000 O.J. (L 160) 1. For

the text of the European Union Regulation, see infra Appendix C. The regulation is discussed

in greater detail, infra, at text accompanying notes 457–533.
25

III. Foreign Cases with Domestic

Aspects

Foreign insolvency cases with domestic aspects have given rise to the

largest body of transnational bankruptcy case law in the United States.

Such a proceeding typically arises where there are assets located in the

United States relating to an insolvency case that is filed abroad.

If an insolvency case is pending in a foreign country, a foreign

representative1 1 9 may file a related bankruptcy case under Chapter 7

or Chapter 11 in the United States. A case under one of these chapters invokes the full panoply of bankruptcy powers and rights under

U.S. law. For example, such a case creates a bankruptcy estate in the

United States,1 2 0 and the automatic stay takes effect immediately upon

the filing of the bankruptcy petition.1 2 1 In addition, in such a case the

trustee or debtor in possession has the unquestionable power to utilize the avoiding powers under the Bankruptcy Code to retrieve preferential transfers and fraudulent dispositions of property for the benefit of creditors.1 2 2 

If property in the United States belongs to the foreign insolvent

entity, the foreign administrator may file a voluntary bankruptcy case

under Chapter 7 or Chapter 11.1 2 3 If the domestic bankruptcy case

1 1 9 . Under the U.S. Bankruptcy Code, a foreign representative means a “duly selected trustee,

administrator, or other representative of an estate in a foreign proceeding.” 11 U.S.C. § 101(24)

(2000). Qualification as a foreign representative is construed broadly under the U.S. Bankruptcy

Code. See In re Kingscroft Ins. Co., 138 B.R. 121, 124 (Bankr. S.D. Fla. 1992) (finding that

board of directors qualified as a foreign representative, even though the corporations were in

winding-up proceedings in England and Bermuda, and liquidators had been appointed). The

representative need not have a court appointment or authorization from the foreign court. See,

e.g., In re Board of Dirs. of Hopewell Int’l Ins. Ltd., 238 B.R. 25, 53 (Bankr. S.D.N.Y. 1999).

1 2 0 . See In re Axona Int’l Credit & Commerce Ltd., 88 B.R. 597, 606 (Bankr. S.D.N.Y.

1988). For a general discussion of U.S. treatment of foreign bankruptcies, see Richard A. Gitlin

& Evan D. Flaschen, The International Void in the Law of Multinational Bankruptcies, 42 Bus. Law.

307 (1987); Barbara K. Unger, United States Recognition of Foreign Bankruptcies, 19 Int’l Law.

1153 (1985).

1 2 1 . See Axona, 88 B.R. at 606.

1 2 2 . See id.; Universal Cas. & Sur. Co. v. Gee (In re Gee), 53 B.R. 891, 896 (Bankr.

S.D.N.Y. 1985).

1 2 3 . See 11 U.S.C. § 301 (2000).
International Insolvency

26

involves a separate legal entity, it may be necessary for the foreign

representative to file an involuntary case.1 2 4 

A. Ancillary Proceedings Under Section 304

Alternatively, a foreign representative may commence a limited

bankruptcy proceeding ancillary1 2 5 to a foreign case under U.S.

Bankruptcy Code § 304. While there is substantial case law interpreting this statute, there are few secondary sources to alert a judge or

lawyer to the issues arising thereunder.

1. Features of a Section 304 Proceeding

The principal statutory provision relating to international insolvencies

with U.S. contacts is U.S. Bankruptcy Code § 304,1 2 6 which provides

for a special proceeding to be opened in the United States in the

aid1 2 7 of a foreign insolvency proceeding.1 2 8 Section 304 assumes that

it is usually in the best interests of a foreign debtor and its creditors to

resolve the claims against the debtor and to collect and disburse its

assets, wherever located, in an equitable, orderly, and systematic

manner, rather than in a haphazard, erratic, or piecemeal fashion.1 2 9 

1 2 4 . See 11 U.S.C. § 303 (2000).

1 2 5 . See supra note 20.

1 2 6 . 11 U.S.C. § 304 (2000).

1 2 7 . See, e.g., Armco Inc. v. North Atl. Ins. Co. (In re Bird), 229 B.R. 90, 94, 96 (Bankr.

S.D.N.Y. 1999). Gee, 53 B.R. at 896; see also Stacy Allen Morales & Barbara Ann Deutsch,

Bankruptcy Code Section 304 and U.S. Recognition of Foreign Bankruptcies: The Tyranny of Comity,

39 Bus. Law. 1573 (1984); Brian J. Gallagher & John Hartje, The Effectiveness of § 304 in

Achieving Efficient and Economic Equity in Transactional Insolvency, 1983 Ann. Surv. Bankr. L. 1;

Anne Norby Nielsen, Note, Section 304 of the Bankruptcy Code: Has It Fostered the Development of

an “International Bankruptcy System”?, 22 Colum. J. Transnat’l L. 541 (1984).

1 2 8 . The U.S. Bankruptcy Code defines a foreign proceeding as follows:

“foreign proceeding” means proceeding, whether judicial or administrative and

whether or not under bankruptcy law, in a foreign country in which the debtor’s

domicile, residence, principal place of business, or principal assets were located at

the commencement of such proceeding, for the purpose of liquidating an estate,

adjusting debts by composition, extension, or discharge, or effecting a reorganization . . . .

11 U.S.C. § 101(23) (2000).

1 2 9 . Koreag, Controle et Revision S.A. v. Refco F/X Assocs., Inc. (In re Koreag, Controle

et Revision S.A.), 961 F.2d 341, 348 (2d Cir. 1992); see In re Brierley, 145 B.R. 151, 167

(Bankr. S.D.N.Y. 1992).
III. Foreign Cases with Domestic Aspects

2 7 

In addition, the foreign court should have an opportunity to determine “where and when claims should be liquidated in order to

conserve estate resources” and to “maximize the assets available for

distribution.”1 3 0 It is the foreign court that is in the best position to

make this determination.1 3 1 

A proceeding under section 304 is not a full-scale bankruptcy

case.1 3 2 The limited proceeding envisioned by section 304 is designed

to be a more efficient and less costly alternative to commencing a

plenary proceeding that would duplicate that in the foreign forum.1 3 3 

A section 304 proceeding does not call for the bankruptcy court to

make a determination of the foreign debtor’s property interests, the

timing of reorganization or liquidation, or the manner in which the

validity of creditors’ claims is to be determined.1 3 4 

A section 304 proceeding does not confer on the foreign debtor

the full panoply of rights that would otherwise be available to a

debtor or trustee in a full bankruptcy case under U.S. law.1 3 5 However, the court has the power to permit the application of any (or all)

Bankruptcy Code provisions in a particular section 304 proceeding.1 3 6 

A foreign representative may file a petition under section 304 to

administer assets located in the United States. A foreign debtor may

have a vital interest in protecting its foreign assets from a U.S. judgment that could be given recognition in the foreign proceeding.1 3 7 

One important purpose of section 304 is to prevent U.S. creditors

from dismembering the local assets of a foreign debtor.1 3 8 

1 3 0 . Vesta Fire Ins. Corp. v. New Cap Reinsurance Corp., 244 B.R. 209, 213 (S.D.N.Y.

2000) (quoting Armco Inc. v. North Atl. Ins. Co. (In re Bird), 229 B.R. 90, 94 (Bankr.

S.D.N.Y. 1999)).

1 3 1 . Bird, 229 B.R. at 94.

1 3 2 . See In re Culmer, 25 B.R. 621, 633 (Bankr. S.D.N.Y. 1982).

1 3 3 . See Cunard S.S. Co. v. Salen Reefer Servs. AB, 773 F.2d 452, 456 (2d Cir. 1985); In

re Axona Int’l Credit & Commerce, Ltd., 88 B.R. 597, 607 (Bankr. S.D.N.Y. 1988).

1 3 4 . See Vesta, 244 B.R. at 221.

1 3 5 . See id. at 213.

1 3 6 . See In re Rubin, 160 B.R. 269, 274 n.3 (Bankr. S.D.N.Y. 1993).

1 3 7 . In re Gercke, 122 B.R. 621, 625–26 (Bankr. D.D.C. 1991).

1 3 8 . See H.R. Rep. No. 95-595, at 34 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 5995;

S. Rep. No. 95-989, at 35 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5821; Armco Inc. v.

North Atl. Ins. Co. (In re Bird), 229 B.R. 90, 94, 96 (Bankr. S.D.N.Y. 1999).
International Insolvency

28

However, a foreign debtor need not have property in the United

States to support a section 304 petition.1 3 9 For example, a foreign administrator may file a section 304 petition to obtain a stay of litigation

in the United States and require the plaintiff to file its claim in the

foreign bankruptcy case.1 4 0 In addition, such a proceeding may be

used to bring fraudulent transfer or preferential transfer actions against

domestic defendants.1 4 1 

Section 304 does not depend on a determination that the insolvency law of the applicable foreign country is essentially similar to

that in the United States. Section 304 also does not permit a U.S.

court to determine the legitimacy or constitutionality of the foreign

proceeding.1 4 2 This section requires only that the foreign law comport

with principles of fundamental fairness.1 4 3 A foreign representative

may file a section 304 proceeding even if the debtor is not eligible

under U.S. law to bring a full bankruptcy case, so long as the debtor

qualifies for an insolvency proceeding under the laws of the debtor’s

own country.1 4 4 

Section 304 is not intended to be the exclusive remedy available

to a foreign representative. The representative may also bring a full

case under U.S. law if the estate in the United States is sufficiently

complicated or substantial to merit a full case for proper administration.1 4 5 

1 3 9 . See Vesta, 244 B.R. at 214; Metzeler v. Bouchard Transp. Co. (In re Metzeler), 78

B.R. 674, 678–80 (Bankr. S.D.N.Y. 1987).

1 4 0 . See Haarhuis v. Kunnan Enters., 177 F.3d 1007 (D.C. Cir. 1999); In re Kingscroft Ins.

Co., 138 B.R. 121, 125–26 (Bankr. S.D. Fla. 1992); Gercke, 122 B.R. at 625–26 (staying action, except to require debtor to produce documents ordered in state court litigation before

section 304 proceeding was filed).

1 4 1 . See, e.g., In re Kojima, 177 B.R. 696, 703 (Bankr. D. Colo. 1995); In re Axona Int’l

Credit & Commerce Ltd., 88 B.R. 597 (Bankr. S.D.N.Y. 1988); Metzeler, 78 B.R. at 674; In re

Culmer, 25 B.R. 621, 633 (Bankr. S.D.N.Y. 1982). But see Universal Cas. & Sur. Co. v. Gee

(In re Gee), 53 B.R. 891, 896 (Bankr. S.D.N.Y. 1985) (dictum that avoiding powers are not

available under a section 304 petition). The avoidability of preferential or fraudulent transfers is

determined according to the law of the applicable foreign country. See Metzeler, 78 B.R. at 677.

The filing of the section 304 action also tolls prescription of a claim under the foreign law. See

id.

1 4 2 . See In re Fracmaster, Ltd., 237 B.R. 627, 635 (Bankr. E.D. Tex. 1999).

1 4 3 . See Interpool, Ltd. v. Certain Freights, 102 B.R. 373, 377 (D.N.J. 1988).

1 4 4 . See In re Brierley, 145 B.R. 151, 167 (Bankr. S.D.N.Y. 1992); Gee, 53 B.R. at 900.

1 4 5 . See Cunard S.S. Co. v. Salen Reefer Servs. AB, 773 F.2d 452, 456 (2d Cir. 1985);

Axona, 88 B.R. at 607; see also In re Florida Peach Corp., 63 B.R. 833, 839–40 (Bankr. M.D.
III. Foreign Cases with Domestic Aspects

2 9 

Finally, section 304 gives the bankruptcy court significant discretion to mold appropriate relief so that a foreign insolvency can proceed in a rational fashion with due regard for all of the varied and

competing interests at issue.1 4 6 However, that discretion typically

points in favor of granting relief to section 304 petitioners.1 4 7 

a. No Bankruptcy Estate

The filing of a section 304 petition does not create a bankruptcy estate in the United States, pursuant to which the debtor’s property

comes into the custody of the court (in custodia legis).

1 4 8 The estate of

a foreign debtor is defined by the law of the jurisdiction in which the

foreign case is pending.1 4 9 While section 304(b)(2) authorizes the

court to order turnover of the property of “such estate,” this language

refers to the estate created in the foreign case.1 5 0 

Only a primary proceeding should have extraterritorial jurisdiction

over all assets of the debtor or the estate, wherever located. As an

ancillary or secondary proceeding, a section 304 proceeding in a U.S.

court should only affect assets located within the United States.1 5 1 

Fla. 1986) (holding that the power of a Panamanian corporation, in liquidation in Panama, to

file Chapter 11 case in United States turns on U.S. law (pursuant to Panamanian choice of law

rules), where the corporation had a commercial domicile in United States). If a bankruptcy case

is also pending in the United States, the foreign representative may file a claim in that case

without initiating a section 304 case or engaging in any other formalities. Banca Emiliana v.

Farinacci (In re Enercons Virginia, Inc.), 812 F.2d 1469, 1472 (4th Cir. 1987).

1 4 6 . See, e.g., Bank of New York v. Treco (In re Treco), 240 F.3d 148, 154–55 (2d Cir.

2001); Vesta Fire Ins. Corp. v. New Cap Reinsurance Corp., 244 B.R. 209, 213 (S.D.N.Y.

2000).

1 4 7 . See, e.g., Vesta, 244 B.R. at 213.

1 4 8 . See In re Schimmelpenninck, 183 F.3d 347, 351 (5th Cir. 1999); Vesta, 244 B.R. at

213; In re Rubin, 160 B.R. 269, 274 n.3 (Bankr. S.D.N.Y. 1993); In re Brierley, 145 B.R. 151

(Bankr. S.D.N.Y. 1992). In contrast, the filing of involuntary plenary petition by a foreign

representative initiates a plenary U.S. bankruptcy case, and creates an estate within the meaning

of the Bankruptcy Code. In such a plenary case, a foreign debtor is afforded the same treatment

as a domestic debtor. See In re Axona Int’l Credit & Commerce Ltd., 88 B.R. 597 (Bankr.

S.D.N.Y. 1988).

1 4 9 . See, e.g., Koreag, Controle et Revision S.A. v. Refco F/X Assocs., Inc. (In re Koreag),

961 F.2d 341, 348 (2d Cir. 1992); Aranha v. Eagle Fund, Ltd. (In re Thornhill Global Deposit

Fund, Ltd.), 245 B.R. 1, 10 (Bankr. D. Mass. 2000).

1 5 0 . See Koreag, 961 F.2d at 348; Goerg v. Parungao (In re Goerg), 844 F.2d 1562, 1567

(11th Cir. 1988); Rubin, 160 B.R. at 274 n.3 (Bankr. S.D.N.Y. 1993).

1 5 1 . In contrast, if a plenary bankruptcy case is filed with respect to the foreign debtor

under Chapter 7 or Chapter 11, such a case would establish primary jurisdiction in the United

States. The filing would create an estate that consists of all assets of the debtor, wherever lo-
International Insolvency

30

Because the bankruptcy “estate” is a central concept in U.S.

bankruptcy law,1 5 2 the lack of such an estate makes many Bankruptcy

Code provisions inapplicable in the section 304 context.1 5 3 

A problem can arise if a creditor of a debtor in a foreign case

brings an action against a domestic subsidiary to collect a debt on the

grounds that the domestic subsidiary is the alter ego1 5 4 of the parent

debtor. A bankruptcy estate, both in the United States and abroad,

ordinarily includes the stock of a subsidiary, but not its assets.1 5 5 Analytically, if the subsidiary is an alter ego of the parent, its assets should

belong to the foreign estate of the parent.1 5 6 Procedurally, the domestic court should grant injunctive relief against such a creditor because

its claim advances a general grievance belonging to all of the creditors

of the parent in the foreign proceeding.1 5 7 

Creditors’ entitlements in bankruptcy in the United States arise in

the first instance from the underlying substantive law creating the

debtor’s obligations, subject to any contrary or qualifying provisions

of the Bankruptcy Code.1 5 8 U.S. bankruptcy law does not define

ownership or other rights. Because for the most part U.S. private law

is not unified, these rights are created and defined by state law.1 5 9 

Thus state law in the United States defines the foreign estate’s interest

in particular property located in the United States. A U.S. court must

make a determination of the applicable property interests under state

law before it can order the turnover of property to a foreign reprecated, except to the extent that they are included in the estate of the foreign bankruptcy case.

The court would then be required to coordinate the U.S. case with the foreign case.

1 5 2 . See 11 U.S.C. § 541(a) (2000).

1 5 3 . See Rubin, 160 B.R. at 274 n.3.

1 5 4 . A l t erego isar e ci pr o ca lre l at io n sh ip : if A is th e al t erego ofB,t h enBi st heal te regoo fA.

1 5 5 . See Peoples Bankshares, Ltd. v. Department of Banking (In re Peoples Bankshares,

Ltd.), 68 B.R. 536, 539 (Bankr. N.D. La. 1986); In re Midwestern Cos., Inc., 49 B.R. 98, 101

(Bankr. W.D. Mo. 1985).

1 5 6 . See In re Schimmelpenninck, 183 F.3d 347, 361 (5th Cir. 1999).

1 5 7 . See, e.g., id. at 360. This result should apply whether or not the court is in a judicial

circuit that permits a corporate bankruptcy debtor to assert an alter ego claim belonging to a

creditor. The courts of appeals are divided on whether such an alter ego claim may be made. The

Second, Fourth, Fifth, and Seventh Circuits permit such a claim. See id. at 356 n.17 and cases

cited therein. The Sixth and Eighth Circuits disagree. See id.

1 5 8 . See Raleigh v. Illinois Dep’t of Revenue, 120 S. Ct. 1951, 1955 (2000).

1 5 9 . See Butner v. United States, 440 U.S. 48, 55 (1979); In re Board of Dirs. of Hopewell

Int’l Ins. Ltd., 238 B.R. 25, 47 (Bankr. S.D.N.Y. 1999).
III. Foreign Cases with Domestic Aspects

3 1 

sentative or otherwise administer the property in a section 304 proceeding.1 6 0 

If an adverse claimant plausibly disputes the ownership of the

property sought to be repatriated, the court must first apply local law

to determine whether the debtor has a valid ownership interest in the

property.1 6 1 

b. Automatic Stay and Injunctive Relief

Unlike a plenary domestic bankruptcy case, where there is a statutory

automatic stay of all creditor collection activities both domestically

and abroad,1 6 2 no automatic stay of creditor collection activities arises

from the filing of the section 304 proceeding.1 6 3 

However, section 304(b)(1) gives the court the power to issue an

injunction that has the same effect as the automatic stay.1 6 4 The purpose of the injunction is the same as that of the automatic stay: to

prevent individual creditors from appropriating for themselves property in the United States that belongs to all creditors (both domestic

and foreign) in consequence of the foreign insolvency proceedings.1 6 5 

Such an injunction could prohibit the commencement or continuation of litigation against the debtor. It could impose a similar brake

on counterclaims in litigation brought by the debtor.1 6 6 This injunction would apply to all creditors, whether or not they have notice of

1 6 0 . See Koreag, Controle et Revision S.A. v. Refco F/X Assocs., Inc. (In re Koreag), 961

F.2d 341, 348–49 (2d Cir. 1992); Armco Inc. v. North Atl. Ins. Co. (In re Bird), 229 B.R. 90,

96 (Bankr. S.D.N.Y. 1999).

1 6 1 . See, e.g., In re Rubin, 160 B.R. 269, 274 n.3 (Bankr. S.D.N.Y. 1993).

1 6 2 . See supra text accompanying notes 75–96.

1 6 3 . See, e.g., Goerg, 844 F.2d at 1568; In re Koreag, Controle et Revision, 130 B.R. 705,

709–10 (Bankr. S.D.N.Y. 1991), vacated and remanded on other grounds, 961 F.2d 341 (2d Cir.

1992); In re Axona Int’l Credit & Commerce Ltd., 88 B.R. 597, 607 (Bankr. S.D.N.Y 1988).

1 6 4 . See, e.g., In re Schimmelpenninck, 183 F.3d 347, 352, 361–62 (5th Cir. 1999). In In re

Singer, 205 B.R. 355, 357 (Bankr. S.D.N.Y. 1997), the district court reversed a bankruptcy

court’s denial of such an injunction insofar as it would affect unidentified creditors. The bankruptcy court had reasoned that such an injunction against creditors lacking notice would violate

their due process rights. In contrast, the district court found that due process is satisfied by providing creditors the opportunity to obtain relief from the automatic stay in the bankruptcy court

in appropriate circumstances. See id.

1 6 5 . See, e.g., Armco Inc. v. North Atl. Ins. Co. (In re Bird), 229 B.R. 90, 94 (Bankr.

S.D.N.Y. 1999); In re Banco Nacional de Obras y Servicios Publicos, S.N.C., 91 B.R. 661, 664

(Bankr. S.D.N.Y. 1988).

1 6 6 . Bird, 229 B.R. at 96.
International Insolvency

32

the injunction. An action in violation of the injunction would be

void or voidable.1 6 7 

In addition, the court may issue an injunction to enjoin actions

not prohibited by an automatic stay.1 6 8 Such an injunction is particularly appropriate where the failure to enjoin the action would jeopardize the success of the insolvency process or cause irreparable harm

to the debtors’ estate and to the creditors.1 6 9 For example, in an appropriate case a court may enjoin an action against a debtor’s subsidiary where an action may otherwise reduce the value of the subsidiary

for the creditors in the parent corporation’s insolvency case.1 7 0 

In a plenary bankruptcy case, certain creditors are entitled to relief

from the automatic stay imposed by U.S. Bankruptcy Code § 362.1 7 1 

In parallel circumstances, a bankruptcy court should normally grant

relief from a section 304 injunction.1 7 2 However, in making this determination the court must consider the effect that relief from the stay

will have on the main proceeding abroad and any other ancillary proceedings in other countries.

c. Discharge

A discharge normally should not be granted under section 304.1 7 3 

Typically the foreign court hearing the main case, not the court with

the ancillary proceeding, should decide whether the debtor obtains a

discharge. In an exceptional case, however, it may be appropriate to

grant a discharge only for debts owing to creditors in the United

States.

2. Powers of the Court

The limited scope of a section 304 proceeding is balanced with broad

powers granted to the bankruptcy court to determine what relief to

grant in a section 304 proceeding. Because the ancillary proceeding is

1 6 7 . See supra note 81.

1 6 8 . See Schimmelpenninck, 183 F.3d at 352, 361–62.

1 6 9 . See id. at 362.

1 7 0 . See id. at 361–62.

1 7 1 . See 11 U.S.C. § 362 (2000).

1 7 2 . See In re Banco Nacional de Obras y Servicios Publicos, S.N.C., 91 B.R. 661, 667

(Bankr. S.D.N.Y. 1988).

1 7 3 . Goerg v. Parungao (In re Goerg), 844 F.2d 1562, 1568 (11th Cir. 1988).
III. Foreign Cases with Domestic Aspects

3 3 

created to aid the administration of a foreign bankruptcy proceeding,

numerous published opinions have stated that section 304 provides

the U.S. courts with maximum flexibility to mold appropriate relief

“in near blank check fashion.”1 7 4 

Section 304 specifies two types of relief that U.S. courts may grant

in an ancillary case. First, the court may enjoin actions against the

debtor (with respect to property involved in the foreign proceeding)

or against the debtor’s property, including actions to enforce judgments or to create or enforce liens against such property.1 7 5 Comity

permits the issuance of injunctive relief without the usual showing of

irreparable injury required under U.S. law:1 7 6 The issuance of an injunction should be as “automatic” as the automatic stay in appropriate

circumstances. An adversary proceeding is not needed to obtain injunctive relief in a section 304 proceeding.1 7 7 

Second, the court may order the turnover of property of the foreign estate or its proceeds to the foreign representative.1 7 8 Whether

adequate protection is required turns on the provisions of the applicable insolvency law, either foreign or domestic. Furthermore, turnover may be ordered even when the property is not necessary to facilitate the rehabilitation of the debtor’s business.1 7 9 

If the section 304 proceeding is brought to administer assets in the

United States, the court must consider whether such assets can be

administered in the foreign bankruptcy case. This issue is determined

by the law of the country where the main proceeding is pending.1 8 0 

1 7 4 . See, e.g., Koreag, Controle et Revision S.A. v. Refco F/X Assocs., Inc. (In re Koreag),

961 F.2d 341, 348 (2d Cir. 1992); In re Banco Nacional de Obras y Servicios Publicos, S.N.C.,

91 B.R. 661, 664 (Bankr. S.D.N.Y. 1988); In re Axona Int’l Credit & Commerce Ltd., 88 B.R.

597, 606 (Bankr. S.D.N.Y. 1988); Universal Cas. & Sur. v. Gee (In re Gee), 53 B.R. 891, 897

(Bankr. S.D.N.Y. 1985); In re Culmer, 25 B.R. 621, 624 (Bankr. S.D.N.Y. 1982).

1 7 5 . See 11 U.S.C. § 304(b) (2000); In re Rubin, 160 B.R. 269, 274 (Bankr. S.D.N.Y.

1993).

1 7 6 . See In re Rukavina, 227 B.R. 234, 242 (Bankr. S.D.N.Y. 1998); Rubin, 160 B.R. at

283.

1 7 7 . See, e.g., Rukavina, 227 B.R. at 239; cf. Fed. R. Bankr. P. 7001 (adversary proceeding

necessary to obtain injunctive relief in plenary bankruptcy case).

1 7 8 . See 11 U.S.C. § 304(b) (2000); Rubin, 160 B.R. at 274.

1 7 9 . See In re Treco, 229 B.R. 280, 292 (Bankr. S.D.N.Y.), aff’d, 239 B.R. 36 (S.D.N.Y.

1999); rev’d on other grounds, 240 F.3d 148 (2d Cir. 2001).

1 8 0 . See, e.g., Rubin, 160 B.R. at 274 n.3; In re Toga Mfg., Ltd., 28 B.R. 165, 167 (Bankr.

E.D. Mich. 1983).
International Insolvency

34

For example, because Japanese bankruptcy law applies only to assets

located in Japan, a Japanese representative would not be able to obtain assets located in the United States in support of a Japanese bankruptcy case. Most countries, including the United States, have laws

that permit the inclusion in a bankruptcy estate of all assets, wherever

located.

In addition, section 304 authorizes the court to order “other appropriate relief.”1 8 1 This clause gives a U.S. bankruptcy court broad

powers to fashion relief that is appropriate to a particular case. For

example, a section 304 proceeding may be brought to obtain discovery in the aid of a foreign insolvency proceeding.1 8 2 

3. Nature of Foreign Proceeding

For a section 304 proceeding to be properly filed, there must be both

a foreign proceeding to which the section 304 proceeding will be

ancillary and a foreign representative who has filed the domestic petition.1 8 3 A foreign proceeding qualifies—even though a plan has been

confirmed and the case closed—if the section 304 proceeding is

brought to aid in implementing the plan.1 8 4 

The foreign proceeding need not be brought under the insolvency

laws of that country.1 8 5 The foreign proceeding under section 304

may be any judicial or administrative proceeding1 8 6 “for the purpose

of (a) liquidating an estate; (b) adjusting debts by composition, extension, or discharge; or (c) effecting a reorganization.”1 8 7 For example,

the foreign proceeding may be a winding up of a business,1 8 8 even

1 8 1 . 11 U.S.C. § 304(b) (2000).

1 8 2 . See In re Brierley, 145 B.R. 151, 169 (Bankr. S.D.N.Y. 1992); Universal Cas. & Sur.

Co. v. Gee (In re Gee), 53 B.R. 891 (Bankr. S.D.N.Y. 1985) (winding up of foreign insurance

company); Angulo v. Kedzep Ltd., 29 B.R. 417, 419 (S.D. Tex. 1983).

1 8 3 . See Gee, 53 B.R. at 897.

1 8 4 . See, e.g., In re Board of Dirs. of Hopewell Int’l Ins. Ltd., 238 B.R. 25, 49–50 (Bankr.

S.D.N.Y. 1999).

1 8 5 . See, e.g., In re Fracmaster, Ltd., 237 B.R. 627, 632 (Bankr. E.D. Tex. 1999) (Canadian

proceeding under Companies’ Creditors Arrangement Act and Judicature Act of Alberta).

1 8 6 . See, e.g., In re Banco de Descuento, 78 B.R. 337 (Bankr. S.D. Fla. 1987) (administrative proceeding in Ecuador for liquidation of insolvent bank).

1 8 7 . See id.; for the definition of “foreign proceeding,” see supra note 128.

1 8 8 . See, e.g., In re Treco, 229 B.R. 280, 293–95 (Bankr. S.D.N.Y.), aff’d, 239 B.R. 36

(S.D.N.Y. 1999); rev’d on other grounds, 240 F.3d 148 (2d Cir. 2001) (winding up under Bahamas law).
III. Foreign Cases with Domestic Aspects

3 5 

though such proceedings in the United States are governed by state

corporation law rather than bankruptcy law.

The foreign debtor need not qualify as a “debtor” under U.S. law

to file a section 304 petition.1 8 9 Notably, the foreign debtor may be a

bank,1 9 0 an insurance company,1 9 1 a governmental entity,1 9 2 a decedent’s estate1 9 3 or a trust, none of which may be eligible to file a full

bankruptcy case under U.S. law.1 9 4 

4. Order of Distribution of Estate Assets

Section 304(c)(4) makes the distribution of estate assets in a foreign

insolvency proceeding a factor that a domestic court should consider

in fashioning relief for U.S. parties. This provision must be applied

with considerable care.

Priorities for the distribution of bankruptcy estate assets vary

among countries. Indeed, no other country duplicates exactly the

priority list in U.S. Bankruptcy Code § 507(a).1 9 5 These priorities,

which judges have evaluated against a standard of fundamental fairness, include the following: (1) secured creditors should be paid from

their collateral;1 9 6 (2) some priorities among unsecured creditors

should be recognized; (3) unsecured creditors of the same priority

should be paid pro rata (if not in full); (4) creditors that are foreign to

that country should be given the same treatment as its domestic

1 8 9 . See, e.g., Goerg v. Parungao (In re Goerg), 844 F.2d 1562, 1568 (11th Cir. 1988);

Haarhuis v. Kunnan Enter., 223 B.R. 252, 255 (Bankr. D.D.C. 1998), aff’d, 177 F.3d 1007

(D.C. Cir. 1999); Saleh v. Triton Container Int’l, Ltd. (In re Saleh), 175 B.R. 422 (Bankr. S.D.

Fla. 1994).

1 9 0 . See, e.g., Koreag, Controle et Revision S.A. v. Refco F/X Assocs., Inc. (In re Koreag),

961 F.2d 341 (2d Cir. 1992) (Swiss bank); In re Culmer, 25 B.R. 621 (Bankr. S.D.N.Y. 1982)

(Bahamian bank).

1 9 1 . See In re Rubin, 160 B.R. 269 (Bankr. S.D.N.Y. 1993) (Israeli reinsurance company);

In re Lines, 81 B.R. 267 (Bankr. S.D.N.Y. 1988); Universal Cas. & Sur. Co. v. Gee (In re Gee),

53 B.R. 891 (Bankr. S.D.N.Y. 1985).

1 9 2 . See Saleh, 175 B.R. 422.

1 9 3 . See Goerg, 844 F.2d at 1566–68.

1 9 4 . See 11 U.S.C. § 109 (2000).

1 9 5 . See In re Brierley, 145 B.R. 151, 166 (Bankr. S.D.N.Y. 1992); see also In re Ionica

PLC, 241 B.R. 829, 837 (law of applicable foreign country need not provide for same priority

of U.S. creditor as U.S. law).

1 9 6 . See Bank of New York v. Treco (In re Treco), 240 F.3d 148, 155–61 (2d Cir. 2001)

(refusing to apply comity to Bahamian bankruptcy proceeding because administrative expenses,

which would consume most or all assets of estate, were given priority over secured claim).
International Insolvency

36

creditors;1 9 7 and (5) owners (e.g., shareholders or partners) should receive a distribution only after creditors have been paid in full (unless

the creditors agree otherwise, as may occur in the Chapter 11 context

in the United States).1 9 8 If a U.S. creditor’s claim would not be recognized under the applicable foreign insolvency law, these requirements may provide a basis for denying recognition under section

304.1 9 9 

Certain creditors may be secured under the laws of one country

and unsecured under the laws of another.2 0 0 This factor should make

no difference in the determination of whether to recognize a foreign

case under section 304.2 0 1 

5. International Comity

By far the most important factor in determining whether to recognize

a foreign proceeding under section 304 is international comity.

Comity is a principle of broad application in U.S. jurisprudence.2 0 2 

a. Definition

The comity issues that arise in international insolvencies are distinctive and have generated a rich body of case law. The U.S. Supreme

Court has defined comity “in the legal sense, [a]s neither a matter of

absolute obligation, on the one hand, nor of mere courtesy and good

1 9 7 . See, e.g., In re Culmer, 25 B.R. 621, 629–30 (Bankr. S.D.N.Y. 1982).

1 9 8 . This principle was wrongly applied in In re Toga Mfg., Ltd., 28 B.R. 165 (Bankr. E.D.

Mich. 1983), where the court held that a U.S. creditor with a judgment lien would not be

treated the same in Ontario, because the creditor would probably be treated as an unsecured

creditor under Canadian law. This principle does not require that each individual creditor be

treated the same under the applicable foreign law, but only that the foreign law recognize the

general categories of creditors similar to those recognized in U.S. bankruptcy law, and that they

receive priority over owners.

1 9 9 . See In re Papeleras Reunidas, S.A., 92 B.R. 584, 590 (Bankr. E.D.N.Y. 1988).

2 0 0 . See In re Koreag, Controle et Revision S.A., 130 B.R. 705, 713–14 (Bankr. S.D.N.Y.

1991), vacated and remanded on other grounds, Koreag, Controle et Revision S.A. v. Refco F/X

Assocs., Inc. (In re Koreag, Controle et Revision S.A.), 961 F.2d 341 (2d Cir. 1992); In re Axona Int’l Credit & Commerce Ltd., 88 B.R. 597, 611 (Bankr. S.D.N.Y. 1988). Contra, Toga,

28 B.R. at 169–71.

2 0 1 . But see Overseas Inns, S.A. v. United States, 911 F.2d 1146, 1149–50 (5th Cir. 1990)

(refusing to apply comity to a Luxembourg bankruptcy reorganization because it treated U.S.

taxes as general unsecured debts instead of priority debts).

2 0 2 . Maxwell Communication Corp. v. Société Générale (In re Maxwell Communication

Corp.), 93 F.3d 1036, 1046 (2d Cir. 1996).
III. Foreign Cases with Domestic Aspects

3 7 

will, upon the other.”2 0 3 Comity is a rule of statutory construction

and has no application where legislation is explicit.2 0 4 

International comity comes into play whenever there is a true

conflict between U.S. law and that of a foreign jurisdiction.2 0 5 Such a

conflict arises only where it is not possible to comply with the substantive legal rules of both fora.2 0 6 Thus comity is a doctrine of adjustment where there are parallel inconsistent proceedings in domestic

and foreign courts.2 0 7 

The comity analysis must consider the international legal system as

a whole in addition to the interests of individual states, because the

effective functioning of the system is advantageous to all the affected

jurisdictions.2 0 8 Comity takes into account the interests of the United

States, the interests of the foreign state or states involved, and the

mutual interests of the family of nations in just and efficiently functioning rules of international law.2 0 9 

At the same time, the U.S. court must assure itself that the foreign

proceeding at issue comports with fundamental notions of fairness

and due process.2 1 0 However, U.S. courts should be careful about

assuming responsibility for supervising the integrity of the judicial

system of another sovereign nation.2 1 1 

2 0 3 . Hilton v. Guyot, 159 U.S. 113, 163–64 (1895).

2 0 4 . See Maxwell, 93 F.3d at 1047.

2 0 5 . See id. at 1049; In re Xacur, 216 B.R. 187, 195–96 (Bankr. S.D. Tex. 1997) (finding

no conflict between requirements of laws of the United States and Mexico on issues in controversy).

2 0 6 . See Maxwell, 93 F.3d at 1050 (finding that a transaction would be an avoidable preference under U.S. law but not under English law, which was applicable to the case).

2 0 7 . See Underwood v. Hilliard (In re Rimsat Ltd.), 98 F.3d 956, 963 (7th Cir. 1996).

2 0 8 . See Maxwell, 93 F.3d at 1048.

2 0 9 . See id.

2 1 0 . See In re Koreag, Controle et Revision S.A., 130 B.R. 705, 714 (Bankr. S.D.N.Y.

1991), vacated and remanded on other grounds, Koreag, Controle et Revision S.A. v. Refco F/X

Assocs. (In re Koreag, Controle et Revision S.A.), 961 F.2d 341 (2d Cir. 1992); In re Hackett,

184 B.R. 656, 658–60 (Bankr. S.D.N.Y. 1995); Pravin Banker Assocs. Ltd. v. Banco Popular,

165 B.R. 379, 385 (S.D.N.Y. 1994); Interpool, Ltd. v. Certain Freights, 102 B.R. 373, 377 (D.

N.J. 1988). See also In re Banco de Descuento, 78 B.R. 337, 340 (Bankr. S.D. Fla. 1987) (reserving determination whether the Labor Court in Ecuador had reached a decision on a compromise of a claim in accordance with regular and fair proceedings consistent with fundamental

standards of due process, and ordering the retention of assets in the United States pending the

determination of this issue).

2 1 1 . See Blanco v. Banco Indus. de Venezuela, S.A., 997 F.2d 974, 981–82 (2d Cir. 1993)

(forum non conveniens case).
International Insolvency

38

If the foreign country at issue is a common law jurisdiction, its

laws enjoy a presumption that they are fair and that they comply with

U.S. notions of due process.2 1 2 If the foreign country is not a common law jurisdiction, the domestic court may be required to make a

more detailed examination of the law of that country to assure that

these requirements are met.

Comity has sometimes been used by U.S. courts to impose a territorial approach for the protection of domestic creditors. However,

most recent U.S. decisions have limited the scrutiny under comity to

examining whether a foreign court has competent jurisdiction and

whether that court’s decisions would violate the laws or the public

policy of the United States.2 1 3 

b. Application

Comity is particularly important in a U.S. bankruptcy case involving

a foreign insolvency proceeding,2 1 4 and it may often be the most significant factor.2 1 5 Deference to foreign insolvency proceedings will

often facilitate the distribution of the debtor’s assets in an equitable,

orderly, efficient, and systematic manner, rather than in a haphazard,

erratic, or piecemeal fashion.2 1 6 

The guidelines of section 304(c) should be used with flexibility by

the courts.2 1 7 The legislative history of section 304 states:

These guidelines are designed to give the court the maximum flexibility in handling ancillary cases. Principles of

international comity and respect for the judgments and

laws of other nations suggest that the court be permitted

to make the appropriate orders under all of the circum2 1 2 . See, e.g., In re Axona Int’l Credit & Commerce, Ltd., 88 B.R. 597, 610 (Bankr.

S.D.N.Y. 1988); Universal Cas. & Sur. v. Gee (In re Gee), 53 B.R. 891, 901 (Bankr. S.D.N.Y.

1985); Lindner Fund, Inc. v. Polly Peck Int’l PLC, 143 B.R. 807, 810 (S.D.N.Y. 1992).

2 1 3 . See Axona, 88 B.R. at 608–09.

2 1 4 . See, e.g., Allstate Life Ins. Co. v. Linter Group Ltd., 994 F.2d 996, 999 (2d Cir. 1993);

Cunard S.S. Co. v. Salen Reefer Servs. AB, 773 F.2d 452, 457 (2d Cir. 1985).

2 1 5 . See Axona, 88 B.R. at 609.

2 1 6 . See Maxwell Communication Corp. v. Société Générale (In re Maxwell Communication Corp.), 93 F.3d 1036, 1048 (2d Cir. 1996); Cunard, 773 F.2d at 458.

2 1 7 . See Axona, 88 B.R. at 598.
III. Foreign Cases with Domestic Aspects

3 9 

stances of each case, rather than being provided with inflexible rules.2 1 8 

In general, comity should be accorded to foreign insolvency proceedings if they do not violate the laws or public policy of the United

States, and if the foreign court abides by fundamental standards of

procedural fairness.2 1 9 Comity should be withheld only when its acceptance would be contrary or prejudicial to the interests of the

United States.2 2 0 In the insolvency context, U.S. courts should require

only that the foreign forum have subject–matter jurisdiction, recognize fundamental creditor protections, and provide fair treatment to

all claim holders.2 2 1 

United States courts should not expect that the insolvency laws of

a foreign country will be identical to those of the United States:

2 1 8 . H.R. Rep. No. 95-595, at 324–25 (1977), reprinted in 1978 U.S.C.C.A.N. 5963,

6280–81; S. Rep. No. 95-989, 35 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5821. See Mary

Elaine Knecht, The “Drapery of Illusion” of Section 304—What Lurks Beneath: Territoriality in the

Judicial Application of Section 304 of the Bankruptcy Code, 13 U. Pa. J. Int’l Bus. L. 287, 297

(1992).

2 1 9 . See, e.g., Finanz AG Zurich v. Banco Economico S.A., 192 F.3d 240, 246 (2d Cir.

1999); In re Koreag, Controle et Revision S.A., 130 B.R. 705, 711 (Bankr. S.D.N.Y. 1991),

vacated and remanded on other grounds, Koreag, Controle et Revision S.A. v. Refco F/X Assocs.

(In re Koreag, Controle et Revision S.A.), 961 F.2d 341 (2d Cir. 1992); Interpool, Ltd. v. Certain Freights, 102 B.R. 373, 377–78 (D. N.J. 1988) (refusing to open a section 304 proceeding

ancillary to an Australian bankruptcy case, and entering an order for relief in an involuntary

Chapter 7 case on the grounds that Australian bankruptcy law fails to provide a court-supervised

liquidation procedure, notice to creditors of major agreements between the liquidator and insiders, or equitable subordination for insider misconduct). But see In re Banco Nacional de Obras

y Servicios Publicos, S.N.C., 91 B.R. 661, 664 (Bankr. S.D.N.Y. 1988) (comity will not be

granted if it would result in forcing American creditors to participate in foreign proceedings in

which their claims will be treated in a manner inimical to the U.S. policy of treating creditors

equally).

2 2 0 . See, e.g., Philadelphia Gear Corp. v. Philadelphia Gear de Mexico, S.A., 44 F.3d 187,

191 (3d Cir. 1994); Cunard, 773 F.2d at 457; In re Rubin, 160 B.R. 269, 283 (Bankr. S.D.N.Y.

1993).

2 2 1 . See, e.g., In re Schimmelpenninck, 183 F.3d 347, 352, 365 (5th Cir. 1999). But see

Interpool, 102 B.R. at 378–80 (finding that Australian proceeding should not be given comity

because U.S. creditors had already been prejudiced by ex parte proceedings in Australian case

and Australian law had no provision for equitable subordination; and holding that U.S. bankruptcy case should proceed with respect to U.S. assets); In re Papeleras Reunidas, S.A., 92 B.R.

584, 592–94 (Bankr. E.D.N.Y. 1988) (refusing to recognize Suspension of Payments proceeding in Spain, in part because of failure to notify U.S. creditors of proceeding, and unexplained

disappearance of assets that should have been distributed to creditors).
International Insolvency

40

They merely must not be repugnant to U.S. laws and policies.2 2 2 For

example, priorities provided by a foreign bankruptcy law may differ

from those in domestic legislation.2 2 3 In addition, individualized notice may not be required as long as effective notice is received.2 2 4 

Similarly, a requirement that claims be made in local currency does

not create fundamental unfairness.2 2 5 A foreign insolvency system

need not provide the entire arsenal of weapons and defenses given by

the U.S. bankruptcy system to qualify for comity. The U.S. Supreme

Court has said: “We cannot have trade and commerce in world markets and international waters exclusively on our terms, governed by

our laws, and resolved in our courts.”2 2 6 In addition, the Supreme

Court stated more than 100 years ago:

[E]very person who deals with a foreign corporation impliedly subjects himself to such laws of the foreign government . . . as the known and established policy of that

government authorizes. . . . He is conclusively presumed

to have contracted with a view to such laws of that government, because the corporation must of necessity be

controlled by them . . . .2 2 7 

Factors providing indicia of procedural fairness include (1) whether

creditors of the same class are treated equally in the distribution of

assets; (2) whether the liquidators are considered fiduciaries and are

held accountable to the court; (3) whether creditors have the right to

submit claims which, if denied, can be submitted to a court for adjudication; (4) whether the liquidators are required to give notice to

potential claimants; (5) whether there are provisions for creditors’

2 2 2 . See, e.g., Schimmelpenninck, 183 F.3d at 365; In re Brierley, 145 B.R. 151, 166 (Bankr.

S.D.N.Y. 1992); Interpool, 102 B.R. at 378; In re Axona Int’l Credit & Commerce, Ltd., 88

B.R. 597, 610 (Bankr. S.D.N.Y. 1988); 2 Collier, supra note 49, at ¶ 304.08[5][b]; see also Ulrich Huber, Creditor Equality in Transnational Bankruptcies: The United States Position, 19 Vand. J.

Transnat’l L. 741, 758–59 (1986) [hereinafter Huber].

2 2 3 . See, e.g., Brierley, 145 B.R. at 166.

2 2 4 . See, e.g., Finanz AG Zurich, 192 F.3d at 249 (notice by publication sufficient where

creditor received notice in time to file a timely claim).

2 2 5 . See, e.g., id. at 250. Indeed the United States itself requires that claims be determined

in its local currency. See 11 U.S.C. § 502(b) (2000).

2 2 6 . The M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 9 (1972).

2 2 7 . Canada S. Ry. v. Gebhard, 109 U.S. 527, 537 (1883).
III. Foreign Cases with Domestic Aspects

4 1 

meetings; (6) whether the foreign country’s insolvency laws favor its

own citizens; (7) whether all assets are marshaled before one body for

centralized distribution; and (8) whether there are provisions for an

automatic stay and the lifting of such a stay to facilitate the centralization of claims.2 2 8 To make this determination, the court may have to

conduct an evidentiary hearing with expert testimony to ascertain the

applicable foreign law and procedures.2 2 9 

In deciding whether to apply comity in a particular case, the court

must take a careful look at the nature and status of the foreign proceeding at issue. For example, comity should not be applied where it

is opposed by creditors who have not been given notice of the foreign proceeding in time to protect their rights in the foreign forum.2 3 0 

Comity also requires that a U.S. court respect the decisions that

have already been made in the foreign court.2 3 1 A decision of a foreign court cannot be attacked collaterally in a section 304 proceeding

if the objector has failed to take advantage of opportunities to be

heard before the decision was made.2 3 2 

Comity in the section 304 context does not depend on the reciprocal recognition of comity in the related foreign insolvency

case.2 3 3 Indeed, reciprocity is uncommon in such foreign cases, because comity is a legal doctrine that is largely found only in common

law jurisdictions.2 3 4 

Comity is a substantial factor to consider in determining which

nation’s courts will decide a particular issue in an international insolvency. Ordinarily, for example, claims against the estate should be

decided in the courts of the country where the main case is pending,

because the equitable and orderly distribution of the debtor’s property

2 2 8 . See, e.g., Finanz AG Zurich, 192 F.3d at 249; Philadelphia Gear Corp. v. Philadelphia

Gear de Mex., S.A., 44 F.3d 187, 191 (3d Cir. 1994); Cunard S.S. Co. v. Salen Reefer Servs.

AB, 773 F.2d 452, 457 (2d Cir. 1985).

2 2 9 . See Cunard, 773 F.2d at 457.

2 3 0 . Interpool, Ltd. v. Certain Freights, 102 B.R. 373, 378–80 (D. N.J. 1988); In re Papeleras Reunidas, S.A., 92 B.R. 584, 590–91 (Bankr. E.D.N.Y. 1988).

2 3 1 . See, e.g., In re Board of Dirs. of Hopewell Int’l Ins. Ltd., 238 B.R. 25, 66–68 (Bankr.

S.D.N.Y. 1999) (holding that injunctive relief granted by foreign court is entitled to domestic

enforcement).

2 3 2 . See id. at 56–61.

2 3 3 . See Cunard, 773 F.2d at 460.

2 3 4 . See John R. Paul, Comity in International Law, 32 Harv. Int’l L.J. 1 (1991).
International Insolvency

42

can be best accomplished in the main proceeding.2 3 5 Comity may require that the assets located in the United States be transferred abroad

for distribution in the court where the main proceeding is pending.2 3 6 

However, U.S. courts are reluctant to recognize comity in certain

circumstances. Courts may refuse to accord comity where a secured

creditor is subject to an automatic stay in the United States but not in

the foreign jurisdiction;2 3 7 where the U.S. creditor is treated as secured under U.S. law, but not under the law of the foreign jurisdiction;2 3 8 or where the debt at issue is federal taxes.2 3 9 In addition, collective bargaining issues should usually be decided by U.S. courts because of the distinctive nature of U.S. collective bargaining law.2 4 0 

Normally, the decision of a bankruptcy court to accord comity to

the proceedings of a foreign court is discretionary.2 4 1 Such a decision

is subject to appellate review only for abuse of discretion.2 4 2 However, where a circuit court is reviewing an appellate decision on

comity (or any other issue) by a district court or bankruptcy appellate

panel, the circuit court’s review of the lower appellate court is plenary or de novo.

2 4 3 

The application of comity in U.S. bankruptcy cases is not limited

to proceedings under section 304: It is relevant to a bankruptcy case

under any chapter of the U.S. Bankruptcy Code that involves a foreign insolvency proceeding.2 4 4 Comity may be taken into account

even though no party has requested its application.

2 3 5 . See Cunard, 773 F.2d at 452 (vacating domestic attachment and requiring creditor to

make its claim in Swedish bankruptcy case); In re Banco Nacional de Obras y Servicios Publicos, S.N.C., 91 B.R. 661, 667 (Bankr. S.D.N.Y. 1988).

2 3 6 . See, e.g., In re Culmer, 25 B.R. 621 (Bankr. S.D.N.Y. 1982).

2 3 7 . See, e.g., In re Papeleras Reunidas, S.A., 92 B.R. 584, 593 (Bankr. E.D.N.Y. 1988).

2 3 8 . See id. at 593–94; In re Toga Mfg. Ltd., 28 B.R. 165, 168–71 (Bankr. E.D. Mich.

1983).

2 3 9 . See Overseas Inns S.A. v. United States, 911 F.2d 1146 (5th Cir. 1990).

2 4 0 . See Banco Nacional de Obras, 91 B.R. at 664–67 (holding that certain collective bargaining issues should be decided in U.S. courts because of the distinctive nature of collective

bargaining agreements under U.S. law).

2 4 1 . See, e.g., Finanz AG Zurich v. Banco Economico S.A., 192 F.3d 240, 246 (2d Cir.

1999).

2 4 2 . Id.

2 4 3 . See, e.g., Maxwell Communication Corp. v. Société Générale (In re Maxwell Communication Corp.), 93 F.3d 1036, 1044 (2d Cir. 1996).

2 4 4 . See, e.g., In re Culmer, 25 B.R. 621 (Bankr. S.D.N.Y. 1982).
III. Foreign Cases with Domestic Aspects

4 3 

6. Choice of Venue

As a general rule, a freely negotiated forum-selection clause in an international contract unaffected by fraud, undue influence, or onesided bargaining power should be given full effect, absent a strong

showing that it should be set aside.2 4 5 However, in the insolvency

context such provisions often must yield to considerations of comity.2 4 6 After an insolvency proceeding has been commenced, comity

and the interests of all creditors may require that the rights of the

parties be determined by the insolvency court rather than in the

venue chosen by the parties.2 4 7 

In international insolvency cases, courts have routinely disregarded

the contentions of creditors that the inconvenience of litigating a

claim in a foreign forum constitutes grounds for rejecting a section

304 petition. United States law provides equal treatment for foreigners: It requires foreign claimants to file their claims and to litigate in

U.S. courts to obtain a share of a bankruptcy estate in a U.S. case.

Similarly, the right to arbitrate a dispute must usually yield to

considerations of efficiency and convenience in the adjustment of the

rights of creditors and the debtor in the forum of the main proceeding, even where international arbitration rights are compromised.2 4 8 

While arbitration is favored in the U.S. judicial system,2 4 9 and this

preference is particularly strong for international arbitration agreements, bankruptcy courts have discretion to refuse to refer a dispute

2 4 5 . See, e.g., The M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 12–14 (1972).

2 4 6 . See, e.g., Allstate Life Ins. Co. v. Linter Group Ltd., 994 F.2d 996, 1000 (2d Cir.

1993); Official Comm. v. Transpacific Corp. (In re Commodore Int’l, Ltd.), 242 B.R. 243, 261

(Bankr. S.D.N.Y. 1999); In re Gercke, 122 B.R. 621, 632 (Bankr. D.D.C. 1991) (choice of

venue).

2 4 7 . See Gercke, 122 B.R. at 632.

2 4 8 . See, e.g., Vesta Fire Ins. Co. v. New Cap Reinsurance Corp., 244 B.R. 209, 215

(S.D.N.Y. 2000) (finding it particularly appropriate to issue an injunction against a pending

arbitration where it required the posting of a deposit that would essentially convert an unsecured creditor into a secured creditor).

2 4 9 . See, e.g., Southland Corp. v. Keating, 465 U.S. 1, 10 (1984) (stating that “Congress

has . . . mandated the enforcement of arbitration agreements”).
International Insolvency

44

to arbitration where doing so would adversely affect the underlying

purposes of the Bankruptcy Code.2 5 0 

Furthermore, the right to arbitrate is itself a contractual right that

is subject to alteration in a reorganization plan, foreign or domestic.

For example, a plan may provide for the substitution of one location

for another for the arbitration, or for the governing law to be

changed.2 5 1 

7. Procedure

The procedures for a section 304 proceeding are different in several

respects from those for plenary cases under the Bankruptcy Code.

a. Commencing a Section 304 Proceeding

A section 304 proceeding is commenced by filing a petition alleging

that (1) a foreign proceeding was commenced by or against the

debtor, (2) the petitioner is a foreign representative entitled to file the

petition under section 304, and (3) the debtor has assets within the

judicial district where the petition is filed.2 5 2 A section 304 petition

must be served, together with a summons, on the parties against

whom relief is sought pursuant to section 304(b), and on any other

parties as the court may direct.2 5 3 Service must be made in the manner

provided for serving a summons and complaint.2 5 4 Service by mail is

authorized whenever it is made within the United States.2 5 5 However,

service by mail is usually not available where service is to be made in

a foreign country.2 5 6 Service abroad requires compliance with the applicable procedures of the Federal Rules of Civil Procedure.2 5 7 

2 5 0 . See, e.g., United States Lines, Inc. v. American S.S. Owners Mut. Protection & Indem. Ass’n (In re United States Lines, Inc.), 197 F.3d 631, 639–41 (2d Cir. 1999), cert. denied,

120 S. Ct. 1532 (2000).

2 5 1 . See, e.g., In re Board of Dirs. of Hopewell Int’l Ins. Ltd., 238 B.R. 25, 61–66 (Bankr.

S.D.N.Y. 1999).

2 5 2 . See, e.g., In re Koreag, Controle et Revision S.A., 130 B.R. 705, 711 (Bankr.

S.D.N.Y. 1991), vacated and remanded on other grounds, Koreag, Controle et Revision S.A. v.

Refco F/X Assocs. (In re Koreag, Controle et Revision S.A.), 961 F.2d 341 (2d Cir. 1992).

2 5 3 . See Fed. R. Bankr. P. 1010.

2 5 4 . See id.

2 5 5 . See Fed. R. Bankr. P. 7004(b).

2 5 6 . See 9 Collier, supra note 49, ¶ 1010.03.

2 5 7 . See Fed. R. Civ. P. 4(f) & (j).
III. Foreign Cases with Domestic Aspects

4 5 

A party in interest has a right to oppose the granting of relief under section 304 by filing a timely opposition to the petition.2 5 8 Any

defense or objection to the petition must be served and filed within

twenty days after the service of the summons.2 5 9 If a timely objection

to the petition is filed, the court must determine in due course

whether relief under section 304 should be granted. The determination of whether a section 304 petition should be granted requires two

findings: (1) that a “foreign proceeding” is pending, as defined in

Bankruptcy Code § 101(23), and (2) that the party filing the section

304 petition qualifies as a “foreign representative,” as defined in section 101(24).2 6 0 In order to make this determination, the court may

be required to conduct a trial.2 6 1 

Upon the filing of a section 304 petition, the court must determine whether it should recognize a foreign case as the debtor’s main

case. In making this determination, section 304(c) provides that the

court shall be guided by “what will best assure an economical and

expeditious administration of such [foreign] estate” consistent with

the following factors: (1) just treatment of all claimants; (2) protection

of U.S. creditors against prejudice and inconvenience; (3) prevention

of preferential or fraudulent transfers of property of the estate; (4)

substantial conformity to the U.S. Bankruptcy Code order of distribution of proceeds; (5) comity; and (6) if applicable, the provision of

an opportunity for a fresh start for the foreign debtor.2 6 2 These are

guidelines, not requirements, by which the bankruptcy court should

measure the extent to which foreign law is compatible with U.S. law

and practice.2 6 3 

2 5 8 . See 11 U.S.C. § 304(b) (2000); In re Fracmaster, Ltd., 237 B.R. 627, 632 (Bankr. E.D.

Tex. 1999).

2 5 9 . See Fed. R. Bankr. P. 1011(b).

2 6 0 . Id.

2 6 1 . See, e.g., Fed. R. Bankr. P. 7012 & 7056; see also In re Culmer, 25 B.R. 621, 624

(Bankr. S.D.N.Y. 1982).

2 6 2 . See 11 U.S.C.A. § 304(c) (2000).

2 6 3 . See Haarhuis v. Kunnan Enters., Ltd., 223 B.R. 252, 255 (D. D.C. 1998), aff’d, 177

F.3d 1007 (D.C. Cir. 1999).
International Insolvency

46

b. Venue: Which Domestic District?

Domestic venue in a section 304 proceeding is governed by 28

U.S.C. § 1410.2 6 4 Section 1410 provides that the proper venue depends upon the relief requested. A section 304 proceeding must be

filed (1) in the district where an action sought to be enjoined is

pending,2 6 5 (2) in the district where the property that is the subject of

a turnover request is located,2 6 6 or (3) in all other situations, where

the principal place of business or principal asset of the foreign estate is

located.2 6 7 

Section 1410 does not resolve the issue of proper venue where

assets are dispersed among various districts in the United States, or

when a representative seeks to enjoin actions or enforcement of

judgments in different districts. Arguably such circumstances could

require a separate section 304 proceeding in each district where assets

are located or where litigation is pending. However, such an interpretation would violate the goals of section 304—promoting comity,

judicial economy, efficiency of administration, and the avoidance of

inconsistent judgments.2 6 8 In such circumstances, the proper venue for

a section 304(c) petition is the district where the debtor’s principal

2 6 4 . Section 1410 provides:

(a) A case under section 304 of title 11 to enjoin the commencement or continuation of an action or proceeding in a state or federal court, or the enforcement of

a judgment, may be commenced only in the district court for the district where the

state or federal court sits in which is pending the action or proceeding against which

the injunction is sought.

(b) A case under section 304 of title 11 to enjoin the enforcement of a lien against

a property, or to require the turnover of property of an estate, may be commenced

only in the district court for the district in which such property is found.

(c) A case under section 304 of title 11, other than a case specified in subsection

(a) or (b) of this section, may be commenced only in the district court for the district

in which is located the principal place of business in the United States, or the principal assets in the United States, of the estate that is the subject of such case.

28 U.S.C. § 1410 (2000).

2 6 5 . See, e.g., Aranha v. Eagle Fund, Ltd. (In re Thornhill Global Deposit Fund, Ltd.), 245

B.R. 1, 8 (Bankr. D. Mass. 2000); In re Brierley, 145 B.R. 151, 162 (Bankr. S.D.N.Y. 1992); In

re Banco de Descuento, 78 B.R. 337, 338 (Bankr. S.D. Fla. 1987); Angulo v. Kedzep Ltd., 29

B.R. 417, 418 (S.D. Tex. 1983).

2 6 6 . See, e.g., Thornhill, 245 B.R. at 8; Angulo, 29 B.R. at 418.

2 6 7 . See, e.g., Brierley, 145 B.R. at 162.

2 6 8 . See, e.g., In re Board of Dirs. of Hopewell Int’l Ins. Ltd., 238 B.R. 25, 44 (Bankr.

S.D.N.Y. 1999).
III. Foreign Cases with Domestic Aspects

4 7 

assets or principal place of business in the United States is located.2 6 9 

Once a section 304 petition is filed in a district with proper venue,

that court may grant nationwide relief, including issuing a nationwide

injunction.2 7 0 The court may also authorize the recovery of estate

property located in other districts.2 7 1 

 A court has the authority to transfer venue of a section 304 proceeding to another district. However, there is a strong presumption

against transfer, and the party seeking transfer has the burden of

showing that a transfer should be granted. The relevant factors for

making a transfer include the location of the parties, the accessibility

of evidence, the expense and ability to obtain witnesses (including

unwilling witnesses), the enforceability of any resulting judgment, the

ability to receive a fair trial, and the overall economics of estate administration.2 7 2 

B. Personal Jurisdiction Over Domestic Parties

A domestic court in the United States normally may not proceed

with litigation against a defendant unless the court has personal jurisdiction over the defendant. If the defendant has filed a claim in the

domestic bankruptcy case, the defendant is subject to the bankruptcy

court’s equitable power.2 7 3 The bankruptcy court then has jurisdiction

over the creditor, at least on any claims arising out of the same transaction or occurrence.

If a defendant has not filed a claim in a bankruptcy case, personal

jurisdiction for litigation against the defendant requires “minimum

contacts” of the party with the United States as a whole.2 7 4 However,

2 6 9 . Id.

2 7 0 . See In re Saleh, 175 B.R. 422, 426 (Bankr. S.D. Fla. 1994).

2 7 1 . See Evans v. Hancock, Rothert, & Bunshoft (In re Evans), 177 B.R. 193, 197 (Bankr.

S.D.N.Y. 1995).

2 7 2 . See In re Continental Airlines, Inc., 133 B.R. 585, 587–88 (Bankr. D. Del. 1991).

2 7 3 . See, e.g., Langenkamp v. Culp, 498 U.S. 42, 44 (1990).

2 7 4 . See, e.g., In re Tuli, 172 F.3d 707, 713 (9th Cir. 1999); Warfield v. KR Entertainment,

Inc. (In re Federal Fountain Inc.), 165 F.3d 600, 601–02 (8th Cir. 1999); Nordberg v. Granfinanciera (In re Chase & Sanborn Corp.), 835 F.2d 1341, 1344–48 (11th Cir. 1988), rev’d on

other grounds, 492 U.S. 33 (1989); Official Comm. v. Transpacific Corp. (In re Commodore

Int’l, Ltd.), 242 B.R. 243, 253–55 (Bankr. S.D.N.Y. 1999); Gex Ky., Inc. v. Wolf Creek

Colleries Co. (In re Gex Ky., Inc.), 85 B.R. 431, 434 (Bankr. N.D. Ohio 1987); see also Diamond Mortgage Corp. v. Sugar, 913 F.2d 1233, 1244 (7th Cir. 1990); Teitelbaum v. Cho-
International Insolvency

48

minimum contacts with the state where the court is located may be

necessary for a bankruptcy court to exercise personal jurisdiction over

a defendant in a non-core proceeding.2 7 5 

Because there is a bankruptcy law provision for service of process,

the bankruptcy court need not rely on the long-arm statute of the

state in which it sits to obtain personal jurisdiction over a defendant

who is not a resident of that particular state.2 7 6 If a bankruptcy court

lacks personal jurisdiction over a party, it may nonetheless proceed

with respect to specific property if it has in rem jurisdiction over that

property.2 7 7 In addition, the property may provide jurisdictional

grounds for proceeding against the property’s owner for actions relating to the property, in which case the court exercises quasi in rem

jurisdiction.2 7 8 However, an in rem or quasi in rem judgment is not

binding on the property’s owner personally.2 7 9 Such a judgment attaches to the property at issue and is only enforceable to the extent of

the property’s value.2 8 0 

C. Declining to Exercise Domestic Jurisdiction

In a section 304 proceeding, a U.S. court has the power to decline to

exercise jurisdiction. The court may decide either to abstain from

exercising jurisdiction in the proceeding because it is in the best interests of creditors, or to decline to exercise jurisdiction on the

grounds of forum non conveniens.

quette & Co. (In re Outlet Dep’t Stores, Inc.), 82 B.R. 694, 699 (Bankr. S.D.N.Y. 1988). This

result derives from Federal Rule of Bankruptcy Procedure 7004(d), which authorizes the service of process anywhere in the United States.

2 7 5 . See Celotex Corp. v. Rapid Am. Corp. (In re Celotex Corp.), 124 F.3d 619, 630 (4th

Cir. 1997).

2 7 6 . See Omni Capital Int’l v. Rudolf Wolff & Co., 484 U.S. 97, 108 (1987).

2 7 7 . See 4 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1070

(1987) [hereinafter Wright & Miller].

2 7 8 . See id.

2 7 9 . See id.

2 8 0 . See id.
III. Foreign Cases with Domestic Aspects

4 9 

1. Abstention

The doctrine of abstention is codified in Bankruptcy Code § 305(a),

which empowers a court, after notice and hearing,2 8 1 to dismiss or

suspend all proceedings in a bankruptcy case. The doctrine permits a

federal court, in the exercise of its discretion,2 8 2 to relinquish jurisdiction over a bankruptcy case where it is in the best interests of creditors and the debtor.2 8 3 Abstention may be exercised only in an extraordinary case.2 8 4 Abstention is not based on a balancing test:2 8 5 Indeed, the court may be required to find a true conflict between domestic and foreign law to justify abstention.2 8 6 Any party in interest

may request abstention.

Section 305 gives a court two ways to exercise its powers of abstention. First, the court may order the dismissal of the entire bankruptcy case, and thus relinquish all jurisdiction in connection with the

case.2 8 7 Second, the court may temporarily abstain from exercising

jurisdiction and order a suspension of domestic proceedings pending

other developments.2 8 8 

2 8 1 . Federal Rule of Bankruptcy Procedure 1017(c) provides that a case shall not be dismissed or suspended until after hearing and notice to all creditors and interested parties pursuant

to Rule 2002(a).

2 8 2 . See Underwood v. Hilliard (In re Rimsat, Ltd.), 98 F.3d 956, 962 (7th Cir. 1996)

(court may exercise its discretion to refuse abstention).

2 8 3 . See Underwood, 98 F.3d at 962.

2 8 4 . See In re Tuli, 172 F.3d 707, 713 (9th Cir. 1999) (holding that bankruptcy court

abused its discretion in abstaining from considering a transaction with the government of Iraq,

assuming that the transaction took place in Iraq, where the bankruptcy court gave no further

explanation for its abstention).

2 8 5 . See In re Xacur, 216 B.R. 187, 195 (Bankr. S.D. Tex. 1997).

2 8 6 . See Hobson v. Travelstead (In re Travelstead), 227 B.R. 638, 656 (D. Md. 1998).

2 8 7 . See, e.g., Finanz AG Zurich v. Banco Economico S.A., 192 F.3d 240, 246 (2d Cir.

1999); In re Ionica PLC, 241 B.R. 829, 834–38 (Bankr. S.D.N.Y. 1999) (dismissing Chapter 11

case filed while administration proceeding pending in United Kingdom—the U.S. case was

based solely on bank’s holding of pledged securities and the case was filed only to take advantage of possible equitable subordination and substantive consolidation); In re Phoenix Summus

Corp., 226 B.R. 379, 381–82 (Bankr. N.D. Tex. 1998); New Line Int’l Releasing, Inc. v. Ivex

Films, S.A., 140 B.R. 342 (S.D.N.Y. 1992).

2 8 8 . See In re Axona Int’l Credit & Commerce, Ltd., 88 B.R. 597, 608 (Bankr. S.D.N.Y.

1988); In re Trackman, 33 B.R. 780, 783–84 (Bankr. S.D.N.Y. 1983) (suspending section 304

proceeding because parallel district court interpleader proceeding provided most of the relief

available in bankruptcy court).
International Insolvency

50

A choice-of-venue clause is not a basis for abstention. Such a

clause is not enforceable if its enforcement would be unreasonable.2 8 9 

Where there is a foreign bankruptcy proceeding in progress, considerations of efficient and fair distribution of the debtor’s assets are

likely to make it unreasonable to enforce a choice-of-venue provision.2 9 0 

Section 305(b) places certain limits on the authority of a foreign

representative to request the dismissal or suspension of a U.S. bankruptcy case in favor of a pending foreign case.2 9 1 The foreign representative must show (1) that there is a foreign insolvency proceeding

under way,2 9 2 and (2) that the factors specified in section 304(c) warrant such dismissal or suspension.2 9 3 The factors of section 304(c) are

applicable even where the U.S. proceeding is a full bankruptcy case

and not an ancillary proceeding under section 304.2 9 4 Pursuant to section 305(c), an order granting or denying a motion to dismiss or suspend a U.S. proceeding is reviewable only by the district court or the

bankruptcy appellate panel: It is not reviewable by appeal or otherwise by the circuit court.2 9 5 

In several cases the administrator of a foreign bankruptcy case has

filed a Chapter 7 case in the United States to bring avoidance actions

under the U.S. Bankruptcy Code.2 9 6 In such a case, after the recovery

of avoidable transfers is complete, the U.S. case may be suspended

and the assets transferred to the country where the main case is

2 8 9 . See The M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15 (1972); New Line, 140

B.R. at 346.

2 9 0 . See New Line, 140 B.R. at 346.

2 9 1 . See In re Spanish Cay Co., 161 B.R. 715, 724 (Bankr. S.D. Fla. 1993).

2 9 2 . See In re Xacur, 216 B.R. 187, 195 (Bankr. S.D. Tex. 1997). For the definition of

“foreign proceeding,” see supra note 128.

2 9 3 . See In re Axona Int’l Credit & Commerce, Ltd., 88 B.R. 597, 608 (Bankr. S.D.N.Y.

1988).

2 9 4 . See, e.g., In re Ionica PLC, 241 B.R. 829, 834–38 (Bankr. S.D.N.Y. 1999).

2 9 5 . See Underwood v. Hilliard (In re Rimsat, Ltd.), 98 F.3d 956, 962 (7th Cir. 1996); In re

Emerson Radio Corp., 52 F.3d 50, 52 (3d Cir. 1995). But see In re Georg, 930 F.2d 1563, 1566

(11th Cir. 1991).

2 9 6 . See, e.g., Axona, 88 B.R. at 601 (foreign representative filed Chapter 7 case under U.S.

bankruptcy law because it was not clear that the representation would be permitted to exercise

avoiding powers in a proceeding under section 304); Banque de Financement, S.A. v. First

Nat’l Bank, 568 F.2d 911 (2d Cir. 1977); Israel-British Bank (London) Ltd. v. FDIC, 536 F.2d

509 (2d Cir. 1976).
III. Foreign Cases with Domestic Aspects

5 1 

pending for distribution to all creditors (including those from the

United States) according to the priority provisions of that nation’s

law. The foreign forum should normally determine the validity or

amount of claims against a foreign debtor.2 9 7 

A foreign representative should generally file a motion to dismiss

or suspend a plenary U.S. case in connection with the commencement of an ancillary proceeding in the United States.2 9 8 The main

case in the United States may be dismissed if three criteria are met:

(1) the main case is competing with a pending foreign proceeding; (2)

the ancillary proceeding is able to deal effectively with both U.S.

creditors and assets; and (3) relinquishing jurisdiction would best ensure the economical and expeditious administration of the estate.2 9 9 

A motion for such dismissal or suspension may be denied in the

U.S. case if the debtor is seeking a reorganization under Chapter 11

of the U.S. Bankruptcy Code and if such a reorganization is not

available under the laws of the appropriate foreign jurisdiction.3 0 0 

2. Forum Non Conveniens

Forum non conveniens is another ground on which courts have traditionally deferred to other jurisdictions for the determination of controversies. The doctrine of forum non conveniens gives a court discretion to decline jurisdiction when the convenience of the parties and

ends of justice would be better served if the case were to proceed in

another forum.3 0 1 A bankruptcy court may use forum non conveniens

either to dismiss or to suspend a case,3 0 2 though this rule is not codified in the U.S. Bankruptcy Code.3 0 3 In a typical domestic federal

2 9 7 . See In re Brierley, 145 B.R. 151, 168 (Bankr. S.D.N.Y. 1992).

2 9 8 . Universal Cas. & Sur. Co. v. Gee (In re Gee), 53 B.R. 891, 905 (Bankr. S.D.N.Y.

1985).

2 9 9 . See Huber, supra note 222, at 766. See also Gee, 53 B.R. at 904–05.

3 0 0 . See In re Spanish Cay Co., 161 B.R. 715, 724 (Bankr. S.D. Fla. 1993).

3 0 1 . See Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 721–22 (1996); Alfadda v. Fenn,

159 F.3d 41, 45–46 (2d Cir. 1998); Official Comm. v. Transpacific Corp. (In re Commodore

Int’l, Ltd.), 242 B.R. 243, 262 (Bankr. S.D.N.Y. 1999).

3 0 2 . See, e.g., Commodore, 242 B.R. at 261–64.

3 0 3 . Section 305(a)(1) may be read to incorporate the forum non conveniens doctrine. However, the legislative history indicates that Congress intended this provision to apply where the

parties are working out an arrangement out of court, and a few recalcitrant creditors file an

involuntary bankruptcy case to improve their negotiating power.
International Insolvency

52

case, the remedy for forum non conveniens is to transfer the case to the

proper district.3 0 4 In contrast, in international practice the solution to a

forum non conveniens problem is the same as that in a federal case that

should have been brought in state court: The case is dismissed or suspended.3 0 5 

The application of forum non conveniens requires a three-step analysis. First, the court must examine the availability of an alternate forum.3 0 6 Second, the court must consider the plaintiff’s choice of forum, which enjoys a presumption in its favor.3 0 7 Third, the court

must balance the plaintiff’s choice of forum against the private interest

factors affecting the convenience of the litigants and the public interest factors affecting the convenience of the forum and the interests of

justice.3 0 8 In a complex bankruptcy case, the public interest factors

frequently weigh in favor of having the controversy decided in the

forum of the main insolvency case.3 0 9 

In a proceeding brought under section 304, a bankruptcy court

must consider the factors specified in section 304(c) in determining

whether to apply the doctrine of forum non conveniens in favor of a

foreign forum.

3 0 4 . See 5A Wright & Miller, supra note 277, § 1352.

3 0 5 . See id.

3 0 6 . See Commodore, 242 B.R. at 263.

3 0 7 . See id.

3 0 8 . See id.

3 0 9 . See id.
53

IV. International Conventions and

Other Sources of International

Bankruptcy Law

Traditionally there have been very few international conventions on

the specific subject of transnational insolvencies, and none to which

the United States has been a party. Several international treaties specifically govern transnational insolvency matters, but only among the

states that are parties to the applicable convention.3 1 0 The Nordic

Bankruptcy Convention of 1933,3 1 1 for example, applies among

Denmark, Finland, Iceland, Norway, and Sweden. It has been used

sparingly, however, because of the relatively small number of insolvency proceedings in these countries. In addition, there are several

bilateral treaties between European countries that include provisions

relating to transnational insolvencies,3 1 2 but the international insolvency aspects of these treaties are largely superseded by the European

Union Regulation on Insolvency Proceedings, effective May 31,

2002.3 1 3 

At least two treaties between various Latin American countries

include provisions on the subject of insolvencies. Chapter X of the

Montevideo Treaty of 18893 1 4 governs insolvency issues between Argentina, Bolivia, Columbia, and Peru. In addition, the Code Bustamente (Convention on Private International Law of 1928)3 1 5 covers

fifteen Latin American countries: Bolivia, Brazil, Chile, Costa Rica,

3 1 0 . Three other bankruptcy treaties have been drafted but never ratified: the Hague

Bankruptcy Convention of 1925, the Draft United States–Canada Bankruptcy Treaty of 1979,

and the Benelux Convention of 1961 (Belgium, Luxembourg, and the Netherlands).

3 1 1 . See Convention Regarding Bankruptcy, Nov. 7, 1933, 155 L.N.T.S. 115, as

amended, October 11, 1977; see generally David C. Cook, Prospects for a North American Bankruptcy Agreement, 2 Sw. J. Law & Trade Am. 81, 85 (1995).

3 1 2 . See European Union Reg. on Insolvency Proceedings, art. 44, 2000 O.J. (L 160) 1 (see

Appendix C, infra).

3 1 3 . See infra text accompanying notes 457–533.

3 1 4 . 2 Int. Am. Conf. 884 (1889).

3 1 5 . Convention on Private International Law (Bustamante Code), Feb. 20, 1928, 86

L.N.T.S. 254 (English version).
International Insolvency

54

Cuba, the Dominican Republic, Ecuador, El Salvador, Guatemala,

Haiti, Honduras, Nicaragua, Panama, Peru, and Venezuela. It appears

that these treaties are not put to much use.

In addition, there are more general treaties that may cover certain

international aspects of transnational bankruptcy cases. For example,

treaties on civil and commercial litigation may provide assistance in

litigation in insolvency cases.3 1 6 

Apart from treaties and the new EU Regulation, there is little

public international law3 1 7 that applies to transnational insolvencies.

Similarly, there are no international tribunals with competence (i.e.,

jurisdiction)3 1 8 in the arena of transnational insolvencies.3 1 9 

Notwithstanding the relative lack of international treaties on

transnational insolvencies, four documents can provide substantial

assistance in dealing with transnational insolvencies. The first is a

3 1 6 . See, e.g., Convention on the Service Abroad of Judicial and Extrajudicial Documents

in Civil or Commercial Matters, Nov. 15, 1965, 20 U.S.T. 361; Convention on the Taking of

Evidence Abroad in Civil or Commercial Matters, Mar. 18, 1970, 23 U.S.T. 2555. See also EU

Reg., art. 44 (listing nine bilateral conventions containing provisions that are replaced by the

EU Regulation; see infra Appendix C).

3 1 7 . International law is part of the domestic law of the United States. See The Paquete

Habana, 175 U.S. 677, 700 (1900) (stating that international law is part of the law of the United

States and must be ascertained and administered by the courts of justice of appropriate jurisdiction whenever the applicable law depends on the application of international law).

3 1 8 . It is conceivable that a dispute involving a transnational insolvency could be submitted

to the International Court of Justice or to the International Trade Court. Such a proceeding

would be highly unusual and would occur only if a state with standing took up the interests of

one of its citizens or businesses in such a forum. See, e.g., In re Elettronica Sicula S.P.A., 1989

I.C.J. 15 (rejecting U.S. challenge that Italian local government paid an insufficient price for a

factory taken over by the municipality).

On one occasion the World Court received a request to resolve an international insolvency

problem. See Barcelona Traction, Light & Power Co. (Belgium v. Spain), 1970 I.C.J. 3. The World

Court found that Belgium had no legal standing to exercise diplomatic protection for shareholders of a Canadian company relating to measures taken against that company in Spain. The

World Court found that Canada could protect shareholders of its own corporations. Furthermore, the World Court expressed reluctance to permit a country to provide diplomatic protection for shareholders, because that would open the door to competing claims by various states,

which would create an atmosphere of insecurity in international economic relations.

3 1 9 . The European Union Convention on Insolvency Proceedings proposed to give jurisdiction to the Court of Justice of the European Communities to interpret the Convention. See

European Union Convention on Insolvency Proceedings, arts. 43–45, Nov. 23, 1995, 35

I.L.M. 1223 (1996). The provisions apparently did not confer jurisdiction on the Court of

Justice to hear insolvency cases or secondary proceedings that could be brought in the member

countries. These provisions were deleted before the adoption of the convention text as an EU

regulation.
IV. International Conventions and Other Sources of International Bankruptcy Law

5 5 

model law drafted by the United Nations Commission on International Trade Law [hereinafter the Model Law].3 2 0 The second is the

American Law Institute’s NAFTA Transnational Insolvency Project,3 2 1 which was recently completed pursuant to the North American Free Trade Agreement. The third, adopted by the European

Community to govern transnational insolvencies among its members,

is the European Union Regulation on Insolvency Proceedings, which

goes into effect on May 31, 2002. The fourth is the Cross-Border

Insolvency Concordat, which establishes a set of general principles

developed by Committee J of the International Bar Association to

harmonize and coordinate insolvency proceedings in multiple countries.

Until the Model Law takes effect (as it is adopted by various

countries), the Concordat is the principal source of procedures for

international insolvencies. The EU Regulation may also be used as a

source of international insolvency law in non-EU countries.3 2 2 

A. UNCITRAL Model Law on Cross-Border Insolvency

Except in the European Union, international insolvencies are likely

to be affected by the United Nations Commission on International

Trade Law (UNCITRAL) Model Law, which is designed for internal

adoption in various countries. As a model law, this statute will presumably be adopted with modifications and adjustments to accommodate each enacting country’s respective commercial code(s), business laws, and legal culture. As a result, it is necessary to examine the

actual law as enacted in a particular country to determine the provisions and application of the law in that state.

3 2 0 . Model Law on Cross-Border Insolvency, May 30, 1997, 36 I.L.M. 1386 (1997); see

also Guide to Enactment of the UNCITRAL Model Law on Cross-Border Insolvency, 1997 XXVIII

UNCITRAL Y.B. pt. 3, § 2, U.N. Doc. A/CN. 9/442, reprinted in 6 Tul. J. Int’l & Comp. L.

415 (1998); see generally André J. Berends, The UNCITRAL Model Law on Cross-Border Insolvency: A Comprehensive Overview, 6 Tul. J. Int’l & Comp. L. 309 (1998). For the text of the

Model Law, see infra Appendix B.

3 2 1 . American Law Institute, Transnational Insolvency Project: Principles of Cooperation

in Transnational Insolvency Cases Among the Members of the North American Free Trade

Agreement (draft, Apr. 14, 2000).

3 2 2 . See, e.g., the Israel district court ruling in In re Tower Air, liquidation files 1383/00,

1384/00 (D.C.T.A., May 28, 2000), summarized in Adi Kahan, Country Focus, Insol World, Dec.

2000, at 4–5 (adopting the concept of “establishment” from the EU Regulation).
International Insolvency

56

UNCITRAL promulgated the Model Law in 1997 to provide

countries with an internal legal regime for the treatment of insolvencies with transnational features. The Model Law is designed for cases

involving a debtor, assets, creditors, operations, or transactions located

in two or more countries. Its purpose is to provide a means for more

effective, equitable, and efficient case administration of transnational

insolvency liquidations and reorganizations.

The Model Law is designed to function where two or more nations have adopted the law in their domestic legislation; it governs

transnational insolvency problems between those countries where the

law has been adopted. Even absent adoption in a relevant country,

the Model Law is likely to provide an international standard for

courts on the treatment of transnational insolvency problems.

UNCITRAL developed the Model Law because, despite substantial efforts, no treaty had been drafted that had received any substantial approval.3 2 3 A model law was perceived as a more modest proposal that could more easily be accepted. Unlike a convention, which

generally must be accepted or rejected as a whole, a model law can be

tailored by each country to its particular needs and interests.3 2 4 In addition, a convention takes much longer to draft because every participant has a vested interest in the text. A model law, in contrast, does

not require the same level of commitment because of the possibility

of modification by an adopting nation.3 2 5 

The Model Law has been adopted thus far in Japan, South Africa,

Mexico, and Eritrea.3 2 6 Canada has also enacted legislation inspired by

the Model Law.3 2 7 The Model Law is incorporated into S. 420 and

H.R. 333 of the 107th U.S. Congress3 2 8 —this legislation would in3 2 3 . See Berends, supra note 13, at 319.

3 2 4 . See id. at 320.

3 2 5 . See id. at 319.

3 2 6 . See http://www.uncitral.org/en-index.htm (visited Apr. 3, 2001).

3 2 7 . See Bankruptcy and Insolvency Act, R.S.C., ch. 13-3, §§ 267–275 (1995) (Can.)

(effective Sept. 30, 1997). This statute was recently invoked to protect the solvent Canadian

subsidiary of a U.S. Chapter 11 debtor, even though applicable Canadian substantive law did

not permit the filing of an insolvency case by a solvent entity. See In re Babcock & Wilcox, No.

00-CL-3667 (Ont. Ct. Feb. 25, 2000), summarized in E. Bruce Leonard, Non-Debtor Protection in

an International Case, Am. Bankr. Inst. J. 28–29 (May 2000) [hereinafter Leonard I].

3 2 8 . See S. 420 § 801, 107th Cong. (2001); H.R. 333, § 801, 107th Cong. (2001); see

generally, M. Cameron Gilreath, Overview and Analysis of How the United Nations Model Law on
IV. International Conventions and Other Sources of International Bankruptcy Law

5 7 

corporate the Model Law into the U.S. Bankruptcy Code as Chapter

15. As of this writing, these bills await resolution on Capitol Hill.

The Model Law3 2 9 has three principal features. First, it provides for

more timely, effective, and efficient procedures for recognizing foreign insolvency proceedings. Second, it authorizes each accredited

representative to participate in foreign courts and proceedings in enacting nations. Third, it mandates the cooperation by courts and

authorized estate representatives in one country with courts and estate

representatives of other countries with related proceedings. Such cooperation is subject to the primacy of local proceedings and deference

to the local judge’s statutory discretion, and to applicable principles of

due process and customary court practices.

Three features of the Model Law are especially important for U.S.

interests. First, it recognizes debtors in possession as proper estate

representatives. Chapter 11 debtors in the United States have had

substantial difficulty in obtaining recognition in foreign insolvency

proceedings, where a trustee is usually appointed to represent the estate.3 3 0 Second, the Model Law contains an automatic stay, which

applies to secured creditors as well as unsecured creditors. In contrast,

a number of countries have automatic stays that apply only to unsecured creditors. Third, reorganization is promoted as a fundamental

goal of the Model Law, even though the bankruptcy laws of many

countries provide only for liquidation.

The Model Law is not the ultimate step in international cooperation in insolvency cases. It leaves unresolved many difficult legal issues. Notably, the Model Law has no provision to govern conflict-oflaws and choice-of-law issues.

1. Definitions

The Model Law introduces several defined concepts that are important for understanding the law. A state is a nation that has adopted the

Model Law. A foreign proceeding is defined broadly to include any colInsolvency Would Affect United States Corporations Doing Business Abroad, 16 Bankr. Dev. J. 399

(2000).

3 2 9 . The description of the Model Law given here assumes that it is adopted without

modification by the adopting country.

3 3 0 . See supra text accompanying notes 113–14.
International Insolvency

58

lective judicial or administrative proceeding (including an interim

proceeding) pursuant to a law relating to insolvency in a foreign state,

in which the assets and affairs of the debtor are subject to control or

supervision by a foreign court for the purpose of reorganization or

liquidation.3 3 1 

A foreign non-main proceeding is a foreign proceeding, other than a

foreign main proceeding, taking place in a state where the debtor has

an establishment.3 3 2 An establishment is broadly defined to include any

place of operations where the debtor carries out a non-transitory

economic activity with human means and goods or services.3 3 3 

The distinction between a main proceeding and a non-main proceeding is important under the Model Law. The recognition of a foreign proceeding as a main proceeding imposes an automatic stay on

creditor collection activities in the United States, and suspends the

right to transfer, encumber, or otherwise dispose of any assets of the

debtor.3 3 4 In contrast, such a stay and suspension of transfer rights

upon the recognition of a foreign non-main proceeding arises only

pursuant to court order, and is discretionary.3 3 5 

A foreign court is a judicial or other authority competent to control

or supervise a foreign proceeding.3 3 6 A foreign representative means a

person or body (including one appointed on an interim basis)

authorized in a foreign proceeding to administer the reorganization

or the liquidation of the debtor’s assets or affairs or to act as a representative of the foreign proceeding.3 3 7 

The center of main interests of a debtor is a critically important new

concept introduced by the Model Law. This concept is also used in

3 3 1 . See Model Law, art. 2(a). This definition may cover proceedings that do not fall within

the bankruptcy law of the nation at issue. For example, an insolvency proceeding for a bank or

an insurance firm would qualify, even though it does not take place under U.S. bankruptcy law.

Similarly, a winding up of a corporation or a partnership under state law in the United States

would also probably qualify for Model Law purposes.

3 3 2 . See id. art. 2(c).

3 3 3 . See id. art. 2(f).

3 3 4 . See id. art. 20(1).

3 3 5 . See id. art. 21(1).

3 3 6 . See id. art. 2(e).

3 3 7 . See id. art. 2(d).
IV. International Conventions and Other Sources of International Bankruptcy Law

5 9 

the EU Regulation3 3 8 and in the NAFTA Transnational Insolvency

Project.3 3 9 As of now, this concept is unknown in U.S. law.

Under the Model Law, the center of a debtor’s main interests,

absent proof to the contrary, is presumed to be the state where the

debtor’s registered office is located or the debtor’s habitual residence

in the case of an individual.3 4 0 A foreign proceeding granted recognition under the Model Law is a foreign main proceeding if it is pending in the state where the center of the debtor’s main interests are

located.3 4 1 

Several other concepts are also important to understanding the

Model Law. Insolvency is a broad umbrella term that includes both

reorganizations and liquidations. Insolvency does not necessarily

mean financial (balance sheet) insolvency: A debtor is not required to

be financially insolvent to qualify for a liquidation or reorganization.

A proceeding is the generic term for an insolvency (or bankruptcy)

case: The term is not limited to adversary proceeding as in U.S. bankruptcy law terminology. Finally, preference is generally synonymous

with the term “priority” in U.S. law, and is used to designate the

rank of a claim: The term does not relate to “preferential transfers” as

in U.S. bankruptcy law.3 4 2 

2. Application of the Model Law

The Model Law is drafted to cover all kinds of insolvency proceedings. However, it is anticipated that exceptions will be recognized in

some countries, especially for banks and insurance companies, which

frequently have special regimes for winding up. Some countries are

also considering the exclusion of consumer insolvencies, because

consumers are not provided for in those countries’ domestic insolvency legislation.3 4 3 

3 3 8 . See infra text accompanying notes 479–84.

3 3 9 . See infra text accompanying notes 422, 450–51.

3 4 0 . See Model Law, art. 16(3).

3 4 1 . See id. art. 2(b).

3 4 2 . See 11 U.S.C. § 547 (2000).

3 4 3 . Most countries that lack consumer insolvency laws also lack any substantial amount of

consumer debt. However, the credit card industry is rapidly expanding its reach into these

countries. Consumer insolvency legislation likely will follow in the affected countries in due

course.
International Insolvency

60

The Model Law should be interpreted with due regard to its international origin and to the need to promote uniformity in its application and the observance of good faith.3 4 4 The Model Law is intended to apply in any of the following situations: (1) a “foreign

court” or “foreign representative” involved in an insolvency case

seeks assistance in the courts of a second state; (2) a court, trustee, or

debtor in possession in a state seeks assistance of a second state involving an insolvency proceeding in the first state; (3) there are two

or more concurrent insolvency cases in different states involving the

same debtor; or (4) creditors or other parties in interest in one state

seek to commence or participate in an insolvency proceeding in another state.3 4 5 

Notwithstanding the broad scope of the Model Law, there are

three important restrictions to its application. First, the Model Law is

preempted by any applicable international treaties and agreements of

the states at issue.3 4 6 Second, the Model Law permits courts of an enacting state to refuse to apply the Model Law where such action

would be manifestly contrary to the public policy of the state.3 4 7 

Third, a court in an enacting state is given discretion to qualify, condition, limit, modify, or terminate an order for relief with respect to a

foreign proceeding or foreign representative as appropriate.3 4 8 

3. Access of Foreign Representatives and Creditors to Courts

The Model Law provides that foreign creditors and representatives of

foreign proceedings are to be granted more expeditious, simplified,

and certain access to insolvency proceedings in an enacting state. A

foreign representative is entitled to apply directly to a court in an enacting state with minimal formalities.3 4 9 However, such a representative may be subject to routine requirements and generally applied

practice procedures of the court where the application for access is

made.3 5 0 Such an application does not expose the foreign representa3 4 4 . See Model Law, art. 8.

3 4 5 . See id. art. 1.

3 4 6 . See id. art. 3.

3 4 7 . See id. art. 6.

3 4 8 . See id. art. 22.

3 4 9 . See id. art. 9.

3 5 0 . See id. art. 11.
IV. International Conventions and Other Sources of International Bankruptcy Law

6 1 

tive, or assets subject to the foreign proceeding, to the general jurisdiction and authority of the domestic court for purposes other than

the proceeding at issue.3 5 1 

Foreign creditors are entitled to the same rights as domestic

creditors to commence or participate in an insolvency proceeding.3 5 2 

Foreign creditors’ claims are generally to be treated the same as local

claims of equal rank, according to the priorities and treatment of

claims under the law of the enacting state.3 5 3 

When notice to creditors in an insolvency case is required by the

law of the enacting state, notice must also be given to known foreign

creditors of the debtor.3 5 4 Unless the court orders otherwise, that notice is to be direct and “individual,” without requiring letters rogatory or other similar formalities.3 5 5 Notice by publication, whether in

a commercial register or a newspaper of general circulation, is insufficient to notify known creditors.3 5 6 The court may order notice to

unknown creditors by whatever means may be appropriate.3 5 7 

Notification to foreign creditors of commencement of a case must

include at least the following elements: notice of the time and place

to file claims; notice to secured creditors if their claims must be filed;

and all other information required by the enacting state to be given to

domestic creditors.3 5 8 

4. Recognition of Foreign Proceeding and Relief

Perhaps the most important feature of the Model Law is the provision

for the recognition of a foreign insolvency proceeding and the consequences of such recognition. The Model Law provides a structured

but flexible framework for the decision of a court to recognize a foreign insolvency proceeding, and thus trigger the law’s statutory consequences, rights, and benefits.

3 5 1 . See id. art. 10.

3 5 2 . See id. art. 13(1).

3 5 3 . See id. art. 13(2).

3 5 4 . See id. art. 14(1).

3 5 5 . See id. art. 14(2).

3 5 6 . Accord, Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 313–20 (1950).

3 5 7 . See Model Law, art. 14(1).

3 5 8 . See id. art. 14(3).
International Insolvency

62

Only a duly authorized and qualified foreign representative may

apply to a court (“the forum court”) to obtain recognition of a foreign proceeding.3 5 9 Such an application must be made in a language

acceptable to the court, and must be accompanied by two kinds of

documents. First, the representative must present a statement identifying all other known foreign insolvency proceedings related to the

debtor. Second, the representative must provide certificated documents from the foreign court reflecting the existence of a pending

insolvency case and the appointment of the foreign representative, or

other evidence acceptable to the forum court demonstrating the existence of the foreign proceeding and the authority of the foreign

representative.3 6 0 

To simplify the application and recognition processes, a forum

court is permitted to invoke certain presumptions as to the legitimacy

and accuracy of documentation supporting the application for recognition.3 6 1 A foreign representative has a duty to supplement the information supplied to the forum court if there is a substantial change

in the status of the foreign proceeding or of the foreign representative.3 6 2 

A forum court is required to recognize a foreign proceeding if

three requirements are met: (1) recognition is not manifestly against

the public policy of the forum state;3 6 3 (2) both the foreign proceeding and its designated foreign representative are fully qualified and

properly certified to be recognized;3 6 4 and (3) the application is legally

sufficient and submitted to the proper court.3 6 5 

The forum court is directed to decide promptly the issue of recognition.3 6 6 The court may recognize the foreign proceeding as a foreign main proceeding or a foreign non-main proceeding. The forum

court may modify or terminate the decision to recognize a foreign

3 5 9 . See id. art. 15(1); art. (2)(d).

3 6 0 . See id. art. 15.

3 6 1 . See id. art. 16.

3 6 2 . See id. art. 18.

3 6 3 . See id. art. 6; art. 17(1).

3 6 4 . See id. art. 2; art. 17(1).

3 6 5 . See id. art. 15(2); art. 17(1); art. 4.

3 6 6 . See id. art. 17(3).
IV. International Conventions and Other Sources of International Bankruptcy Law

6 3 

proceeding if its grounds were lacking at the outset or have subsequently ceased to exist.3 6 7 

A forum court may grant emergency relief to a foreign representative while an application for recognition is pending. Emergency

relief may include (1) staying execution against a debtor’s property;

(2) suspending any right to transfer, encumber, or dispose of the

debtor’s property; (3) providing for examination of witnesses and discovery concerning a debtor’s assets, affairs, and obligations; (4) entrusting the debtor’s property to the foreign representation or other

custodian to protect and preserve its value; and (5) any other relief

provided for under the laws of the forum state.3 6 8 Emergency relief is

subject to applicable notice requirements of the forum court. Furthermore, any such emergency relief terminates upon recognition of

the foreign proceeding.3 6 9 

Upon recognition of a foreign main proceeding, a moratorium or

automatic stay prohibits the following: the commencement or continuation of private litigation involving the debtor’s assets, rights, or

obligations; execution on the debtor’s assets; and the transfer, encumbrance, or disposition of the debtor’s assets located within the jurisdiction of the forum court.3 7 0 This moratorium or automatic stay is

effective throughout the state where the forum court is located, unless the recognition order or an applicable statute of the state of the

forum court provides otherwise. In contrast, a moratorium or automatic stay is not imposed if the foreign proceeding is not a main proceeding.

The Model Law provides exceptions to the automatic stay resulting from the recognition of a foreign main proceeding. These exceptions include those specified in the law of the state where the forum

court is located, the commencement of actions necessary to preserve

a creditor’s claim, and the commencement of a new insolvency proceeding in the forum state.3 7 1 

3 6 7 . See id. art. 17(4).

3 6 8 . See id. art. 19(1); art. 21(1), (c), (d) & (g).

3 6 9 . See id. art. 19(2), (3).

3 7 0 . See id. art. 20(1).

3 7 1 . See id. art. 20(2).
International Insolvency

64

After the recognition of any foreign proceeding, main or nonmain, the foreign representative may request that the forum court

grant relief to protect the debtor’s assets or creditors’ interests. Such

relief may include any of the relief available on an emergency and

interim basis.3 7 2 Further, if the court is satisfied that the interests of

creditors in the forum state are adequately protected, it may entrust

the distribution of all or part of the debtor’s assets located in the forum state to the foreign representative or another person designated

by the court.3 7 3 If the foreign proceeding is a non-main proceeding,

the relief available is limited to assets subject to administration in the

foreign non-main proceeding (as determined by the law of the forum

state).3 7 4 

A foreign insolvency proceeding may not qualify as either a main

or a non-main proceeding as these terms are defined in the Model

Law. If the proceeding is filed in a state that is neither the center of

the debtor’s main interests nor a state where the debtor has an establishment, the proceeding is neither a main proceeding nor a nonmain proceeding. Under common law statutory construction, such a

proceeding could nonetheless be recognized. Under the Model Law,

however, recognition would not be mandatory. In addition, the

Model Law does not provide any consequences required by such recognition. The court granting recognition would have to determine

the consequences flowing from recognition on a case-by-case basis.

The Model Law grants substantial discretion and flexibility to a

forum court after the recognition of a foreign proceeding.3 7 5 The

court in the forum state may, at any time, condition, qualify, or terminate any relief granted after recognition of a foreign proceeding.3 7 6 

After recognition, a foreign representative may intervene in any

civil action in the forum state in which the debtor is a party.3 7 7 In addition, the foreign representative may initiate actions in the forum

state for the avoidance of fraudulent or preferential transfers or other

3 7 2 . See id. art. 21(1).

3 7 3 . See id. art. 21(2).

3 7 4 . See id. art. 23(2).

3 7 5 . See id. art. 22.

3 7 6 . See id.

3 7 7 . See id. art. 24.
IV. International Conventions and Other Sources of International Bankruptcy Law

6 5 

acts “detrimental to creditors” that may be brought under the laws of

the forum state.3 7 8 

5. Cooperation and Communication with Foreign Courts and

Foreign Representatives

The Model Law envisions a maximum level of cooperation and direct communication by both the parties and the courts. It directs

courts to “cooperate to the maximum extent possible with foreign

courts or foreign representatives,” either directly or indirectly

through an authorized official (such as a trustee or debtor in possession) administering an estate.3 7 9 The Model Law specifically authorizes a judge to communicate directly with a foreign judge and foreign

representatives and to request information or assistance directly from

them.3 8 0 The mandate to cooperate is subject to the enacting state’s

public policy and the court’s discretion.

Another procedure available for cooperation between courts in

different states is a joint hearing of the respective courts, which may

be connected by a conference telephone call or videoconference.3 8 1 If

the courts conduct business in different languages, translators can be

used.

The Model Law also requires a trustee or debtor in possession to

“cooperate to the maximum extent possible” with foreign courts and

foreign representatives.3 8 2 Furthermore, the trustee or debtor in possession may communicate directly or indirectly with foreign courts

and foreign representatives, subject to supervision of the forum

3 7 8 . See id. art. 23.

3 7 9 . See id. art. 25(1).

3 8 0 . See id. art. 25(2).

3 8 1 . Joint hearings between tribunals in the United States and Canada have taken place in

at least three cases. In In re Solv-Ex Corp., No. 11-97-14361-MA (Bankr. D. N.M. 1997), and

In re Solv-Ex Canada Ltd., No. 9701-10022 (Q.B. Alta. 1997), which involved proceedings in a

bankruptcy court in New Mexico and a court in Calgary, Alberta, Canada, a joint hearing was

set up by telephone conference call between the two courts at the urging of the respective

judges. A similar joint hearing by conference call took place between a court in the United

States and a Canadian court in In re Everfresh Beverages, Inc., No. 95-B-45405 (Bankr. S.D.N.Y.

1995) and No. 32-077978 (Ont. Ct. 1995), and in In re Loewen Group Inc., No. 99-01244

(Bankr. D. Del. 1999) and No. 99-CL-3384 (Ont. Super. 1999). Furthermore, Judge Sidney

Brooks in Denver held a transatlantic hearing in a case to take evidence from liquidators in

England concerning property in China. See Leonard I, supra note 327, at 29.

3 8 2 . See Model Law, art. 26(1).
International Insolvency

66

court.3 8 3 The Model Law mandates that such cooperation be “implemented by any appropriate means,” which may include (1) appointment of a person to act at the direction of the court, (2) sharing of

information by any court-approved method of communication,

(3) coordination of administration of the debtor’s assets and affairs,

(4) court approval of agreements concerning coordination of proceedings, and (5) coordination of concurrent proceedings regarding

the same debtor.3 8 4 

6. Concurrent Proceedings

The Model Law places a premium on making an application for recognition of a foreign main proceeding before an insolvency proceeding has been commenced as to the same debtor in the forum

state. Once a court has recognized a foreign main proceeding, the

courts of that state may not entertain a main proceeding (whether

voluntary or involuntary) as to the same debtor:3 8 5 The courts may

only entertain a non-main proceeding, which must be limited principally to the assets of the debtor located in that state.3 8 6 

However, in order to foster cooperation and coordination with a

foreign main proceeding,3 8 7 a non-main proceeding in the forum state

may administer assets abroad pursuant to that forum state’s domestic

law. For example, if a main proceeding is filed in Japan (where the

debtor’s estate is limited to property in Japan), a non-main proceeding may be filed in the United States (which lays claim to all property

of the debtor wherever located, except in Japan), and the U.S. proceeding may administer property in a third country to effect cooperation and coordination with the Japanese main proceeding.3 8 8 

A more difficult problem arises if there are concurrent proceedings

in two or more enacting states and an application for recognition of a

foreign main proceeding is made in a third state, but there has been

no determination as to which of the first two proceedings is the main

3 8 3 . See id. art. 26(2).

3 8 4 . See id. art. 27.

3 8 5 . See id. art. 28.

3 8 6 . See id.

3 8 7 . See id.

3 8 8 . See In re Maruko Inc., 160 B.R. 633 (Bankr. S.D. Cal. 1993).
IV. International Conventions and Other Sources of International Bankruptcy Law

6 7 

proceeding. In such a circumstance, the Model Law first imposes on

the courts an obligation of mutual cooperation and communication.3 8 9 Second, any emergency relief or post-recognition relief must

be consistent with and subject to the proceedings in the other

states.3 9 0 If a foreign proceeding is a main proceeding, then the stay of

creditor rights and suspension of rights to transfer or encumber the

debtor’s property are inapplicable in the forum court.3 9 1 

If a plenary insolvency proceeding is filed in a state after an application for recognition of a foreign proceeding has been made to a

court in that state, the court considering recognition must review any

emergency or post-recognition relief to make it consistent with the

domestic plenary proceeding.3 9 2 If the foreign proceeding is a main

proceeding, the automatic stay resulting from the recognition order

must be modified if it is inconsistent with the domestic proceedings.3 9 3 Finally, if the foreign proceeding is a non-main proceeding,

the court granting recognition must ensure that any relief granted in

the recognition proceeding does not impinge on the domestic proceeding. Such relief must relate to assets that should be administered

(pursuant to domestic law) in the foreign proceeding or must concern

information required in the foreign proceeding.3 9 4 

If there are two or more foreign proceedings involving the same

debtor, the Model Law imposes similar obligations on the forum

court and the parties.3 9 5 Relief in the local proceeding must be coordinated with each of the foreign proceedings. In particular, if one of

the foreign proceedings is a main proceeding, the relief in the domestic proceeding must recognize its status as a non-main proceeding.3 9 6 

Finally, in determining the distribution of funds to unsecured

creditors, the Model Law requires local courts to take into account

payments to unsecured creditors from foreign insolvency proceedings.

3 8 9 . See Model Law, art. 29.

3 9 0 . See id. art. 29(a)(I).

3 9 1 . See id. art. 29(a)(ii).

3 9 2 . See id. art. 29(b)(I).

3 9 3 . See id. art. 29(b)(ii).

3 9 4 . See id. art. 29(b)(iii).

3 9 5 . See id. art. 30.

3 9 6 . See id. art. 30(b).
International Insolvency

68

No distribution may be made from “local” assets to an unsecured

creditor who has received a distribution from an insolvency proceeding in a foreign state until the other local creditors of the same

rank have received an equal distribution (usually from the local assets).3 9 7 

B. North American Free Trade Agreement (NAFTA)

Another source of international law for transnational insolvency cases

that arise in NAFTA3 9 8 member countries is the American Law Institute’s recently completed NAFTA Transnational Insolvency Project.3 9 9 The project aims to develop procedures for the coordination

of business bankruptcy cases involving assets or creditors in more than

one of the NAFTA member countries (currently Canada, Mexico,

and the United States).4 0 0 

Most important, the NAFTA Project contains a set of general

principles that offer policy recommendations and a set of procedural

principles that provide practical approaches within the existing legal

competence of the courts that do not require new legislation or treaties. These principles can be implemented immediately in any transnational insolvency case involving two or more NAFTA countries.

For instance, a court may issue an order stating that the general principles and the procedural principles are to be followed in a particular

case.4 0 1 Any U.S. bankruptcy court with a case involving Canada or

Mexico should strongly consider the NAFTA Project’s general and

procedural principles in the administration of that case.

The NAFTA Project also provides a text in each official language

that summarizes the domestic and international aspects of the insol3 9 7 . See id. art. 32.

3 9 8 . The North American Free Trade Agreement, Dec. 17, 1992, Can.-Mex.-U.S., 32

I.L.M. 296.

3 9 9 . American Law Institute, Transnational Insolvency Project: Principles of Cooperation

in Transnational Insolvency Cases Among the Members of the North American Free Trade

Agreement (draft, Apr. 14, 2000) [hereinafter NAFTA Principles].

4 0 0 . See generally Jay Lawrence Westbrook, Creating International Insolvency Law, 70 Am.

Bankr. L.J. 563 (1996). This regime may be extended to additional countries if NAFTA is expanded beyond the present three parties. For example, Chile has requested to join NAFTA, and

several other Latin American countries are considering a similar step.

4 0 1 . See NAFTA Principles at 44.
IV. International Conventions and Other Sources of International Bankruptcy Law

6 9 

vency laws and practices in each country. In addition, it contains legislative recommendations to facilitate the management of international cases in the future. The implementation of these recommendations requires new legislation or international agreement. An appendix to the project contains proposed guidelines for court-to-court

communications in transnational insolvency cases.

1. General Principles

The NAFTA Project proposes seven general principles that are generally accepted among the three NAFTA countries. In general terms,

the principles are also applicable to non-NAFTA transnational insolvency cases.

The first general principle is that courts and administrators should

cooperate in a transnational bankruptcy case with the goal of maximizing the value of the debtor’s worldwide assets and furthering the

just administration of the case.4 0 2 Second, the bankruptcy of a debtor

in one NAFTA country should be recognized and given appropriate

effect under the circumstances in each of the other NAFTA countries.4 0 3 In addition, recognition should be granted as quickly and inexpensively as possible, with a minimum of legal formalities.4 0 4 

Third, bankruptcy cooperation requires a moratorium or stay at

the earliest possible time in each country where the debtor has assets.4 0 5 The moratorium must impose reasonable restraints on the

debtor, creditors, and other interested parties.4 0 6 Fourth, cooperation

should include, as a minimum, a free exchange of information obtained in each case concerning assets and claims.4 0 7 In addition, a recognized foreign representative should be entitled to use all available

legal means to obtain information about the debtor’s assets in each

jurisdiction.4 0 8 

The fifth general principle provides that, where a court has recognized the representative of a foreign proceeding in another NAFTA

4 0 2 . See id. at 26.

4 0 3 . See id. at 35.

4 0 4 . See id.

4 0 5 . See id. at 36.

4 0 6 . See id.

4 0 7 . See id. at 37.

4 0 8 . See id.
International Insolvency

70

country, it should be prepared to approve the sharing of the value of

the debtor’s assets on a worldwide basis.4 0 9 Sixth, there should be no

discrimination against claimants based on nationality, residence, or

domicile.4 1 0 Finally, a creditor should not be permitted to use distributions in multiple countries to recover in any country more than the

percentage recovered by other creditors of the same class in that

country.4 1 1 

2. Procedural Principles

Procedural principles are recommendations that can be put into effect

under existing law. Each of the twenty-seven procedural principles

represents either existing practice or a recommended best practice in

the United States and at least one other NAFTA country.4 1 2 

The first set of procedural principles relates to the initiation of a

bankruptcy case and the consequences thereof. When a bankruptcy

case is pending in a NAFTA country, each NAFTA country should

grant recognition to that case and its administrator.4 1 3 Only in the rare

case where recognition would be manifestly contrary to public policy

in the recognizing country should recognition be denied.4 1 4 Recognition of a case in another NAFTA country should be granted as

quickly as possible.4 1 5 Recognition may be revoked or modified if it is

clearly shown there was fraud in the opening of the foreign case or in

obtaining its recognition in the recognizing court.4 1 6 

Several provisions relate to a stay or moratorium on creditor debtcollection activities. Unless a stay already exists because of a domestic

bankruptcy case concerning the same debtor, recognition of a main

case should lead immediately to the imposition of a stay or moratorium restraining collection actions by creditors and constraining use

or disposal of assets by the debtor.4 1 7 In a reorganization case, the stay

4 0 9 . See id. at 39.

4 1 0 . See id. at 40.

4 1 1 . See id. at 42.

4 1 2 . See id. at 5, 43–44.

4 1 3 . See id. at 47.

4 1 4 . See id.

4 1 5 . See id. at 50.

4 1 6 . See id. at 54.

4 1 7 . See id. at 56.
IV. International Conventions and Other Sources of International Bankruptcy Law

7 1 

should usually permit the continued operation of the debtor’s business in the ordinary course.4 1 8 Where no domestic bankruptcy case is

pending in the recognizing country and the recognizing country has

issued a stay substantially equivalent to a domestic stay in the same

sort of case, the stay in the main case should cease to affect conduct in

the recognizing country, and the stay in the recognizing country

should have no effect on conduct in the country of the main case.4 1 9 

Where there are parallel cases, each NAFTA court should attempt

to minimize conflict between bankruptcy stays.4 2 0 Where in such circumstances a main proceeding in a NAFTA country has been recognized in a second NAFTA country, any moratorium or similar order

issued in the recognizing country should apply to conduct in a third

country only insofar as the conduct is not within the jurisdiction of

the main proceeding.4 2 1 

When a non-main case is filed in a NAFTA country and the court

in that country determines that the country has little interest in the

case’s outcome as compared to the country that is the center of the

debtor’s main interests, the court should (1) dismiss the bankruptcy

case, if dismissal is permitted under its law and would not damage

legitimate interests, or (2) ensure that the bankruptcy stay arising from

the non-main proceeding has no effect outside that country.4 2 2 

A recognized foreign representative should be granted direct access to any NAFTA court necessary for the exercise of the representative’s legal rights.4 2 3 A recognized foreign representative of a main

case should be granted such access to the same extent as a domestic

administrator. In addition, the foreign representative in a main case

should have the power to initiate a domestic bankruptcy case concerning the debtor.4 2 4 

An administrator, debtor, or creditor filing a bankruptcy or seeking recognition of a foreign bankruptcy should be required to pro4 1 8 . See id.

4 1 9 . See id. at 56–57.

4 2 0 . See id. at 67.

4 2 1 . See id.

4 2 2 . See id. at 69.

4 2 3 . See id. at 71.

4 2 4 . See id.
International Insolvency

72

vide full disclosure of all relevant information about the existence and

status of each bankruptcy or similar case pending in other jurisdictions as to the same or a related debtor at the time of filing.4 2 5 Administrators or debtors in possession should be required to inform the

court of any material development in any such foreign case.4 2 6 

A recognized foreign representative should be permitted to use all

legal methods of obtaining information that would be available to a

creditor or to an administrator in a domestic bankruptcy case.4 2 7 

To the maximum extent permitted by domestic law, courts considering bankruptcy cases or requests for assistance from foreign

bankruptcy courts should communicate with each other directly or

through administrators.4 2 8 To the maximum extent, courts should

take advantage of modern methods of communication including telephone, telefacsimile, teleconferencing, and electronic mail, as well as

written documents delivered in traditional ways.4 2 9 Such communications should at all times follow procedures consistent with domestic

law.4 3 0 

A number of the procedural principles relate to the administration

of the domestic bankruptcy case. In the absence of a domestic bankruptcy of the same debtor, the recognized foreign representative

should be given legal control, and assistance in obtaining practical

control, over all domestic assets of the debtor to the same extent as

would a domestic administrator, subject to supervision by the domestic court.4 3 1 In addition, in the absence of a domestic bankruptcy of

the same debtor, and if there is no unfair prejudice to domestic

creditors, a recognized foreign representative should be allowed by

court order to remove assets to another jurisdiction when appropriate

for the bankruptcy case.4 3 2 

When a bankruptcy case is likely to include claims from another

NAFTA country where no parallel case is pending, the court should

4 2 5 . See id. at 73–74.

4 2 6 . See id. at 74.

4 2 7 . See id. at 77.

4 2 8 . See id. at 79.

4 2 9 . See id.

4 3 0 . See id.

4 3 1 . See id. at 82.

4 3 2 . See id. at 84.
IV. International Conventions and Other Sources of International Bankruptcy Law

7 3 

make special orders concerning the giving of notice to foreign creditors to afford them a fair chance to file claims and participate in the

bankruptcy.4 3 3 

Several procedural principles facilitate the coordination of parallel

cases in different NAFTA countries. The administrators in parallel

cases should cooperate in all aspects of the case.4 3 4 Such cooperation is

best arranged by an agreement or protocol that establishes decisionmaking procedures.4 3 5 However, many decisions may be made informally as long as the essentials are agreed.4 3 6 A protocol for cooperation among cases should include, at a minimum, provisions for coordinated court approval of decisions and actions when required and for

communication with creditors as required under each applicable

law.4 3 7 To the extent possible, it should also provide for timesaving

procedures to avoid unnecessary and costly court hearings and other

proceedings.4 3 8 

Where there are parallel cases, each administrator should obtain

court approval of any action affecting assets or operations in a particular jurisdiction if approval is required under the laws of that jurisdiction, except as provided in a protocol approved by that court.4 3 9 

Each administrator should seek agreement in advance from other administrators as to questions affecting the cases of the latter administrators or assets in their countries, except in an emergency.4 4 0 

Notice of any court hearing or the issuance of any court order

should be given at the earliest possible time to a foreign administrator

if the hearing or order is relevant to that administrator.4 4 1 Notice and

approval should always be in advance if possible or if required by applicable law.4 4 2 

4 3 3 . See id. at 87.

4 3 4 . See id. at 91.

4 3 5 . On protocols, see infra text accompanying notes 568–73.

4 3 6 . See NAFTA Principles, supra note 399, at 91–92.

4 3 7 . See id. at 92.

4 3 8 . See id.

4 3 9 . See id. at 93.

4 4 0 . See id.

4 4 1 . See id. at 94.

4 4 2 . See id.
International Insolvency

74

When there are parallel cases and assets are to be sold, each domestic administrator should seek to sell assets in cooperation with the

other administrators to produce the maximum total value for the assets of the debtor, across national borders,4 4 3 and each domestic court

should approve sales that will produce such value.4 4 4 

If a main case in a NAFTA country is a reorganization case, courts

in the other two NAFTA countries should conduct their parallel domestic cases to promote the reorganization objectives in the main

case.4 4 5 

Where there are parallel cases, especially in reorganization cases,

administrators and courts should cooperate in coordinating their respective cases. For example, they should cooperate to obtain necessary post-bankruptcy financing, including the granting of priority or

secured status to reorganization lenders, insofar as permitted under

applicable law.4 4 6 In addition, the administrators should attempt to

agree on a common position concerning the avoidance of any prebankruptcy transaction involving the debtor.4 4 7 The administrators

should share information on a timely basis concerning claims, including a list of all claims and claimants, whether the claims are asserted as secured, priority, or general claims, and whether they are

approved, disputed, or disapproved.4 4 8 Similarly, where there are parallel proceedings, a claim that is proved in one NAFTA case should

be accepted in each of the other NAFTA cases, except as to distinct

factual and legal issues arising under the other country’s distribution

rules.4 4 9 

Several procedural principles apply to the treatment of entities

within corporate groups. A bankruptcy case for a subsidiary should be

permitted in the country where the parent company’s bankruptcy was

filed. In addition, procedural or substantive consolidation should be

authorized under applicable law, unless the subsidiary’s main interests

4 4 3 . See id. at 95.

4 4 4 . See id.

4 4 5 . See id. at 97.

4 4 6 . See id. at 98.

4 4 7 . See id. at 100–01.

4 4 8 . See id. at 102.

4 4 9 . See id. at 103.
IV. International Conventions and Other Sources of International Bankruptcy Law

7 5 

are centered in another country and a case involving the subsidiary

has been filed in that country.4 5 0 Where a subsidiary is involved in a

parallel case in the country of its main interests, administrators should

coordinate the two cases as much as possible to achieve the benefits

of consolidation.4 5 1 

The final three procedural principles relate to the resolution of a

bankruptcy case. First, a claim should never be given priority in an

international distribution beyond what it would enjoy in the nation

where the priority is created.4 5 2 Second, where a plan of reorganization is adopted in a main case in any NAFTA country and there is no

parallel case pending in another NAFTA country, the reorganization

plan should be final and binding upon the debtor and upon every

creditor who participates in any way in the main case.4 5 3 For this purpose, participation includes filing a claim, voting, or accepting a distribution of money or property under a plan.4 5 4 

Third, where a plan of reorganization is adopted in a main case in

a NAFTA country and there is no parallel case in another NAFTA

country, that plan should be final and binding as to the claims against

the debtor of every unsecured creditor, whether the creditor has filed

a claim or not.4 5 5 This principle would apply to every creditor who

received adequate individual notice of the case and who would be

within the jurisdiction of the courts in ordinary commercial matters

under the law of the country of the main case.4 5 6 

C. European Union Regulation on Insolvency Proceedings

When it enters into force on May 31, 2002, the European Union

Regulation on Insolvency Proceedings (hereinafter EU Regulation)4 5 7 will impose a body of public international law on transna4 5 0 . See id. at 109.

4 5 1 . See id.

4 5 2 . See id. at 116.

4 5 3 . See id. at 121.

4 5 4 . See id.

4 5 5 . See id.

4 5 6 . See id. at 123–24.

4 5 7 . European Union Convention on Insolvency Proceedings, 2000 O.J. (L 160) 1. See also

Ian F. Fletcher, The European Union Convention on Insolvency Proceedings: An Overview and Comment, with U.S. Interest in Mind, 23 Brook. J. Int’l L. 25 (1997) [hereinafter Fletcher I]; Eberhard
International Insolvency

76

tional insolvencies arising in two or more of the nations that are

members of the European Union.4 5 8 The EU Regulation implements

Article 65 of the European Union Treaty,4 5 9 which provides for judicial cooperation in civil matters among the European Union members in order to promote the proper functioning of the internal European Union marketplace.4 6 0 The EU Regulation will govern crossborder reorganization and liquidation proceedings for the member

states of the European Union4 6 1 (except for Denmark).4 6 2 However,

the EU Regulation will not apply to insolvencies insofar as they extend beyond the boundaries of the European Union.

Instead of defining “insolvency,” the EU Regulation lists the national laws of the corresponding member states.4 6 3 Thus the EU

Regulation will apply to a variety of proceedings, including unitary

rehabilitation under German law, French redressement judiciaire, Italian

amministrazione straordinaria, and Dutch surseance van betaling.

4 6 4 However, the regulation will not apply to preinsolvency proceedings, such

as the French reglement amiable.

To promote a more efficient system of legal cooperation on insolvency matters, the EU Regulation focuses on three specific aspects of

insolvency proceedings: (1) jurisdiction for opening such proceedings

and issuing binding judgments in such proceedings, (2) the recognition of such judgments, and (3) the determination of the applicable

Schollmeyer, The New European Convention on International Insolvency, 13 Bankr. Dev. J. 421

(1997) [hereinafter Schollmeyer]; Balz, supra note 9.

4 5 8 . The European Union was established in 1957 and presently includes the following

member states: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy,

Luxembourg, The Netherlands, Portugal, Spain, Sweden, and the United Kingdom.

4 5 9 . See Treaty Establishing European Community, as amended by the Treaty of Amsterdam, Oct. 2, 1997, 1997 O.J. (C 340) 145.

4 6 0 . See EU Reg., pmbl. para. 2.

4 6 1 . Acceptance of the EU Regulation will presumably be required as a condition for

admission to the European Union for the aspiring Central and Eastern European countries.

4 6 2 . Although it is a member of the European Union, Denmark is not covered by the EU

Regulation at the present time. Its exclusion results from the terms of its accession to the European Union. See EU Reg., pmbl. para. 33. Denmark has the unilateral right to waive the provision, preventing its being governed by the EU Regulation. While the United Kingdom and

Ireland have similar provisions in their accession treaties, they have waived their rights to be

excluded from the EU Regulation. See id. pmbl. para. 32.

4 6 3 . See EU Reg., art. 2(a) & Annex A.

4 6 4 . See id.
IV. International Conventions and Other Sources of International Bankruptcy Law

7 7 

law when parties in interest or assets are located in more than one

European Union country.4 6 5 In addition, the European Union was

concerned about forum shopping by debtors among its member

countries.4 6 6 The European Union took action because these issues

could not be addressed to a sufficient degree at the national level.4 6 7 

To resolve these problems, the EU Regulation adopted a compromise between universality and territoriality approaches to transnational insolvencies.4 6 8 

The EU Regulation does not apply to insolvency proceedings

involving insurance businesses, credit institutions, or certain other

entities.4 6 9 Insolvencies in these businesses will continue to be governed by the internal law of each country.

The EU Regulation is particularly concerned about accommodating the varying property rights (rights in rem) among the European

Union countries and protecting the priority claims of employees.4 7 0 

Because the legal regime protecting these rights varies from country

to country, the European Union decided that a universal regime for

insolvencies within the Union was not attainable.4 7 1 

The EU Regulation replaces the provisions of prior conventions,

specified in Article 44, that are inconsistent with the EU Regulation.

The list includes the Nordic Convention (as it relates to Finland and

Sweden) and nine bilateral conventions between members of the

European Union.4 7 2 

4 6 5 . See id. pmbl. paras. 6, 8.

4 6 6 . See id. pmbl. para. 4; see also Balz, supra note 9, at 495.

4 6 7 . See EU Reg., pmbl. para. 5.

4 6 8 . For a discussion of territoriality and universality, see supra text accompanying notes

10–18. See also Ulrik Rammeskow Bang-Pedersen, Asset Distribution in Transnational Insolvencies:

Combining Predictability and Protection of Local Interests, 73 Am. Bankr. L.J. 385, 407–09 (1999)

[hereinafter Bang-Pedersen] (stating that the EU Convention adopts a territoriality viewpoint).

4 6 9 . See EU Reg., art. 1(2), pmbl. para. 9.

4 7 0 . See id. arts. 5 & 10, pmbl. para. 11.

4 7 1 . See id. pmbl. para. 11.

4 7 2 . See id. art. 44.
International Insolvency

78

1. Jurisdiction and Choice of Law4 7 3 

Chapter I of the EU Regulation (articles 1–15) provides for jurisdiction to open main insolvency proceedings and secondary insolvency

proceedings. Like the Model Law,4 7 4 the EU Regulation recognizes

two types of proceedings: a main proceeding that may affect all

creditors and property of the debtor,4 7 5 and a secondary proceeding

that affects only creditors and property of the debtor that are located

in a country different from that where a main proceeding may be

filed.4 7 6 The EU Regulation also provides uniform choice-of-law

rules to determine the governing law for issues arising in a transnational insolvency proceeding, including the determination of the

rights of foreign creditors and other parties in interest.4 7 7 In addition,

the regulation provides special rules to protect particular kinds of local transactions from the full impact of insolvencies filed in other

European Union countries.4 7 8 

A main proceeding must be opened in the member state where

the center of main interests of the debtor is located.4 7 9 Any dispute

between countries as to which proceeding qualifies as the main proceeding is to be decided by the first court to open proceedings.4 8 0 

The concept of “center of main interests” is new for EU law and

the law of its member states. The EU Regulation explains it in part as

follows: “In the case of a company or legal person, the place of the

registered office shall be presumed to be the centre of its main interests in the absence of proof to the contrary.”4 8 1 In addition, the pre4 7 3 . Because the civil law in each European Union country (except Great Britain) is unified (i.e., there is one legal regime throughout the country), a choice-of-law issue is a question

of which country provides the applicable law. Thus choice of law in the international arena is

known as “international private law.”

4 7 4 . See supra text accompanying notes 323–97.

4 7 5 . See EU Reg., art. 3(1), pmbl. para. 12.

4 7 6 . See id. art. 3(2)–(3), pmbl. para. 12.

4 7 7 . See id. art. 4.

4 7 8 . See id. arts. 5–11, 14–15.

4 7 9 . See id. art. 3(1), pmbl. para. 12. United States law does not follow this rule. See supra

text accompanying notes 264–72. The EU Regulation would not interfere with the assertion of

jurisdiction by a U.S. court over a debtor whose center of main interests is located in the European Union because the EU Regulation does not apply where the proceeding is outside the EU

member states. See Fletcher I, supra note 457, at 35–36.

4 8 0 . See EU Reg., pmbl. para. 22.

4 8 1 . See id. art. 3(1).
IV. International Conventions and Other Sources of International Bankruptcy Law

7 9 

amble explains, the “centre of main interests” should correspond to

the place where the debtor conducts the administration of his interests on a regular basis and is therefore ascertainable by third parties.4 8 2 

For an individual, presumably the center of main interests is the individual’s domicile or habitual residence.

The EU Regulation will apply only to debtors whose center of

main interests is located in a European Union member state.4 8 3 The

EU Regulation is not applicable where the center of main interests is

located outside the European Union.4 8 4 

Except where the EU Regulation provides otherwise, a main proceeding is governed by the internal laws of the member state where

the proceeding is initiated.4 8 5 Thus the laws of that state determine all

matters of procedure and most matters of substantive law.4 8 6 

However, the opening of a main proceeding does not affect the in

rem rights of secured creditors4 8 7 or real property purchasers4 8 8 in other

countries within the EU because these rights are important to creditors in granting credit.4 8 9 These in rem rights include the right to foreclose and the right to enforce guarantees of indebtedness.4 9 0 While

creditors can be expected to consider national law in deciding to

grant credit, it would be unreasonable to require them to foresee the

impact of foreign insolvency proceedings as well. In consequence, the

law of the situs governs in rem rights, including security interests.4 9 1 

4 8 2 . See id. pmbl. para. 13.

4 8 3 . See id. pmbl. para. 14.

4 8 4 . See Fletcher I, supra note 457, at 54.

4 8 5 . See EU Reg., art. 4, pmbl. para. 23. On the choice-of-law provisions in the EU

Regulation, see Ian F. Fletcher, The European Union Convention on Insolvency Proceedings: Choiceof-Law Provisions, 33 Tex. Int’l L.J. 119 (1998) [hereinafter Fletcher II]; Nick Segal, The Choice

of Law Provisions in the European Union Convention on Insolvency Proceedings, 23 Brook. J. Int’l L.

57 (1997) [hereinafter Segal].

4 8 6 . See Fletcher II, supra note 485, at 138.

4 8 7 . See EU Reg., arts. 5, 11.

4 8 8 . See id. art. 14.

4 8 9 . See id. pmbl. para. 25.

4 9 0 . See id. art. 5(2).

4 9 1 . See Segal, supra note 485, at 62–65; Fletcher II, supra note 485, at 128–31. The law of

the situs also governs enforcement actions of security interests based on floating charges. See

Segal, at 62–65. Segal takes the position that the holder of security in collateral located outside

the country where the insolvency proceeding is filed may ignore an automatic stay. See id. at

63. However, it is doubtful that the adoption of local law to govern in rem rights extends this

far.
International Insolvency

80

The EU wants to protect employees and jobs.4 9 2 Thus, both individual employment contracts and collective bargaining agreements are

governed by non-insolvency law, including applicable choice-of-law

rules.4 9 3 In contrast, avoidance actions are governed by the law of the

state where the insolvency is filed.4 9 4 The effect of an insolvency case

on a pending lawsuit is governed by the law of the country where the

lawsuit is pending.4 9 5 

2. Recognition of Main Proceedings

Chapter II of the EU Regulation (articles 16–26) provides rules for

the recognition of a main insolvency proceeding, the effects of recognition, the powers of officials to act on behalf of the estate in the

proceeding, and the formalities required for such officials to act

abroad.

Under the EU Regulation, a court order opening an insolvency

proceeding must be automatically recognized in all other member

states.4 9 6 Automatic recognition means that, except in a country

where a secondary proceeding is opened, the opening of a main insolvency proceeding has the same effects in all EU countries as it has

in the country where the proceeding is opened.4 9 7 Most importantly,

any automatic stay applicable in the forum state also applies in every

other state.4 9 8 Similarly, a discharge in the main case is effective in

every state, even one where a bankruptcy discharge is not provided

by local law.4 9 9 

However, if an insolvency court judgment in another European

Union country conflicts with a state’s public policy, the state may

refuse to recognize the insolvency proceeding and may refuse to en4 9 2 . See EU Reg., pmbl. para. 28.

4 9 3 . See id. art. 10.

4 9 4 . See Segal, supra note 485, at 69.

4 9 5 . See EU Reg., art. 15; Segal, supra note 485, at 73; Fletcher II, supra note 485, at 138.

4 9 6 . See EU Reg., arts. 16, 25; see also Balz, supra note 9, at 513–19; Schollmeyer, supra

note 457, at 431–34.

4 9 7 . See EU Reg., art. 17(1).

4 9 8 . See Schollmeyer, supra note 457, at 436. Every European Union insolvency law claims

worldwide effect of its automatic stay and the application of the law to all property, wherever in

the world it may be situated. See id. at 420 n.25.

4 9 9 . See id. at 437.
IV. International Conventions and Other Sources of International Bankruptcy Law

8 1 

force a judgment thereunder.5 0 0 Such a refusal may be invoked to

protect constitutional rights or fundamental liberties in the forum

state.5 0 1 Except where this provision is applicable, the court where a

secondary insolvency proceeding is filed may not tailor the proceedings to promote the fair or economic administration of an international case inconsistent with the laws of the state where the main

proceeding has been opened.5 0 2 

A liquidator in a main case may exercise all available powers in

every European Union country unless a secondary case has been

opened in the country at issue.5 0 3 A liquidator may exercise avoiding

powers5 0 4 and retrieve assets of the estate.5 0 5 In exercising these powers, the liquidator must comply with the requirements of local law in

the country where the assets are located.5 0 6 

3. Secondary Proceedings

Chapter III (articles 27–38) regulates secondary insolvency proceedings in European Union countries apart from the country where the

main insolvency proceeding is pending. Following the opening of a

main insolvency proceeding, a secondary insolvency proceeding may

be brought by the liquidator in the main insolvency proceeding or by

any party with standing under local law.5 0 7 No insolvency requirement applies for the opening of a secondary proceeding.5 0 8 In addition

to protecting local creditor interests, a secondary proceeding may be

useful if a case is so complex that it cannot be administered as a single

unit. If the differences in the legal systems of the applicable countries

make it more efficient to open a secondary proceeding, a secondary

proceeding may have a broader scope.5 0 9 Furthermore, no collateral

attack is permitted on the effects of the opening of a secondary insol5 0 0 . See EU Reg., art. 26.

5 0 1 . See id.

5 0 2 . See Balz, supra note 9, at 496–97.

5 0 3 . See EU Reg., art. 18(1).

5 0 4 . See id. art. 18(2).

5 0 5 . See id. art. 18(1).

5 0 6 . See id. art. 18(3).

5 0 7 . See id. art. 29, pmbl. para. 18; Balz, supra note 9, at 524.

5 0 8 . See EU Reg., art. 27; Fletcher II, supra note 485, at 42.

5 0 9 . See EU Reg., pmbl. para. 19.
International Insolvency

82

vency proceeding in an EU country apart from that where the secondary proceeding is filed.5 1 0 

Where the center of main interests is located in one EU country,

another country has jurisdiction to open a secondary insolvency proceeding only if the debtor has an “establishment”5 1 1 in that country.

The effects of the secondary proceeding are limited to the assets of

the debtor in that country.5 1 2 For example, claims filed in a secondary

proceeding may only be satisfied from the assets administered in that

proceeding.5 1 3 Absent a main insolvency proceeding in another European Union country, a secondary insolvency proceeding may not be

opened unless (1) a main insolvency proceeding cannot be opened

because of conditions in the law of the country where the main proceeding must be opened, or (2) the secondary insolvency proceeding

is sought by a local creditor.5 1 4 A secondary insolvency proceeding

under the EU Regulation must be a winding-up proceeding.5 1 5 

However, upon receiving a request from the liquidator in the

main insolvency proceeding, the forum court for the secondary proceeding is required to stay the process of liquidation (in whole or in

part) for a period of three months (which may be renewed for similar

periods).5 1 6 In particular, a liquidator may invoke the right to a stay to

permit the sale of an entire business as a going concern or to permit a

unified transnational reorganization.5 1 7 The forum court may condition such a stay on the provision of suitable measures to guarantee the

interests of the creditors or of individual classes of such creditors in

the secondary proceeding.5 1 8 The court where the secondary insol5 1 0 . See id. art. 17(2).

5 1 1 . An “establishment” is “any place of operations where the debtor carries out a nontransitory economic activity with human means and goods.” EU Reg., art. 2(h). A bank account or real property may not be sufficient to meet this definition. See Fletcher I, supra note

457, at 38.

5 1 2 . See EU Reg., arts. 3(2), 27.

5 1 3 . See id.

5 1 4 . See id. art. 3(4).

5 1 5 . See id. art. 3(3). The concept of a secondary proceeding under the EU Regulation is

distantly related to section 304 of the U.S. Bankruptcy Code. However, the flexibility given to

U.S. judges under section 304 is unacceptable in the civil law systems of Continental Europe.

See Balz, supra note 9, at 521.

5 1 6 . See EU Reg., art. 33(1).

5 1 7 . See Balz, supra note 9, at 525–26.

5 1 8 . See EU Reg., art. 33(1).
IV. International Conventions and Other Sources of International Bankruptcy Law

8 3 

vency proceeding is pending may only reject such a request by the

main proceeding’s liquidator if the stay is clearly of no interest to the

creditors in the main proceeding.5 1 9 

The opening of a secondary insolvency proceeding makes the

domestic law of the forum state applicable, instead of the law of the

state where the main insolvency proceeding is opened.5 2 0 For example, a secured creditor may become subject to an automatic stay in

the forum state of the secondary proceeding, if so provided under

local law, even though there may be no such stay under the internal

law of the state where the main proceeding is opened.5 2 1 

4. Receiving Information and Filing Claims

Chapter IV (articles 39–42) provides for the right to receive information concerning the main proceeding and regulates the right to lodge

claims in the various related insolvency proceedings.

A creditor in any EU member state5 2 2 may file a claim in the main

proceeding and in any secondary proceeding.5 2 3 Claims may include

taxes owing to a government agency in any European Union country, as well as debts owing to social insurance institutions.5 2 4 In addition, a liquidator in any proceeding (whether main or secondary) is

required to lodge claims on behalf of its creditors in all related proceedings, except where there would be no resulting benefit.5 2 5 In

contrast, the treatment of a creditor located outside the European

Union is unregulated by the EU Regulation and thus is governed by

the laws of the state where a claim is lodged.

The payment of creditors from assets in secondary insolvency proceedings may result in the unequal treatment of equally ranked

creditors. While the EU Regulation permits a creditor to keep a dis5 1 9 . See id.

5 2 0 . See id. art. 28.

5 2 1 . See Balz, supra note 9, at 520.

5 2 2 . The location of a creditor is determined by the creditor’s habitual residence, domicile,

or registered office. The nationality of the creditor plays no role in this determination. See EU

Reg., art. 42(2); see also Fletcher II, supra note 485, at 46.

5 2 3 . See EU Reg., art. 32(1). A claim may be filed in the “home” language of the creditor,

although the claimant may eventually be required to provide a translation. See id. art. 42(2).

5 2 4 . See id. pmbl. para. 21.

5 2 5 . See id. art. 32(2).
International Insolvency

84

tribution that temporarily gives that creditor more than other creditors of equal rank, it disqualifies such a creditor from receiving any

further distributions until the other creditors of the same class have

caught up.5 2 6 Thus a consolidated schedule of distributions must be

prepared, with the goal of providing equal treatment to all creditors

of the same class wherever they may be located in the European

Union.5 2 7 

Any unsecured creditor who has obtained payment after the

opening of a main case from assets of the debtor located in another

state is required to turn over the funds to the administrator in the

main case.5 2 8 However, if at the time of payment no publication of

the opening of an insolvency proceeding (whether main or secondary) has been made in the creditor’s state, the creditor may keep the

payment.5 2 9 

The various liquidators in the main insolvency proceeding and in

related secondary insolvency proceedings are required to exchange

information and to cooperate in many respects.5 3 0 For example, cooperation and exchange of information are needed to maximize the total value of a debtor’s assets, to permit a sale of the debtor’s business as

a going concern, or to achieve rehabilitation of a debtor. To facilitate

these goals, the liquidator or representative in each primary or secondary proceeding has standing to participate in each of the other related proceedings.5 3 1 

5. Entry into Force and Retroactivity

The EU Regulation will take effect on May 31, 2002.5 3 2 It does not

apply to insolvency proceedings opened before that date.5 3 3 

5 2 6 . See id. art. 20(2). On the difficulties and ambiguities in making this calculation, see

Bang-Pedersen, supra note 468 passim.

5 2 7 . See EU Reg., pmbl. para. 12.

5 2 8 . See id. art. 20(1).

5 2 9 . See id. art. 24(2).

5 3 0 . See id. art. 31, pmbl. para. 20.

5 3 1 . See id. art. 32(3).

5 3 2 . See id. art. 47.

5 3 3 . See id. art. 43.
IV. International Conventions and Other Sources of International Bankruptcy Law

8 5 

D. Concordat

The most effective present regime for regulating and coordinating

transnational insolvencies is provided by the Cross-Border Insolvency

Concordat,5 3 4 which was developed by Committee J of the Section

on Business Law of the International Bar Association. The Concordat

consists of general principles designed to assist courts and counsel in

coordinating and harmonizing insolvency proceedings pending in

two or more countries. The application of the Concordat is meant to

be flexible. Courts may decide which Concordat principles to apply

on a case-by-case basis.5 3 5 

The Concordat is intended as an interim measure to guide transnational insolvencies until treaties or statutes are adopted by commercial nations.5 3 6 Thus it may become outmoded as the Model Law and

the EU Regulation are adopted and implemented. Until such time,

however, the Concordat is the main source of principles to guide the

coordination of multinational insolvencies.

The Concordat can be used in several types of transnational insolvency situations, including (1) a main insolvency proceeding that

governs assets and claims on a worldwide basis; (2) a main insolvency

proceeding and one or more non-main insolvency proceedings in

different countries; (3) multiple insolvency proceedings that proceed

on the basis of territory; and (4) multiple insolvency proceedings

whose jurisdiction over assets and claims overlap.5 3 7 

5 3 4 . See International Bar Association, Committee J Cross-Border Insolvency Concordat,

Sept. 17, 1995. For the text of the Concordat, see infra Appendix A. For a comprehensive discussion of the Concordat, see Anne Nielson et al., The Cross-Border Insolvency Concordat: Principles to Facilitate the Resolution of International Insolvencies, 70 Am. Bankr. L.J. 533 (1996) [hereinafter Nielson]. See also John K. Londot, Note, Handling Priority Rules Conflicts in International

Bankruptcy: Assessing the International Bar Association’s Concordat, 13 Bankr. Dev. J. 163 (1996); E.

Bruce Leonard, Managing Default by a Multinational Venture: Cooperation in Cross-Border Insolvencies, 33 Tex. Int’l L.J. 543, 547–53 (1998) [hereinafter Leonard II].

For reports on the application of the Concordat in In re Everfresh Beverages, Inc., No. 95-B45405 (Bankr. S.D.N.Y. 1995) and No. 32-077978 (Ont. Ct. 1995), see Leonard II at 548–53;

Nielson at 557–61.

5 3 5 . See Nielson, supra note 534, at 535.

5 3 6 . See Report on the Committee J Cross-Border Insolvency Concordat, presented to the

Council of the International Bar Association’s Section on Business Law, Sept. 17, 1995, at 2, 3;

Nielson, supra note 534, at 537–38.

5 3 7 . See Nielson, supra note 534, at 538.
International Insolvency

86

The Concordat envisions a single administrative forum as the

main forum for the insolvency proceeding; cases in other fora are

subsidiary to the main case.5 3 8 The main forum should coordinate the

collection and administration of assets5 3 9 and should receive all assets

(after payment of secured and priority claims) from other fora.5 4 0 

Common claims should be filed in the main case in the local language

and may be filed by mail with no formalities except for those provided by local insolvency law.5 4 1 A discharge in the main case should

be universally recognized.5 4 2 

If there is no main proceeding, the Concordat recommends using

a protocol to coordinate the proceedings in the various countries.5 4 3 

In such a circumstance, each forum should administer the assets

within its jurisdiction.5 4 4 A claimant should be required to file a claim

in only one forum.5 4 5 The priority and ranking of claims should be

governed by the rules of each forum.5 4 6 The payment of claims, however, should be coordinated to assure a pro rata distribution to each

creditor of the same class.5 4 7 Thus, as a general rule, secured and priority claims are governed by local law while general unsecured claims

are treated on a worldwide basis.5 4 8 Any surplus after paying claims in

one forum should be transferred to another appropriate forum, which

may be the main forum or another subsidiary forum.5 4 9 

Official representatives, such as trustees, should receive notices of

proceedings in all fora and should have the right to appear in all

fora.5 5 0 However, unlike the Model Law and the EU Regulation, the

Concordat permits the imposition of a requirement that the official

representative utilize an exequatur or similar proceeding to imple5 3 8 . See Concordat, Prin. 1.

5 3 9 . See id. Prin. 2(A).

5 4 0 . See id. Prin. 2(B) & 5.

5 4 1 . See id. Prin. 2(C).

5 4 2 . See id. Prin. 2(F).

5 4 3 . See id. Prin. 4(A).

5 4 4 . See id. Prin. 4(B).

5 4 5 . See id. Prin. 4(C).

5 4 6 . See id. Prin. 4(D).

5 4 7 . See id. Prin. 4(E) & (F).

5 4 8 . See Nielson, supra note 534, at 549.

5 4 9 . See Concordat Prin. 5.

5 5 0 . See id. Prin. 3(A).
IV. International Conventions and Other Sources of International Bankruptcy Law

8 7 

ment recognition.5 5 1 The official representatives may select from the

administrative rules provided by any relevant forum, and are not limited to those of their home forum.5 5 2 Similarly, the official representatives may choose avoiding power rights from any forum,5 5 3 unless the

transaction at issue has no significant relationship with the chosen

forum.5 5 4 

The Concordat provides that all creditors in any forum should

have the right to appear in the other fora without being subject to

personal jurisdiction there on matters unrelated to the insolvency

proceeding at issue.5 5 5 Ex parte and interim orders should be subject

to challenge for a reasonable period of time by creditors and official

representatives from another forum, to the extent permitted by the

procedural rules of the issuing forum.5 5 6 Public information should be

shared among creditors in all fora, and nonpublic information should

be provided to official representatives appointed in all fora.5 5 7 

The Concordat further provides that, if there is more than one

plenary forum and no main proceeding,5 5 8 each forum should coordinate with the others.5 5 9 Furthermore, in appropriate cases there should

be a governance protocol to facilitate such coordination.5 6 0 The filing

of a claim should be required only in the forum of the claimant’s

choice,5 6 1 and common claims should be paid pro rata, regardless of

the forum providing the source of funds.5 6 2 However, each forum

may apply its own ranking rules for classification of and distribution

5 5 1 . See id.

5 5 2 . See id. Prin. 6.

5 5 3 . See id. Prin. 7. For a case holding that the U.S. court must apply British preference

law to a British corporation’s prefiling transfers to a British and a French bank, see Maxwell

Communication Corp. v. Société Générale (In re Maxwell Communication Corp.), 93 F.3d 1036 (2d

Cir. 1996).

5 5 4 . See Concordat, Prin. 8(C).

5 5 5 . See id. Prin. 3(C).

5 5 6 . See id. Prin. 3(B).

5 5 7 . See id. Prin. 3(D).

5 5 8 . For cases involving two main proceedings, one in the United States and one in the

United Kingdom, see Maxwell Communication Corp. v. Société Générale (In re Maxwell Communication Corp.), 93 F.3d 1036 (2d Cir. 1996); In re Brierley, 145 B.R. 151 (Bankr. S.D.N.Y. 1992).

5 5 9 . See Concordat, Prin. 4(A).

5 6 0 . See id.

5 6 1 . See id. Prin. 4(C).

5 6 2 . See id. Prin. 4(E).
International Insolvency

88

to secured and priority claims.5 6 3 The applicable law for determining

the allowability of a claim, and any offset or rights to collateral should

be determined according to applicable international private law.5 6 4 If

the insolvency involves local regulation with important policy concerns (such as banking or insurance), local assets should go first to

local creditors protected by the regulatory scheme.5 6 5 

Reorganization can be undertaken, even if the laws of one plenary

forum do not so permit, so long as the reorganization can be effected

in a nondiscriminatory manner.5 6 6 Finally, a forum should not give

effect to an act of state in another jurisdiction that purports to invalidate a preinsolvency transaction unless required by the substantive

law of the forum.5 6 7 

E. Protocols

Where there are related insolvency proceedings in more than one

country, usually one of the first tasks of counsel is to negotiate the

applicable law for the transnational proceeding. Negotiation is necessary because there is normally no clear answer to this question in a

transnational case. Negotiation usually results in the adoption of a

protocol5 6 8 that must be approved by each of the courts with a related

proceeding.5 6 9 Prompt resolution of the issue of applicable law can

facilitate an effective reorganization or an orderly liquidation.

The protocol typically establishes which forum determines particular issues, where assets are administered, and what national law

applies to the determination of specified disputes.5 7 0 The protocol

should also determine where creditors should file their claims, the

language in which claims must be filed, and the required form for

5 6 3 . See id. Prin. 4(D).

5 6 4 . See id. Prin. 8(A).

5 6 5 . See id. Prin. 4(G).

5 6 6 . See id. Prin. 9.

5 6 7 . See id. Prin. 10.

5 6 8 . See, e.g., id.

5 6 9 . The EU Regulation avoids this problem by a treaty provision giving predominance to

the insolvency proceeding in the country with the center of the main interests of the business

enterprise.

5 7 0 . See, e.g., In re Ionica PLC, 241 B.R. 829, 835–36 (Bankr. S.D.N.Y. 1999) (describing

protocol adopted in that case relating primarily to which law would govern asset sales and professional fees).
IV. International Conventions and Other Sources of International Bankruptcy Law

8 9 

filing claims. Special attention must be given to the treatment of foreign creditors so that they will not be unduly disadvantaged.

Most protocols negotiated to date have followed the principles of

the Concordat.5 7 1 These protocols now serve as models for protocols

in future transnational insolvency cases.5 7 2 The NAFTA Project recommends the use of a protocol to facilitate the coordination of parallel insolvency cases in two or more NAFTA countries.5 7 3 The UNCITRAL Model Law and the European Regulation are also likely to

have substantial influence on protocols in the future.

5 7 1 . For a discussion of the Concordat, see supra text accompanying notes 534–67.

5 7 2 . For a brief description of a protocol, see Official Comm. v. Transpacific Corp. (In re

Commodore Int’l, Ltd.), 242 B.R. 243, 256–57, 259 (Bankr. S.D.N.Y. 1999). Protocols tend

to be rather lengthy documents.

5 7 3 . See supra text accompanying notes 434–39.
91

V. Procedural Issues in Transnational

Insolvency Cases

Five types of procedural problems that often arise in transnational

bankruptcy cases merit special attention: the appropriate venue for

the main case in a transnational insolvency; giving notice to creditors;

communication between the judges to whom the cases are assigned

in the respective countries; the conflict of laws between the applicable international jurisdictions; and the method of calculation of

creditor distributions.

A. Appropriate Venue for the Transnational Case

The appropriate venue for a transnational case may not be altogether

apparent. While the EU Regulation provides that the country with

the center of the debtor’s main interests is the proper location for a

main insolvency proceeding, this is not always the best choice. For

example, the insolvency law of that country may be less favorable

than that of another country to the debtor’s orderly reorganization or

liquidation and to the protection of the rights of creditors and other

parties in interest.

For example, In re Maruko Inc.5 7 4 involved a Japanese corporation,

but the bankruptcy case in Japan could not deal with the debtor’s

foreign assets or liabilities because of the Japanese insolvency law’s

territorial limitations. Thus a foreign main insolvency proceeding was

necessary. In addition, the debtor found it more attractive to file a

bankruptcy case in the United States rather than in Australia, because

the U.S. automatic stay applies to secured creditors and the Australian

law does not. While it was not clear that the Australian secured

creditors would be bound by the U.S. automatic stay, in the end the

creditors decided to observe the stay.

In addition, a debtor may prefer to file in a particular country because of the sophistication of the judiciary in that country in handling

5 7 4 . 160 B.R. 633 (Bankr. S.D. Cal. 1993).
International Insolvency

92

bankruptcy cases, or because of the integrity and independence of the

judicial processes in that country. Other factors affecting the choice of

venue may include the expertise and availability of bankruptcy professionals such as accountants and attorneys.

B. Notice to Creditors

Notice to creditors is essential to the insolvency process. Creditors

must be given notice that a bankruptcy case has been opened so they

know that they are bound by the automatic stay against further

creditor collection activities. Creditors must be given notice of an

opportunity to file claims, and of the deadline therefor. Many other

proceedings in a bankruptcy case require notice to creditors.5 7 5 Giving

notice to foreign creditors, however, poses unusual problems.

One problem relating to notice is the character of the notice itself.

As in the United States, citizens of many other countries are accustomed to certain formalities (which vary substantially from country to

country) before their legal rights are affected. The notice that is given

in a typical bankruptcy case, after which an action affects a creditor’s

legal rights, frequently does not have this level of formality. In the

United States such notices are given often enough in legal proceedings that it is not unfair to expect a person to be bound by such a notice. However, in a country where such notices are unknown or unusual, it may not be fair to bind a creditor who has only received a

notice that is typical in a U.S. bankruptcy case.5 7 6 

Another problem arises because it takes substantial time for a notice to be delivered abroad. While a notice by regular mail is normally delivered within two days in the United States, a notice sent

abroad by regular mail may take a number of weeks to arrive. Even

air mail may take a number of days for delivery. In addition, the typi5 7 5 . See, e.g., Fed. R. Bankr. P. 2002 (specifying the notice required for a number of

common proceedings in bankruptcy cases).

5 7 6 . For example, notice may be considered insufficient unless the party giving notice

complies with the requirements of the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, Nov. 15, 1965, 20 U.S.T. 361, T.I.A.S.

No. 6638, 658 U.N.T.S. 163 (1969). Thirty-six countries, including the United States and

most of its major trading partners, are parties to this convention. The notice process is lengthy

and cumbersome. This treaty and its contents are described in Edith Wu, Evolutionary Trends in

the United States Application of Extraterritorial Jurisdiction, 10 Transnat’l Law. 1 (1997).
V. Procedural Issues in Transnational Insolvency Cases

9 3 

cal notice provisions in the Federal Rules of Bankruptcy Procedure

and local rules may be insufficient to provide meaningful notice to

creditors located abroad.

Increasingly, domestic notice is being given by E-mail and by fax.

These means are especially useful for giving notice to foreign creditors and parties in interest because such notice is much faster. Of

course, fax numbers and E-mail addresses must be available to permit

notice by these means.

A further problem may arise if a foreign creditor or other party in

interest does not understand the language in which the notice is

written. In this circumstance, the notice may be insufficient for the

foreigner.5 7 7 

C. Communication Between Judges

Traditionally, judges in different courts have been reluctant to communicate with each other on related cases. This is especially so when

the courts are located in different countries and when translators are

needed to overcome language barriers. However, it is important in

transnational cases that the respective judges communicate with each

other, whether directly or indirectly, about the conduct of related

proceedings. United States trial judges have recently become much

more willing to communicate with each other on related cases, and

this change is likely to extend to the international arena.

Ineffective communication between judges may lead to problems,

such as undue delays and expense, unduly cumbersome and lengthy

hearings, inconsistent treatment of similarly situated creditors, and

ultimately the dissipation of valuable assets. Perhaps the most serious

problem that can arise from ineffective communication between

judges is that the parties may “play” one court against another, which

can lead to a battle between the affected courts. In addition to creating all of the foregoing problems, such a battle may bring the courts

themselves into disrepute.

5 7 7 . For this reason the Convention on the Service Abroad of Judicial and Extrajudicial

Documents in Civil or Commercial Matters, supra note 576, requires that all documents subject

to the convention be translated into the local language. See arts. 5 & 7.
International Insolvency

94

There is no single model for proper communication between

judges in transnational insolvencies. Perhaps the best means of communication is a telephone or video conference, with translators if

needed. Written communications between judges may also be advisable. In most cases, communications should be off-the-record, private, and confidential. It may be appropriate simply to inform the

parties in interest that the respective judges have been in contact with

one another.

D. Conflict of Laws in International Insolvency Cases

International insolvency cases frequently raise the potential for the

application of the laws of more than one country. There are traditional rules, under the general doctrine of international private law,

which generally govern the determination of applicable law where a

transaction or event overlaps political boundaries.5 7 8 However, very

few reported U.S. cases apply conflict-of-laws rules in the context of

international insolvencies.

 Generally accepted choice-of-law standards require that a controversy be decided by the law of the jurisdiction with the greatest interest in the controversy.5 7 9 Under this test, the court is required to

evaluate the relative importance of the various contacts of each jurisdiction with respect to a particular issue in controversy and to make a

reasoned determination as to which jurisdiction’s laws and policies are

implicated to the greatest extent.5 8 0 

This principle probably explains the relative rarity of conflict-oflaws discussions in the reported case law. In a typical transnational

bankruptcy case, the assets and the litigation at issue are usually firmly

rooted in the United States. Thus, U.S. law would clearly apply to a

5 7 8 . See, e.g., Aranha v. Eagle Fund, Ltd. (In re Thornhill Global Deposit Fund, Ltd.), 245

B.R. 1, 10–11 (Bankr. D. Mass. 2000); see generally Restatement (Second) of Conflict of Laws

(1997).

5 7 9 . See, e.g., Koreag, Controle et Revision S.A. v. Refco F/X Assocs., Inc. (In re Koreag),

961 F.2d 341, 350 (2d Cir. 1992); Wells Fargo Asia, Ltd. v. Citibank, N.A., 936 F.2d 723, 726

(2d Cir. 1991); Maxwell Communication Corp. v. Société Générale (In re Maxwell Communication Corp.), 93 F.3d 1036 (2d Cir. 1996).

5 8 0 . See Koreag, 961 F.2d at 350; Maxwell Communication Corp. v. Barclays Bank (In re

Maxwell Communication Corp.), 170 B.R. 800, 816 (Bankr. S.D.N.Y. 1994), aff’d, 186 B.R.

807 (S.D.N.Y. 1995), aff’d, 93 F.3d 1036 (2d Cir. 1996).
V. Procedural Issues in Transnational Insolvency Cases

9 5 

case or proceeding pending in a U.S. court under the applicable

choice-of-law standards. However, in certain circumstances it is appropriate to apply the law of another jurisdiction under the choiceof-law rule.

The leading U.S. bankruptcy case on choice of law is Maxwell

Communication Corp. v. Barclays Bank,5 8 1 which involved plenary

bankruptcy cases in both England and the United States. The British

administrators of the joint case brought a preferential transfer action

in the U.S. court to set aside certain payments that had been made to

two British banks and one French bank shortly before the filing of

the bankruptcy cases. The U.S. court applied traditional choice-oflaw principles to find that the controversy must be decided under

English law.5 8 2 Given this decision, the court dismissed the suits on

the grounds of comity.5 8 3 

The Maxwell case illustrates the kind of issue where foreign law

may be the appropriate choice. In general, an adversary proceeding

brought against a foreign entity raises the issue of which country’s law

should apply. However, issues rooted in domestic assets or domestic

procedure should be governed by local law.

For secured claims, it is generally assumed that the law of the situs

of the collateral is the applicable law for all purposes. Generally, this

rule is well founded for real estate, which is usually governed by the

law of the situs. However, for personal property and especially for

intangibles, a different result may often be appropriate.

The choice-of-law issue sharpens when assets are transferred

abroad for administration in a foreign main case. In such a situation,

the foreign forum typically will properly apply its own law to both

substantive and procedural issues.

The choice-of-law issue raises additional complexities in a U.S.

proceeding. Federal courts sitting in diversity jurisdiction are required

to apply the choice-of-law rules of the forum state.5 8 4 This rule imposes the forum state’s choice-of-law rules on bankruptcy adjudications where the underlying rights and obligations are defined by state

5 8 1 . Maxwell, 170 B.R. 800.

5 8 2 . See id. at 816–18.

5 8 3 . See id. at 818.

5 8 4 . See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941).
International Insolvency

96

(and not federal) law.5 8 5 In contrast, a court of appeals has held that

federal principles should control in cases arising under federal law.5 8 6 

Because bankruptcy law in the United States is a complex mix of

state and federal law, a bankruptcy court may be required to determine the source of the applicable legal rules (whether federal or state

law) before determining which conflict-of-laws rules to apply. Fortunately, few cases require a decision between federal and state choiceof-law rules.5 8 7 

The EU Regulation provides a variation on this analysis. Under its

procedures, a domestic non-main proceeding is governed by its own

domestic law for most purposes, but the court is limited in how it

treats local assets and creditors in light of the pendency of a main proceeding in a different country.5 8 8 

E. Distribution to Creditors

The proper calculation of the distribution of assets to creditors is an

unexpectedly difficult issue when there are parallel proceedings in

two or more countries.5 8 9 This difficulty inheres in both the territoriality and the universality approaches5 9 0 to international insolvencies.5 9 1 

How much a particular unsecured creditor receives may be affected

substantially by the order in which the insolvency cases distribute assets to creditors.5 9 2 For example, a creditor may receive substantially

more if the distribution to unsecured creditors is made first in country

A than if the distribution is made first in country B. Furthermore, the

5 8 5 . See, e.g., Arab Monetary Fund v. Hashim (In re Hashim), 213 F.3d 1169, 1171 (9th

Cir. 2000); Continental Cas. Co. v. Kellogg (In re Chanel Fin., Inc.), 102 B.R. 549, 550

(Bankr. N.D. Tex. 1988); Hassett v. Far West Fed. Sav. & Loan Ass’n (In re O.P.M. Leasing

Serv., Inc.), 40 B.R. 380, 391–92 (Bankr. S.D.N.Y.), aff’d, 44 B.R. 1023 (S.D.N.Y. 1984);

Central Trust Co. v. Shepard (In re Shepard), 29 B.R. 928, 931 (Bankr. M.D. Fla. 1983). But

see Koreag, 961 F.2d at 350 (dictum that federal choice-of-law principles should apply in cases

arising under federal law, but finding no difference between the applicable New York and

federal principles).

5 8 6 . See Koreag, 961 F.2d at 350; accord, Wells Fargo Asia, Ltd. v. Citibank, N.A., 936 F.2d

723, 726 (2d Cir. 1991).

5 8 7 . See Koreag, 961 F.2d at 350.

5 8 8 . See supra text accompanying notes 473–95.

5 8 9 . See generally, Bang-Pedersen, supra note 468.

5 9 0 . See supra text accompanying notes 10–18.

5 9 1 . See Bang-Pedersen, supra note 468, at 385–86.

5 9 2 . See id., passim.
V. Procedural Issues in Transnational Insolvency Cases

9 7 

recovery of a particular creditor may be substantially greater if the

creditor files its claim in each of the countries where an insolvency

proceeding is filed. In addition, varying priority laws in the relevant

countries can affect the amount of a distribution received.5 9 3 

Courts should adopt a maximum dividend rule. That is, a particular creditor should not be permitted to receive more than 100% of its

claim collectively from the various insolvency proceedings in the

various countries. A rule that disqualifies a creditor from receiving

any more distributions in any relevant proceeding thereafter would

accomplish this goal. However, such a rule may have a variety of

complicated consequences for other creditors.5 9 4 

Thus far, the reported cases in the United States have not addressed these problems.

5 9 3 . See id.

5 9 4 . See id.
99

Appendix A

Cross-Border Insolvency Concordat

(Reprinted with permission of the International Bar Association.)

INTERNATIONAL BAR ASSOCIATION

SECTION ON BUSINESS LAW

COMMITTEE J - INSOLVENCY AND CREDITORS’ RIGHTS

Committee J

Cross-Border Insolvency Concordat

Adopted by the Council of the Section on Business Law of the International Bar Association

Paris, France

September 17, 1995

Adopted by the Council of the International

Bar Association

Madrid, Spain

May 31, 1996

E. Bruce Leonard Hans Lüer

Cassels Brock & Blackwell LLP Lüer & Görg

Toronto, Canada Cologne, Germany

Co-Chairs, Committee J

M.O. (Mike) Sigal Christoph Stäubli

Simpson, Thatcher & Bartlett Walder Wyss & Partners

New York, USA Zurich, Switzerland

Co-Chairs, Subcommittee J1

Cross-Border Insolvency Concordat
International Insolvency

100

INTRODUCTION TO THE CROSS-BORDER

INSOLVENCY CONCORDAT

Committee J of the International Bar Association is pleased and

proud to have sponsored the development of the Cross-Border Insolvency Concordat. The Concordat is one of the most significant initiatives in international insolvency and reorganizations in many years.

Our Committee is highly appreciative of the work that so many

Members of our Committee have put into the analysis and development of the concepts that form the basis of the Concordat. Under the

Co-Chairs of our Subcommittee on the Cross-Border Insolvency

Concordat, Mike Sigal of New York and Christoph Staubli of Zurich, Country Teams were organized in over twenty countries from

all around the world. Through presentations at Committee J Conferences and Meetings, several hundred members of our Committee

have been able to participate in the deliberations on the Concordat.

The Committee also acknowledges a deep debt of gratitude to several

distinguished international jurists who participated in the development and, more latterly, in the actual application of the Concordat to

an existing cross-border reorganization between two of Committee

J’s member countries.

The Concordat is intended to be an evolving work that will be

altered and modified to reflect the experiences that members of the

international insolvency community gain from working with its concepts and applying it in practice. We are aware of the benefits to be

derived from the application of the principles of the Concordat

within the work of the United Nations Commission on International

Trade Law (UNCITRAL) prospective Model Law on Cross-Border

Insolvency. We are also considering provisions based on the Concordat model that would be suitable for application in the case of crossborder insolvencies involving financial institutions and the potential

development and use of the Concordat for model provisions in

commercial documentation in international transactions.

Committee J welcomes comments and suggestions on the provisions of the Cross-Border Insolvency Concordat and on measures

that could be used to increase the effectiveness of the Concordat in

meeting our Committee’s goals of achieving increased levels of co-
Appendix A: Cross-Border Insolvency Concordat

1 0 1 

ordination and harmonization among Committee J’s member countries in cross-border and multinational insolvencies and reorganizations.

Madrid, Spain E. Bruce Leonard

May 31, 1996 Cassels Brock & Blackwell

Toronto, Canada

Chairman, Committee J
International Insolvency

102

INTRODUCTION TO THE COMMITTEE J

CROSS-BORDER INSOLVENCY CONCORDAT

Flexibility in the rules appears to be indispensable in international bankruptcy. The situations which arise are so varied that any one rigid rule cannot solve all of them satisfactorily. Neither the theory of territoriality nor the

theory of ubiquity can cope adequately with the divergent situations.

—Professor Kurt H. Nadelmann1

The Cross-Border Insolvency Concordat is a framework for harmonizing cross-border insolvency proceedings. There exists today no

uniform statute or treaty adopted by commercial nations dealing with

the policy and commercial problems that arise in cross-border insolvencies. Yet cross-border insolvencies are increasing both in number

and size, as well as in complexity. The Concordat attempts to aid in

filling this gap in international law.

International commerce will be encouraged if the insolvency

bench and bar develop a set of general guidelines, a “concordat,”

which may be used in developing solutions to individual cross-border

insolvencies. The purpose of the Concordat is to suggest generalized

principles, which the participants or courts could tailor to fit the particular circumstances and then adopt as a practical approach toward

dealing with the process.

To be supportive of international commerce, any insolvency regime must be reasonably predictable, fair and convenient. Supporting

international commerce is a worthy goal, because, as some have

noted, countries which trade together rarely make war upon one another. International commerce will be furthered by an understanding

in the international business community that general principles exist

which, in the event of business crisis, are recognized as an underpinning to harmonize insolvency proceedings.

These principles should reflect respect for the legitimate private

expectations of the parties transacting business with the debtor, including their reasonable reliance upon laws of particular jurisdictions.

However, legislation reflecting a particular jurisdiction’s policies re1. Solomons v. Ross and Int’l Bankruptcy Law, 9 Mod. L.R. 154, 167–68 (1946).
Appendix A: Cross-Border Insolvency Concordat

1 0 3 

garding such matters as priorities among claims must be given due

weight where jurisdictionally appropriate, as should regulatory laws

governing businesses such as banking or insurance.

The Concordat has been prepared to provide a framework of

general principles for addressing cross-border insolvencies. The Concordat deals with some of the important conceptual issues that arise in

cross-border insolvencies. Some principles have been framed in the

alternative, reflecting among other things extensive comment from

many countries.

It is important to note what the Concordat is not. The Concordat is not intended to be used as, or as a substitute for, a treaty or

statute. The Concordat is not a rigid set of rules; indeed, it is expected to change as it is used. Rather, the Concordat is an interim

measure until treaties and/or statutes are adopted by commercial nations. It is intended, in the absence of an applicable treaty or statute,

to guide practitioners in harmonizing cross-border insolvencies. The

Concordat, as modified by counsel to fit the circumstances of any

particular cross-border insolvency, could be implemented by court

orders or formal agreements between official representatives or informal arrangements, depending upon the rules and practices of the

particular forum involved.
International Insolvency

104

COMMITTEE J CROSS-BORDER INSOLVENCY

CONCORDAT

PRINCIPLE 1

IF AN ENTITY OR INDIVIDUAL WITH CROSS-BORDER

CONNECTIONS IS THE SUBJECT OF AN INSOLVENCY

PROCEEDING, A SINGLE ADMINISTRATIVE FORUM

SHOULD HAVE PRIMARY RESPONSIBILITY FOR COORDINATING ALL INSOLVENCY PROCEEDINGS RELATING

TO SUCH ENTITY OR INDIVIDUAL.

Commentary: In most cases, an enterprise will have its nerve center

and many of its assets in one country. In the usual circumstance that

country is the most appropriate forum for the administrative center of

its insolvency. Having a primary administrative forum presents the

possibility of many benefits enhancing control of assets, increasing

business values, and ensuring fair treatment of creditors. Predictability

of the “natural” administrative forum will also be most supportive of

international commerce.

The Concordat is designed to provide principles useful where

any of several procedural situations occurs. While in most cases the

establishment of a single main proceeding will be the best way to

achieve the common goals of most national insolvency regimes, there

may well be circumstances in which more than one plenary case is

maintained. For example, plenary proceedings might proceed in two

jurisdictions, with or without an administrative protocol, and with or

without limited proceedings in yet other jurisdictions. In all of these

circumstances the Concordat provides principles intended to assist in

coordination. The Concordat also provides principles applicable in

any forum whether one, or several, plenary or limited proceedings

are pending. These include the analysis of appropriate choice of law

in litigated matters such as claim resolution and voiding rules.
Appendix A: Cross-Border Insolvency Concordat

1 0 5 

PRINCIPLE 2

WHERE THERE IS ONE MAIN FORUM:

A. ADMINISTRATION AND COLLECTION OF ASSETS

SHOULD BE COORDINATED BY THE MAIN FORUM.

B. AFTER PAYMENT OF SECURED CLAIMS AND PRIVILEGED CLAIMS, AS DETERMINED BY LOCAL LAW, ASSETS IN ANY FORUM OTHER THAN IN THE MAIN

FORUM SHALL BE TURNED OVER TO THE MAIN

FORUM FOR DISTRIBUTION.

C. COMMON CLAIMS ARE FILED IN AND DISTRIBUTIONS ARE MADE BY THE MAIN FORUM. COMMON

CREDITORS NOT IN THE MAIN FORUM MUST FILE

CLAIMS IN THE MAIN FORUM BUT (TO THE EXTENT

ALLOWABLE UNDER THE PROCEDURAL RULES OF

THE MAIN FORUM) MAY FILE BY MAIL, IN THEIR

LOCAL LANGUAGE AND WITH NO FORMALITIES

OTHER THAN REQUIRED UNDER THEIR LOCAL INSOLVENCY LAW.

D. THE MAIN FORUM MAY NOT DISCRIMINATE

AGAINST NON-LOCAL CREDITORS.

E. FILING A CLAIM IN THE MAIN FORUM DOES NOT

SUBJECT A CREDITOR TO JURISDICTION FOR ANY

PURPOSE, EXCEPT FOR CLAIMS ADMINISTRATION

SUBJECT TO THE LIMITATIONS OF PRINCIPLE 8 AND

EXCEPT FOR ANY OFFSET (UNDER VOIDING RULES

OR OTHERWISE) UP TO THE AMOUNT OF THE

CREDITOR’S CLAIM.

F. A DISCHARGE GRANTED BY THE MAIN FORUM

SHOULD BE RECOGNIZED IN ANY FORUM.

Commentary: International commerce is encouraged to the extent that

participants may rely upon the expectation that if they engage in

transactions with a multinational enterprise, and an insolvency proceeding is commenced in any nation with which the enterprise has a

connection, that participant will not suffer discriminatory treatment

based solely upon nationality or domicile. While a creditor may be
International Insolvency

106

subject to the inconvenience of an insolvency proceeding in another

country, that risk is part of engaging in business with a multinational

enterprise. But the risk of discriminatory treatment should not be a

business. Nor should the risk that the creditor’s preinsolvency claim

will be unanticipated jurisdiction, unilaterally chosen by the entity or

individual commencing insolvency proceedings, be a risk of doing

such business.

To promote economy, and in light of modern communications

technology, the main forum should have the ability to serve process

worldwide, but a defendant should be permitted to object to jurisdiction of the main forum without submitting to jurisdiction, and to

raise other objections to the forum. Similarly, the filing of a claim in a

particular jurisdiction subjects the creditor to insolvency jurisdiction,

but only as exercised by the court ultimately found appropriate to

hear a matter, which may not be the main forum, and only with respect to its claim and offsets.

PRINCIPLE 3

A. IF THERE IS MORE THAN ONE FORUM, THE OFFICIAL REPRESENTATIVES APPOINTED BY EACH FORUM SHALL RECEIVE NOTICE, AND HAVE THE

RIGHT TO APPEAR IN, ALL PROCEEDINGS IN ANY

FORA. IF REQUIRED IN A PARTICULAR FORUM, AN

EXEQUATUR OR SIMILAR PROCEEDING MAY BE

UTILIZED TO IMPLEMENT RECOGNITION OF THE

OFFICIAL REPRESENTATIVE. AN OFFICIAL REPRESENTATIVE SHALL BE SUBJECT TO JURISDICTION IN

ALL FORA FOR ANY MATTER RELATED TO THE INSOLVENCY PROCEEDINGS, BUT APPEARING IN A

FORUM SHALL NOT SUBJECT HIM/HER TO JURISDICTION FOR ANY OTHER PURPOSE IN THE FORUM STATE.

B. TO THE EXTENT PERMITTED BY THE PROCEDURAL

RULES OF A FORUM, EX PARTE AND INTERIM ORDERS SHALL PERMIT CREDITORS OF ANOTHER JURISDICTION AND OFFICIAL REPRESENTATIVES APPOINTED BY ANOTHER JURISDICTION THE RIGHT,
Appendix A: Cross-Border Insolvency Concordat

1 0 7 

FOR A REASONABLE PERIOD OF TIME, TO REQUEST

THE COURT TO RECONSIDER THE ISSUES COVERED

BY SUCH ORDERS.

C. ALL CREDITORS SHOULD HAVE THE RIGHT TO APPEAR IN ANY FORUM TO THE SAME EXTENT AS

CREDITORS OF THE FORUM STATE, REGARDLESS

OF WHETHER THEY HAVE FILED CLAIMS IN THAT

PARTICULAR FORUM, WITHOUT SUBJECTING

THEMSELVES TO JURISDICTION IN THAT FORUM

(INCLUDING WITH RESPECT TO RECOVERY

AGAINST A CREDITOR UNDER VOIDING RULES OR

OTHERWISE IN EXCESS OF A CREDITOR’S CLAIM).

D. INFORMATION PUBLICLY AVAILABLE IN ANY FORUM SHALL BE PUBLICLY AVAILABLE IN ALL FORA.

TO THE EXTENT PERMITTED, NON-PUBLIC INFORMATION AVAILABLE TO AN OFFICIAL REPRESENTATIVE SHALL BE SHARED WITH OTHER OFFICIAL

REPRESENTATIVES.

Commentary: If more than one plenary forum is presiding over insolvency proceedings of a multinational entity or individual, coordination of both the administration and claims processing is essential. The

goals of Principle 1 are still important, and they can be achieved only

if the Official Representatives are in constant communication, work

together to coordinate the process, and have the respect of all relevant

jurisdictions. All should be aware of proceedings in all courts, and

where necessary should be heard if judicial resolution of a matter is

required.2

Where more than one plenary forum exists, it appears to be an

equitable corollary that any Official Representatives should be subject

to plenary jurisdiction in every such forum. If creditors must respond

in that forum, the Official Representatives must surely be required to

respond in that forum. However, the Official Representatives should

2. Official Representatives will most often seek to appear to press claims of the creditors in

their country or to assert an interest in assets. However, Official Representatives should be

heard on any matter of interest to their position.
International Insolvency

108

not be subject to jurisdiction for any purpose unrelated to representation of the estate.

Interim orders must often be made on short notice, especially in

the first stages of insolvency proceedings. Because of the greater

complexity of cross-border proceedings, such orders should be made

subject to “come-back” procedures, so that any affected party may

request the court to reconsider the matter when the situation has stabilized and the facts are clearer. In that way, courts will be given sufficient time and sufficient input to consider carefully the consequences of orders having cross-border ramifications. In addition, parties who are uncertain of the court’s intentions regarding the crossborder reach of their orders, and who are not otherwise subject to the

jurisdiction of the court, should be free to obtain clarification of such

issues without being subjected to jurisdiction for other purposes.

Because the guiding principle of this Concordat is that all common creditors should be treated as creditors of a single world-wide

estate, even though the estate is administered by more than one forum, as a matter of fairness all creditors should have a right to be

heard (where a forum permits creditors to speak) on administrative

matters in which they have an interest without submission to jurisdiction of the administrative forum for any purpose other than administrative matters and claims administration. No creditor not otherwise found in the administrative forum state, or whose claim is not

connected to the forum state, should, as a result of administrative

participation, lose its rights to jurisdictional and other international

law arguments with respect to an adversary proceeding against the

creditor.

PRINCIPLE 4

WHERE THERE IS MORE THAN ONE PLENARY FORUM

AND THERE IS NO MAIN FORUM:

A. EACH FORUM SHOULD COORDINATE WITH EACH

OTHER, SUBJECT IN APPROPRIATE CASES TO A

GOVERNANCE PROTOCOL.

B. EACH FORUM SHOULD ADMINISTER THE ASSETS

WITHIN ITS JURISDICTION, SUBJECT TO PRINCIPLE

4(F).
Appendix A: Cross-Border Insolvency Concordat

1 0 9 

C. A CLAIM SHOULD BE FILED IN ONE, AND ONLY ONE,

PLENARY FORUM, AT THE ELECTION OF THE

HOLDER OF THE CLAIM. IF A CLAIM IS FILED IN

MORE THAN ONE PLENARY FORUM, DISTRIBUTION

MUST BE ADJUSTED SO THAT RECOVERY IS NOT

GREATER THAN IF THE CLAIM WERE FILED IN ONLY

ONE FORUM.

D. EACH PLENARY FORUM SHOULD APPLY ITS OWN

RANKING RULES FOR CLASSIFICATION OF AND DISTRIBUTION TO SECURED AND PRIVILEGED CLAIMS.

E. CLASSIFICATION OF COMMON CLAIMS SHOULD BE

COORDINATED AMONG PLENARY FORA. DISTRIBUTIONS TO COMMON CLAIMS SHOULD BE PRORATA REGARDLESS OF THE FORUM FROM WHICH A

CLAIM RECEIVES A DISTRIBUTION.

F. ESTATE PROPERTY SHOULD BE ALLOCATED (AFTER

PAYMENT OF SECURED AND PRIVILEGED CLAIMS)

AMONG, OR DISTRIBUTIONS SHOULD BE MADE BY,

PLENARY FORA BASED UPON A PRO-RATA WEIGHING OF CLAIMS FILED IN EACH FORUM. PROCEEDS

OF VOIDING RULES NOT AVAILABLE IN EVERY PLENARY FORUM SHOULD BE:

ALTERNATIVE A: ALLOCATED PRO-RATA

AMONG ALL PLENARY FORA FOR DISTRIBUTION.

ALTERNATIVE B: ALLOCATED FOR DISTRIBUTION BY THE FORUM WHICH ORDERED VOIDING.

G. IF THE ESTATE IS SUBJECT TO LOCAL REGULATION

THAT INVOLVES AN IMPORTANT PUBLIC POLICY

(SUCH AS A BANKING OR INSURANCE BUSINESS),

LOCAL ASSETS SHOULD BE USED FIRST TO SATISFY

LOCAL CREDITORS THAT ARE PROTECTED BY

THAT REGULATORY SCHEME (SUCH AS BANK DEPOSITORS AND INSURANCE POLICY HOLDERS) TO

THE EXTENT PROVIDED BY THAT REGULATORY

SCHEME.
International Insolvency

110

Commentary: As suggested with respect to Principle 1, estate assets and

business values are more likely to be preserved and enhanced if administration is centered in a single forum. If there are multiple insolvency proceedings and no main forum and if assets are located in several plenary fore or outside of any plenary forum, the same objectives

may be met if the relevant fora agree upon a governance protocol.

Where more than one plenary proceeding exists, creditors should

have the ability to choose the forum most advantageous or convenient for the creditor. If all creditors have the choice, all are provided

equal treatment. Therefore, the holder of a claim should be permitted

to file it in any plenary forum.

The choice of law applicable to the underlying validity of the

claim is not affected by the choice of where it is filed—under this

Concordat the same choice of law rules will apply in every forum.

However, the creditor may feel that one forum is more hospitable

than another, and a privileged creditor may fare better under one

distribution system rather than another.

Privileged claims, which reflect national policy choices, should be

recognized by permitting distributions to those claims in each forum

to be made according to its rules. Where a particular country has no

assets for distribution and allocated a portion of estate assets for distribution to privileged creditors, the country may distribute such assets

to privileged creditors first.

Certain industries, such as banking and insurance, involve regulation that implements important public policies. Under the Concordat, these are respected.3

To promote fairness, which in turn promotes commerce, distribution of estate assets, domestic or multinational, should generally be

made pro-rata among creditors of the same class, wherever located.

However, where more than one plenary forum has been found appropriate, each should be permitted to make distributions pursuant to

its own procedural law. Therefore, each must be allocated an appropriate portion of estate property.

3. See In re Norske Lloyd Ins. Co., 242 N.Y. 148 (1926); In re Ocana, 151 B.R. 670

(S.D.N.Y. 1993); see also, art. 1(1) of the Council of Europe Convention and art. 1(2) of the

draft EU Convention.
Appendix A: Cross-Border Insolvency Concordat

1 1 1 

Estate property should be allocated (after satisfaction of secured

claims and payment of privileged claims in any jurisdiction in which

estate property is located) such that it is distributed on a pro-rata basis

among plenary fora based upon claims filed. Claims in comparable

classes in each jurisdiction should be valued on a comparative basis,

and then the assets, or their proceeds, should be allocated among each

jurisdiction based upon claims filed.

PRINCIPLE 5

A LIMITED PROCEEDING SHALL, AFTER PAYING SECURED AND PRIVILEGED CLAIMS, AS DETERMINED BY

LOCAL LAW, TRANSFER ANY SURPLUS TO THE MAIN

FORUM OR ANOTHER APPROPRIATE PLENARY FORUM.

Commentary: In many situations, it may be useful, where a plenary

insolvency proceeding is pending on one jurisdiction, to commence a

proceeding in another jurisdiction to serve limited objectives, such as

collection of assets, where there is no need for a second comprehensive proceeding. In some countries there exist defined statutory vehicles for limited proceedings, such as “secondary proceedings” recognized in the Council of Europe Convention and the draft EU Convention and “ancillary proceedings” in the United States. In many

countries, the only available vehicle is a plenary proceeding. However, it appears that in most countries a plenary proceeding may be

tailored by the presiding judge to effect limited objectives. The Concordat favors the exercise of discretion, where available, to limit proceedings. This will avoid conflict with plenary proceedings in other

jurisdictions and will reduce the cost of cross-border cases.

In any limited proceeding, the court should make every effort to

coordinate with courts presiding over plenary proceedings. However,

the court in a limited proceeding has authority to collect assets in its

jurisdiction, and distribute such assets to secured and privileged

creditors. To effect the equality goal of the Concordat and most insolvency regimes, the Concordat provides that surplus assets or proceeds should then be transferred to an appropriate plenary proceeding

which handles distribution to common claims.
International Insolvency

112

PRINCIPLE 6

SUBJECT TO PRINCIPLE 8, THE OFFICIAL REPRESENTATIVES MAY EMPLOY THE ADMINISTRATIVE RULES OF

ANY PLENARY FORUM IN WHICH AN INSOLVENCY

PROCEEDING IS PENDING, EVEN THOUGH SIMILAR

RULES ARE NOT AVAILABLE IN THE FORUM APPOINTING THE OFFICIAL REPRESENTATIVE.

Commentary: Where it is found appropriate that administrative supervision of a cross-border insolvency be exercised in more than one

country, it should also be appropriate that administrative rules applicable in a particular forum be available for use by the Official Representative to enhance the assets of the estate. For example, if the entity

in insolvency proceedings is a party to executory contracts in a nation

whose insolvency law permits rejection of executory contracts that

are burdensome, the Official Representative should be enabled to use

such procedures for the benefit of all creditors. Thus, an Official

Representative appointed in Country A could, subject to Principle 8,

use a rejection power available in Country B (the main forum) even

if Country A’s laws provide no such power. Where appropriate, an

exequatur or similar proceeding would be used in Country B.

However, the Official Representative is not permitted to use

such rules in an unexpected manner. If the pre-insolvency entity was

a party to executory contracts to be performed in a country in which

rejection is not permissible, the rejection procedure of another country may not be used. Again, international commerce is hindered if

parties entering into contracts with multinational entities are concerned that unexpected unilateral use by such entities of favorable law

will occur in the event of insolvency. Application of principles of

international law may determine whether use of administrative procedures is appropriate.
Appendix A: Cross-Border Insolvency Concordat

1 1 3 

PRINCIPLE 7

SUBJECT TO PRINCIPLE 8, THE OFFICIAL REPRESENTATIVES MAY EXERCISE VOIDING RULES OF ANY FORUM.

Commentary: Many nations provide rules for negating transactions

which occur within a defined period before the onset of insolvency

proceedings. The purpose of these laws is usually to prevent the preference by the pre-insolvency entity of some creditors over others, or

to prevent the overpayment of some creditors caused by exchanges

for unequal value, so creditors not so preferred are treated equally by

having all claims considered based on facts existing at the filing date

(or as they should have existed as of that date had the voidable transactions not occurred).

The Official Representative should be permitted to use any provisions available to it to maximize recoveries, provided the use of

such remedy is consistent with principles of international law.4

PRINCIPLE 8

A. EACH FORUM SHOULD DECIDE THE VALUE AND ALLOWABILITY OF CLAIMS FILED BEFORE IT USING A

CHOICE OF LAW ANALYSIS BASED UPON PRINCIPLES

OF INTERNATIONAL LAW. A CREDITOR’S RIGHTS

TO COLLATERAL AND SET-OFF SHOULD ALSO BE

DETERMINED UNDER PRINCIPLES OF INTERNATIONAL LAW.

B. PARTIES ARE NOT SUBJECT TO A FORUM’S SUBSTANTIVE RULES UNLESS UNDER APPLICABLE

PRINCIPLES OF INTERNATIONAL LAW SUCH PARTIES WOULD BE SUBJECT TO THE FORUM’S SUBSTANTIVE LAWS IN A LAWSUIT ON THE SAME

TRANSACTION IN A NON-INSOLVENCY PROCEEDING. THE SUBSTANTIVE AND VOIDING LAWS OF THE

4. Some jurisdictions and the draft EU Convention are not as flexible in that they require

the voiding rules of the law of the State in which proceedings are opened to apply. The Concordat considers this approach overly narrow, but is cognizant of this approach.
International Insolvency

114

FORUM HAVE NO GREATER APPLICABILITY THAN

THE LAWS OF ANY OTHER NATION.

C. EVEN IF THE PARTIES ARE SUBJECT TO THE JURISDICTION OF THE PLENARY FORUM, THE PLENARY

FORUM’S VOIDING RULES DO NOT APPLY TO

TRANSACTIONS THAT HAVE NO SIGNIFICANT RELATIONSHIP WITH THE PLENARY FORUM.

Commentary: A multinational corporation or corporate group may

have transactions in many countries with citizens or domiciliaries of

many other countries, involving assets or debt in many countries.

The parties to these transactions will have reasonable expectations

with respect to the law applicable to such transactions.

When such an enterprise fails, the established rules of international law should apply to claims, collateral, set-off rights, and lawsuits among the participants in the insolvency proceeding. Thus, substantive laws applicable to claims resolution and to lawsuits must be

decided based upon on the relevant facts. So should issues of jurisdiction and venue. While the interests of creditors are relevant, those

interests are served by the application of laws providing for procedural fairness, not by the application of substantive laws or voiding

rules on an unexpected basis.

If there is a main forum, it will usually be an appropriate forum

for litigation if it applies international law principles, particularly

choice of law principles, to any adversarial litigation pending before

it.5

 The issue could be by more complex where there are multiple

administrative fora. In each case, an evaluation must be made based

upon the applicable principles of international law, including giving

due consideration to relevant insolvency law, as to what law should

apply.

5. The parties may not alone determine the substantive law applicable to a transaction. For

example, if payments alleged to be fraudulent conveyances were made in connection with a

contract governed by Singaporean law, the determination whether the payments are voidable is

not necessarily made under Singaporean law. The appropriate law for evaluating voidability

depends upon an analysis of all the circumstances of the payments, including the designation of

Singaporean law in the contract, which may be relevant to the parties’ expectations and intent.

Where, as a result of the insolvency, the laws of another country may be relevant despite the

intent of the parties, the basis for its application should also be examined.
Appendix A: Cross-Border Insolvency Concordat

1 1 5 

Voiding rules raise special issues. Such laws invalidate an otherwise legal transaction. Thus, a forum should have a clear interest in

order for its voiding rules to apply. This is consistent with the overall

principle that international commerce will be supported if otherwise

valid commercial transactions are not disturbed unless a jurisdiction

has a clear interest in doing so.

PRINCIPLE 9

A COMPOSITION IS NOT BARRED BECAUSE NOT ALL

PLENARY FORA HAVE LAWS WHICH PROVIDE FOR A

COMPOSITION AS OPPOSED TO A LIQUIDATION, OR A

COMPOSITION CANNOT BE ACCOMPLISHED IN ALL

PLENARY FORA, AS LONG AS THE COMPOSITION CAN

BE EFFECTED IN A NON-DISCRIMINATORY MANNER.

Commentary: Not all nations have insolvency laws which provide for

a composition. The policy decision whether to permit a composition

is based upon a socio-economic view as to whether society benefits

from maintaining the debtor as an on-going enterprise rather than

liquidating it. The rules that govern the requirements to be satisfied

in order to achieve a composition will differ from nation to nation

and, thus, it is possible that a composition would be achievable in

some, but not all, administrative fora.

In such an instance, if it appears that a composition is in the interests of the creditors, or other constituencies, such as employees or

regulatory authorities, of countries which permit a composition, it is

essential that the Official Representatives and courts coordinate their

actions so that the objectives of all relevant nations may, to the extent

possible, be realized. There appears to be no bar to a composition

where creditors in any forum in which a vote is permitted in fact

vote by the requisite majority of that forum in favor of the composition.
International Insolvency

116

PRINCIPLE 10

TO THE EXTENT PERMITTED BY THE SUBSTANTIVE

LAW OF A FORUM, COURTS OF THAT FORUM WILL

NOT GIVE EFFECT TO ACTS OF STATE OF ANOTHER

JURISDICTION USED TO INVALIDATE OTHERWISE

VALID PRE-INSOLVENCY TRANSACTIONS.

Commentary: Insolvency laws are designed to protect the integrity of

commerce. They do so by allocating the assets of a failed enterprise in

a manner which attempts to weight claims arising from different noninsolvency law bases in an equitable manner. While preferences and

priorities reflecting a particular nation’s political decisions are also part

of many insolvency statutes, these are usually quite limited and are

known in advance to the participants in commercial activity relating

to that nation.

The reasonable commercial expectation of the parties should not

be upset by ad hoc intervention, post-insolvency, of the executive of a

nation by use of any act of state. For example, the pre-insolvency

obligations of a private entity should not be invalidated by sovereign

acts after the onset of insolvency proceedings.

* * * * *

GLOSSARY OF TERMS

This Glossary of Terms is included for convenience and does not

have independent significance. These terms may be tailored to conform to the applicable terms of chose jurisdictions involved in any

particular cross-border insolvency in which the Concordat is utilized.

Administrative Rules. The rules of insolvency law, excluding

voiding rules, governing the conduct of a plenary proceeding.

Common Claim. A claim which is neither a secured claim nor a

privileged claim.

Composition. A proceeding with the goal of rehabilitating the

business of the entity or individual that is involved in insolvency proceedings, possibly with new owners, including arrangement, suspen-
Appendix A: Cross-Border Insolvency Concordat

1 1 7 

sion of payment, reconstruction, reorganization, or similar processes,

with distributions to creditors and/or shareholders or other equity

holders of cash, property and/or obligations of, or interests in, the

rehabilitated business.

Discharge. A court order or provision of an instrument effecting a

composition releasing a debtor from all liabilities that were, or could

have been, addressed in the insolvency proceeding, including contracts that were modified as part of a composition.

Distribution. Allocation of estate property among creditors and/or

shareholders or other equity interests.

Insolvency Proceeding/Forum. Any proceeding over which a court

or other official forum presides with respect to the insolvency of an

entity or individual, which may be a plenary or limited proceeding.

International Law. The laws governing relations among parties of

diverse nationalities.

Limited Proceeding. An insolvency proceeding that is not a plenary

proceeding. Limited proceedings include secondary and ancillary proceedings.

Liquidation. A proceeding with the goal of selling the debtor’s

business, either as a going concern or otherwise, with distribution of

proceeds to creditors.

Main Forum/Proceeding. The exclusive or primary plenary forum/proceeding.

Non-Local Creditors. Creditors who are neither nationals nor

domiciliaries of the forum in question.

Official Representative. A representative of the entity or individual

that has commenced insolvency proceedings, or the estate created

thereby, or its or his/her creditors, which may include an administrator, liquidator, trustee, supervisor or debtor-in-possession.

Plenary Forum/Proceeding. A forum or insolvency proceeding

which addresses, on a plenary basis, administrative matters, including,

on the one hand, operation or liquidation of the debtor’s business or

assets, and, on the other hand, the filing, processing and allowance of

claims and distribution to creditors.

Privileged Claim. A claim that, pursuant to statutory or other law,

or pursuant to ranking rules, is given a preference or priority over
International Insolvency

118

common claims, including a public law claim arising from the public

law of a nation.

Ranking Rules. The rules by which claims and equity interests are

ranked.

Secured Claim. A claim that is a valid charge upon or interest in

collateral to the extent of the value of the collateral.

Voiding Rules. Rules relating to voidness, voidability or enforceability of claims or pre-insolvency transactions.
119

Appendix B

UNCITRAL Model Law on Cross-Border Insolvency

(Reprinted from United Nations Publication, Sales No. E.99.V.3, ISBN 92-

1-133608-2.)

PREAMBLE

The purpose of this Law is to provide effective mechanisms for

dealing with cases of cross-border insolvency so as to promote the

objectives of:

(a) cooperation between the courts and other competent authorities of this 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 maximization of the value of the debtor’s assets; and

(e) facilitation of the rescue of financially troubled businesses,

thereby protecting investment and preserving employment.

Chapter I. GENERAL PROVISIONS

Article 1. Scope of application

(1) This Law applies where:

(a) assistance is sought in this State by a foreign court or a foreign

representative in connection with a foreign proceeding; or

(b) assistance is sought in a foreign State in connection with a

proceeding under [identify laws of the enacting State relating to insolvency]; or
International Insolvency

120

(c) a foreign proceeding and a proceeding under [identify laws of

the enacting State relating to insolvency] in respect of the same

debtor are taking place concurrently; or

(d) creditors or other interested persons in a foreign State have an

interest in requesting the commencement of, or participating in, a

proceeding under [identify laws of the enacting State relating to insolvency]. (2) This Law does not apply to a proceeding concerning

[designate any types of entities, such as banks or insurance companies,

that are subject to a special insolvency regime in this State and that

this State wishes to exclude from this Law].

Article 2. Definitions

For the purposes of this Law:

(a) “foreign proceeding” means a collective judicial or administrative proceeding in a foreign State, including an interim proceeding,

pursuant to a law relating to insolvency in which proceeding the assets and affairs of the debtor are subject to control or supervision by a

foreign court, for the purpose of reorganization or liquidation;

(b) “foreign main proceeding” means a foreign proceeding taking

place in the State where the debtor has the centre of its main interests;

(c) “foreign non-main proceeding” means a foreign proceeding,

other than a foreign main proceeding, taking place in a State where

the debtor has an establishment within the meaning of subparagraph

(f) of this article;

(d) “foreign representative” means a person or body, including

one appointed on an interim basis, authorized in a foreign proceeding

to administer the reorganization or the liquidation of the debtor’s

assets or affairs or to act as a representative of the foreign proceeding;

(e) “foreign court” means a judicial or other authority competent

to control or supervise a foreign proceeding;

(f) “establishment” means any place of operations where the

debtor carries out a non-transitory economic activity with human

means and goods or services.
Appendix B: UNCITRAL Model Law on Cross-Border Insolvency

1 2 1 

Article 3. International obligations of this State

To the extent that this Law conflicts with an obligation of this State

arising out of any treaty or other form of agreement to which it is a

party with one or more other States, the requirements of the treaty or

agreement prevail.

Article 4. [Competent court or authority]

The functions referred to in this Law relating to recognition of foreign proceedings and cooperation with foreign courts shall be performed by [specify the court, courts, authority or authorities competent to perform those functions in the enacting State].

Article 5. Authorization of [insert the title of the person or body

administering a reorganization or liquidation under the law of the

enacting State] to act in a foreign State

A [insert the title of the person or body administering a reorganization or liquidation under the law of the enacting State] is authorized

to act in a foreign State on behalf of a proceeding under [identify laws

of the enacting State relating to insolvency], as permitted by the applicable foreign law.

Article 6. Public policy exception

Nothing in this Law prevents the court from refusing to take an

action governed by this Law if the action would be manifestly contrary to the public policy of this State.

Article 7. Additional assistance under other laws

Nothing in this Law limits the power of a court or a [insert the title

of the person or body administering a reorganization or liquidation

under the law of the enacting State] to provide additional assistance to

a foreign representative under other laws of this State.

Article 8. Interpretation

In the interpretation of this Law, regard is to be had to its international origin and to the need to promote uniformity in its application

and the observance of good faith.
International Insolvency

122

Chapter II. ACCESS OF FOREIGN REPRESENTATIVES AND

CREDITORS TO COURTS IN THIS STATE

Article 9. Right of direct access

A foreign representative is entitled to apply directly to a court in

this State.

Article 10. Limited jurisdiction

The sole fact that an application pursuant to this Law is made to a

court in this State by a foreign representative does not subject the

foreign representative or the foreign assets and affairs of the debtor to

the jurisdiction of the courts of this State for any purpose other than

the application.

Article 11. Application by a foreign representative to commence a

proceeding under [identify laws of the enacting State relating to insolvency]

A foreign representative is entitled to apply to commence a proceeding under [identify laws of the enacting State relating to insolvency] if the conditions for commencing such a proceeding are otherwise met.

Article 12. Participation of a foreign representative in a proceeding

under [identify laws of the enacting State relating to insolvency]

Upon recognition of a foreign proceeding, the foreign representative is entitled to participate in a proceeding regarding the debtor under [identify laws of the enacting State relating to insolvency].

Article 13. Access of foreign creditors to a proceeding under [identify

laws of the enacting State relating to insolvency]

(1) Subject to paragraph (2) of this article, foreign creditors have the

same rights regarding the commencement of, and participation in, a

proceeding under [identify laws of the enacting State relating to insolvency] as creditors in this State.

(2) Paragraph (1)of this article does not affect the ranking of claims

in a proceeding under [identify laws of the enacting State relating to

insolvency], except that the claims of foreign creditors shall not be
Appendix B: UNCITRAL Model Law on Cross-Border Insolvency

1 2 3 

ranked lower than [identify the class of general non-preference

claims, while providing that a foreign claim is to be ranked lower

than the general non-preference claims if an equivalent local claim

(e.g. claim for a penalty or deferred-payment claim) has a rank lower

than the general non-preference claims].

Article 14. Notification to foreign creditors of a proceeding under

[identify laws of the enacting State relating to insolvency]

(1) Whenever under [identify laws of the enacting State relating to

insolvency] notification is to be given to creditors in this State, such

notification shall also be given to the known creditors that do not

have addresses in this State. The court may order that appropriate

steps be taken with a view to notifying any creditor whose address is

not yet known.

(2) Such notification shall be made to the foreign creditors individually, unless the court considers that, under the circumstances,

some other form of notification would be more appropriate. No letters rogatory or other, similar formality is required.

(3) When a notification of commencement of a proceeding is to be

given to foreign creditors, the notification shall:

(a) indicate a reasonable time period for filing claims and specify

the place for their filing;

(b) indicate whether secured creditors need to file their secured

claims; and

(c) contain any other information required to be included in such

a notification to creditors pursuant to the law of this State and the

orders of the court.

Chapter III. RECOGNITION OF A FOREIGN PROCEEDING

AND RELIEF

Article 15. Application for recognition of a foreign proceeding

(1) A foreign representative may apply to the court for recognition

of the foreign proceeding in which the foreign representative has

been appointed.
International Insolvency

124

(2) An application for recognition shall be accompanied by:

(a) a certified copy of the decision commencing the foreign proceeding and appointing the foreign representative; or

(b) a certificate from the foreign court affirming the existence of

the foreign proceeding and of the appointment of the foreign representative; or

(c) in the absence of evidence referred to in subparagraphs (a) and

(b), any other evidence acceptable to the court of the existence of the

foreign proceeding and of the appointment of the foreign representative.

(3) An application for recognition shall also be accompanied by a

statement identifying all foreign proceedings in respect of the debtor

that are known to the foreign representative.

(4) The court may require a translation of documents supplied in

support of the application for recognition into an official language of

this State.

Article 16. Presumptions concerning recognition

(1) If the decision or certificate referred to in article 15(2) indicates

that the foreign proceeding is a proceeding within the meaning of

article 2(a) and that the foreign representative is a person or body

within the meaning of article 2(d), the court is entitled to so presume.

(2) The court is entitled to presume that documents submitted in

support of the application for recognition are authentic, whether or

not they have been legalized.

(3) In the absence of proof to the contrary, the debtor’s registered

office, or habitual residence in the case of an individual, is presumed

to be the centre of the debtor’s main interests.

Article 17. Decision to recognize a foreign proceeding

(1) Subject to article 6, a foreign proceeding shall be recognized if:

(a) the foreign proceeding is a proceeding within the meaning of

article 2(a);

(b) the foreign representative applying for recognition is a person

or body within the meaning of article 2(d);

(c) the application meets the requirements of article 15(2); and
Appendix B: UNCITRAL Model Law on Cross-Border Insolvency

1 2 5 

(d) the application has been submitted to the court referred to in

article 4.

(2) The foreign proceeding shall be recognized:

(a) as a foreign main proceeding if it is taking place in the State

where the debtor has the centre of its main interests; or

(b) as a foreign non-main proceeding if the debtor has an establishment within the meaning of article 2(f) in the foreign State.

(3) An application for recognition of a foreign proceeding shall be

decided upon at the earliest possible time.

(4) The provisions of articles 15, 16, 17 and 18 do not prevent

modification or termination of recognition if it is shown that the

grounds for granting it were fully or partially lacking or have ceased

to exist.

Article 18. Subsequent information

From the time of filing the application for recognition of the foreign proceeding, the foreign representative shall inform the court

promptly of:

(a) any substantial change in the status of the recognized foreign

proceeding or the status of the foreign representative’s appointment;

and

(b) any other foreign proceeding regarding the same debtor that

becomes known to the foreign representative.

Article 19. Relief that may be granted upon application for

recognition of a foreign proceeding

(1) From the time of filing an application for recognition until the

application is decided upon, the court may, at the request of the foreign representative, where relief is urgently needed to protect the

assets of the debtor or the interests of the creditors, grant relief of a

provisional nature, including:

(a) staying execution against the debtor’s assets;

(b) entrusting the administration or realization of all or part of the

debtor’s assets located in this State to the foreign representative or

another person designated by the court, in order to protect and preserve the value of assets that, by their nature or because of other cir-
International Insolvency

126

cumstances, are perishable, susceptible to devaluation or otherwise in

jeopardy;

(c) any relief mentioned in article 21(1)(c), (d) and (g).

(2) [Insert provisions (or refer to provisions in force in the enacting

State) relating to notice.]

(3) Unless extended under article 21(1)(f), the relief granted under

this article terminates when the application for recognition is decided

upon.

(4) The court may refuse to grant relief under this article if such

relief would interfere with the administration of a foreign main proceeding.

Article 20. Effects of recognition of a foreign main proceeding

(1) Upon recognition of a foreign proceeding that is a foreign main

proceeding,

(a) commencement or continuation of individual actions or individual proceedings concerning the debtor’s assets, rights, obligations

or liabilities is stayed;

(b) execution against the debtor’s assets is stayed; and

(c) the right to transfer, encumber or otherwise dispose of any

assets of the debtor is suspended.

(2) The scope, and the modification or termination, of the stay and

suspension referred to in paragraph (1) of this article are subject to

[refer to any provisions of law of the enacting State relating to insolvency that apply to exceptions, limitations, modifications or termination in respect of the stay and suspension referred to in paragraph (1)

of this article].

(3) Paragraph (1)(a) of this article does not affect the right to commence individual actions or proceedings to the extent necessary to

preserve a claim against the debtor.

(4) Paragraph (1) of this article does not affect the right to request

the commencement of a proceeding under [identify laws of the enacting State relating to insolvency] or the right to file claims in such a

proceeding.
Appendix B: UNCITRAL Model Law on Cross-Border Insolvency

1 2 7 

Article 21. Relief that may be granted upon recognition of a foreign

proceeding

(1) Upon recognition of a foreign proceeding, whether main or

non-main, where necessary to protect the assets of the debtor or the

interests of the creditors, the court may, at the request of the foreign

representative, grant any appropriate relief, including:

(a) staying the commencement or continuation of individual actions or individual proceedings concerning the debtor’s assets, rights,

obligations or liabilities, to the extent they have not been stayed under article 20(1)(a);

(b) staying execution against the debtor’s assets to the extent it

has not been stayed under article 20(1)(b);

(c) suspending the right to transfer, encumber or otherwise dispose of any assets of the debtor to the extent this right has not been

suspended under article 20(1)(c);

(d) providing for the examination of witnesses, the taking of evidence or the delivery of information concerning the debtor’s assets,

affairs, rights, obligations or liabilities;

(e) entrusting the administration or realization of all or part of the

debtor’s assets located in this State to the foreign representative or

another person designated by the court;

(f) extending relief granted under article 19(1);

(g) granting any additional relief that may be available to [insert

the title of a person or body administering a reorganization or liquidation under the law of the enacting State] under the laws of this

State.

(2) Upon recognition of a foreign proceeding, whether main or

non-main, the court may, at the request of the foreign representative,

entrust the distribution of all or part of the debtor’s assets located in

this State to the foreign representative or another person designated

by the court, provided that the court is satisfied that the interests of

creditors in this State are adequately protected.

(3) In granting relief under this article to a representative of a foreign non-main proceeding, the court must be satisfied that the relief

relates to assets that, under the law of this State, should be adminis-
International Insolvency

128

tered in the foreign non-main proceeding or concerns information

required in that proceeding.

Article 22. Protection of creditors and other interested persons

(1) In granting or denying relief under article 19 or 21, or in

modifying or terminating relief under paragraph (3) of this article, the

court must be satisfied that the interests of the creditors and other

interested persons, including the debtor, are adequately protected.

(2) The court may subject relief granted under article 19 or 21 to

conditions it considers appropriate.

(3) The court may, at the request of the foreign representative or a

person affected by relief granted under article 19 or 21, or at its own

motion, modify or terminate such relief.

Article 23. Actions to avoid acts detrimental to creditors

(1) Upon recognition of a foreign proceeding, the foreign representative has standing to initiate [refer to the types of actions to avoid

or otherwise render ineffective acts detrimental to creditors that are

available in this State to a person or body administering a reorganization or liquidation].

(2) When the foreign proceeding is a foreign non-main proceeding,

the court must be satisfied that the action relates to assets that, under

the law of this State, should be administered in the foreign non-main

proceeding.

Article 24. Intervention by a foreign representative

in proceedings in this State

Upon recognition of a foreign proceeding, the foreign representative may, provided the requirements of the law of this State are met,

intervene in any proceedings in which the debtor is a party.
Appendix B: UNCITRAL Model Law on Cross-Border Insolvency

1 2 9 

Chapter IV. COOPERATION WITH FOREIGN COURTS

AND FOREIGN REPRESENTATIVES

Article 25. Cooperation and direct communication between a court

of this State and foreign courts or foreign representatives

(1) In matters referred to in article 1, the court shall cooperate to

the maximum extent possible with foreign courts or foreign representatives, either directly or through a [insert the title of a person or

body administering a reorganization or liquidation under the law of

the enacting State].

(2) The court is entitled to communicate directly with, or to request information or assistance directly from, foreign courts or foreign

representatives.

Article 26. Cooperation and direct communication between the

[insert the title of a person or body administering a reorganization or

liquidation under the law of the enacting State] and foreign courts or

foreign representatives

(1) In matters referred to in article 1, a [insert the title of a person

or body administering a reorganization or liquidation under the law

of the enacting State] shall, in the exercise of its functions and subject

to the supervision of the court, cooperate to the maximum extent

possible with foreign courts or foreign representatives.

(2) The [insert the title of a person or body administering a reorganization or liquidation under the law of the enacting State] is entitled, in the exercise of its functions and subject to the supervision of

the court, to communicate directly with foreign courts or foreign

representatives.

Article 27. Forms of cooperation

Cooperation referred to in articles 25 and 26 may be implemented

by any appropriate means, including:

(a) appointment of a person or body to act at the direction of the

court;

(b) communication of information by any means considered appropriate by the court;
International Insolvency

130

(c) coordination of the administration and supervision of the

debtor’s assets and affairs;

(d) approval or implementation by courts of agreements concerning the coordination of proceedings;

(e) coordination of concurrent proceedings regarding the same

debtor;

(f) [the enacting State may wish to list additional forms or examples of cooperation].

Chapter V. CONCURRENT PROCEEDINGS

Article 28. Commencement of a proceeding under [identify laws of

the enacting State relating to insolvency] after

recognition of a foreign main proceeding

After recognition of a foreign main proceeding, a proceeding under

[identify laws of the enacting State relating to insolvency] may be

commenced only if the debtor has assets in this State; the effects of

that proceeding shall be restricted to the assets of the debtor that are

located in this State and, to the extent necessary to implement cooperation and coordination under articles 25, 26 and 27, to other assets

of the debtor that, under the law of this State, should be administered

in that proceeding.

Article 29. Coordination of a proceeding under [identify laws of the

enacting State relating to insolvency] and a foreign proceeding

Where a foreign proceeding and a proceeding under [identify laws

of the enacting State relating to insolvency] are taking place concurrently regarding the same debtor, the court shall seek cooperation and

coordination under articles 25, 26 and 27, and the following shall

apply:

(a) when the proceeding in this State is taking place at the time

the application for recognition of the foreign proceeding is filed,

(i) any relief granted under article 19 or 21 must be consistent

with the proceeding in this State; and

(ii) if the foreign proceeding is recognized in this State as a foreign main proceeding, article 20 does not apply;
Appendix B: UNCITRAL Model Law on Cross-Border Insolvency

1 3 1 

(b) when the proceeding in this State commences after recognition, or after the filing of the application for recognition, of the foreign proceeding,

(i) any relief in effect under article 19 or 21 shall be reviewed

by the court and shall be modified or terminated if inconsistent with

the proceeding in this State; and

(ii) if the foreign proceeding is a foreign main proceeding, the

stay and suspension referred to in article 20(1) shall be modified or

terminated pursuant to article 20(2) if inconsistent with the proceeding in this State;

(c) in granting, extending or modifying relief granted to a representative of a foreign non-main proceeding, the court must be satisfied that the relief relates to assets that, under the law of this State,

should be administered in the foreign non-main proceeding or concerns information required in that proceeding.

Article 30. Coordination of more than one foreign proceeding

In matters referred to in article 1, in respect of more than one foreign proceeding regarding the same debtor, the court shall seek cooperation and coordination under articles 25, 26 and 27, and the following shall apply:

(a) any relief granted under article 19 or 21 to a representative of

a foreign non-main proceeding after recognition of a foreign main

proceeding must be consistent with the foreign main proceeding;

(b) if a foreign main proceeding is recognized after recognition,

or after the filing of an application for recognition, of a foreign nonmain proceeding, any relief in effect under article 19 or 21 shall be

reviewed by the court and shall be modified or terminated if inconsistent with the foreign main proceeding;

(c) if, after recognition of a foreign non-main proceeding, another foreign non-main proceeding is recognized, the court shall

grant, modify or terminate relief for the purpose of facilitating coordination of the proceedings.
International Insolvency

132

Article 31. Presumption of insolvency based on

recognition of a foreign main proceeding

In the absence of evidence to the contrary, recognition of a foreign

main proceeding is, for the purpose of commencing a proceeding

under [identify laws of the enacting State relating to insolvency],

proof that the debtor is insolvent.

Article 32. Rule of payment in concurrent proceedings

Without prejudice to secured claims or rights in rem, a creditor

who has received part payment in respect of its claim in a proceeding

pursuant to a law relating to insolvency in a foreign State may not

receive a payment for the same claim in a proceeding under [identify

laws of the enacting State relating to insolvency] regarding the same

debtor, so long as the payment to the other creditors of the same class

is proportionately less than the payment the creditor has already received.
133

Appendix C

European Union Regulation on Insolvency Proceedings

(Council regulation 1346/2000, 29 May 2000, on insolvency proceedings,

2000 O.J. (L160) 1–18. Copyright 2000 Commission of the European

Communities.)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Articles 61(c) and 67(1) thereof,

Having regard to the initiative of the Federal Republic of Germany

and the Republic of Finland,

Having regard to the opinion of the European Parliament,1

Having regard to the opinion of the Economic and Social Committee,2

Whereas:

(1) The European Union has set out the aim of establishing an

area of freedom, security and justice.

(2) The proper functioning of the internal market requires that

cross-border insolvency proceedings should operate efficiently and

effectively and this Regulation needs to be adopted in order to

achieve this objective which comes within the scope of judicial cooperation in civil matters within the meaning of Article 65 of the

Treaty.

(3) The activities of undertakings have more and more crossborder effects and are therefore increasingly being regulated by

Community law. While the insolvency of such undertakings also affects the proper functioning of the internal market, there is a need for

1. Opinion delivered on 2 March 2000 (not yet published in the Official Journal).

2. Opinion delivered on 26 January 2000 (not yet published in the Official Journal).
International Insolvency

134

a Community act requiring coordination of the measures to be taken

regarding an insolvent debtor’s assets.

 (4) It is necessary for the proper functioning of the internal market to avoid incentives for the parties to transfer assets or judicial proceedings from one Member State to another, seeking to obtain a

more favourable legal position (forum shopping).

 (5) These objectives cannot be achieved to a sufficient degree at

national level and action at Community level is therefore justified.

(6) In accordance with the principle of proportionality this

Regulation should be confined to provisions governing jurisdiction

for opening insolvency proceedings and judgments which are delivered directly on the basis of the insolvency proceedings and are

closely connected with such proceedings. In addition, this Regulation

should contain provisions regarding the recognition of those judgments and the applicable law which also satisfy that principle.

(7) Insolvency proceedings relating to the winding-up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings are excluded from the scope of the

1968 Brussels Convention on Jurisdiction and the Enforcement of

Judgments in Civil and Commercial Matters,3

 as amended by the

Conventions on Accession to this Convention.4

(8) In order to achieve the aim of improving the efficiency and

effectiveness of insolvency proceedings having cross-border effects, it

is necessary, and appropriate, that the provisions on jurisdiction, recognition and applicable law in this area should be contained in a

Community law measure which is binding and directly applicable in

Member States.

(9) This Regulation should apply to insolvency proceedings,

whether the debtor is a natural person or a legal person, a trader or an

individual. The insolvency proceedings to which this Regulation applies are listed in the Annexes. Insolvency proceedings concerning

3. OJ L 299, 31.12.1972, p. 32.

4. OJ L 204, 2.8.1975, p. 28; OJ L 304, 30.10.1978, p. 1; OJ L 388, 31.12.1982, p. 1; OJ L

285, 3.10.1989, p. 1; OJ C 15, 15.1.1997, p. 1.
Appendix C: European Union Regulation on Insolvency Proceedings

1 3 5 

insurance undertakings, credit institutions, investment undertakings

holding funds or securities for third parties and collective investment

undertakings should be excluded from the scope of this Regulation.

Such undertakings should not be covered by this Regulation since

they are subject to special arrangements and, to some extent, the national supervisory authorities have extremely wide-ranging powers of

intervention.

(10) Insolvency proceedings do not necessarily involve the intervention of a judicial authority; the expression “court” in this Regulation should be given a broad meaning and include a person or body

empowered by national law to open insolvency proceedings. In order

for this Regulation to apply, proceedings (comprising acts and formalities set down in law) should not only have to comply with the

provisions of this Regulation, but they should also be officially recognised and legally effective in the Member State in which the insolvency proceedings are opened and should be collective insolvency

proceedings which entail the partial or total divestment of the debtor

and the appointment of a liquidator.

(11) This Regulation acknowledges the fact that as a result of

widely differing substantive laws it is not practical to introduce insolvency proceedings with universal scope in the entire Community.

The application without exception of the law of the State of opening

of proceedings would, against this background, frequently lead to

difficulties. This applies, for example, to the widely differing laws on

security interests to be found in the Community. Furthermore, the

preferential rights enjoyed by some creditors in the insolvency proceedings are, in some cases, completely different. This Regulation

should take account of this in two different ways. On the one hand,

provision should be made for special rules on applicable law in the

case of particularly significant rights and legal relationships (e.g. rights

in rem and contracts of employment). On the other hand, national

proceedings covering only assets situated in the State of opening

should also be allowed alongside main insolvency proceedings with

universal scope.

(12) This Regulation enables the main insolvency proceedings to

be opened in the Member State where the debtor has the centre of
International Insolvency

136

his main interests. These proceedings have universal scope and aim at

encompassing all the debtor’s assets. To protect the diversity of interests, this Regulation permits secondary proceedings to be opened to

run in parallel with the main proceedings.

Secondary proceedings may be opened in the Member State

where the debtor has an establishment. The effects of secondary proceedings are limited to the assets located in that State. Mandatory

rules of coordination with the main proceedings satisfy the need for

unity in the Community.

(13) The “centre of main interests” should correspond to the

place where the debtor conducts the administration of his interests on

a regular basis and is therefore ascertainable by third parties.

(14) This Regulation applies only to proceedings where the centre of the debtor’s main interests is located in the Community.

(15) The rules of jurisdiction set out in this Regulation establish

only international jurisdiction, that is to say, they designate the

Member State the courts of which may open insolvency proceedings.

Territorial jurisdiction within that Member State must be established by the national law of the Member State concerned.

(16) The court having jurisdiction to open the main insolvency

proceedings should be enabled to order provisional and protective

measures from the time of the request to open proceedings.

Preservation measures both prior to and after the commencement

of the insolvency proceedings are very important to guarantee the

effectiveness of the insolvency proceedings. In that connection this

Regulation should afford different possibilities. On the one hand, the

court competent for the main insolvency proceedings should be able

also to order provisional protective measures covering assets situated

in the territory of other Member States. On the other hand, a liquidator temporarily appointed prior to the opening of the main insolvency proceedings should be able, in the Member States in which an

establishment belonging to the debtor is to be found, to apply for the

preservation measures which are possible under the law of those

States.
Appendix C: European Union Regulation on Insolvency Proceedings

1 3 7 

(17) Prior to the opening of the main insolvency proceedings, the

right to request the opening of insolvency proceedings in the Member State where the debtor has an establishment should be limited to

local creditors and creditors of the local establishment or to cases

where main proceedings cannot be opened under the law of the

Member State where the debtor has the centre of his main interest.

The reason for this restriction is that cases where territorial insolvency

proceedings are requested before the main insolvency proceedings are

intended to be limited to what is absolutely necessary. If the main

insolvency proceedings are opened, the territorial proceedings become secondary.

(18) Following the opening of the main insolvency proceedings,

the right to request the opening of insolvency proceedings in a

Member State where the debtor has an establishment is not restricted

by this Regulation. The liquidator in the main proceedings or any

other person empowered under the national law of that Member

State may request the opening of secondary insolvency proceedings.

(19) Secondary insolvency proceedings may serve different purposes, besides the protection of local interests. Cases may arise where

the estate of the debtor is too complex to administer as a unit or

where differences in the legal systems concerned are so great that difficulties may arise from the extension of effects deriving from the law

of the State of the opening to the other States where the assets are

located. For this reason the liquidator in the main proceedings may

request the opening of secondary proceedings when the efficient administration of the estate so requires.

(20) Main insolvency proceedings and secondary proceedings

can, however, contribute to the effective realisation of the total assets

only if all the concurrent proceedings pending are coordinated. The

main condition here is that the various liquidators must cooperate

closely, in particular by exchanging a sufficient amount of information. In order to ensure the dominant role of the main insolvency

proceedings, the liquidator in such proceedings should be given several possibilities for intervening in secondary insolvency proceedings

which are pending at the same time. For example, he should be able
International Insolvency

138

to propose a restructuring plan or composition or apply for realisation

of the assets in the secondary insolvency proceedings to be suspended.

(21) Every creditor, who has his habitual residence, domicile or

registered office in the Community, should have the right to lodge

his claims in each of the insolvency proceedings pending in the

Community relating to the debtor’s assets. This should also apply to

tax authorities and social insurance institutions. However, in order to

ensure equal treatment of creditors, the distribution of proceeds must

be coordinated. Every creditor should be able to keep what he has

received in the course of insolvency proceedings but should be entitled only to participate in the distribution of total assets in other proceedings if creditors with the same standing have obtained the same

proportion of their claims.

(22) This Regulation should provide for immediate recognition

of judgments concerning the opening, conduct and closure of insolvency proceedings which come within its scope and of judgments

handed down in direct connection with such insolvency proceedings.

Automatic recognition should therefore mean that the effects attributed to the proceedings by the law of the State in which the proceedings were opened extend to all other Member States. Recognition of judgments delivered by the courts of the Member States

should be based on the principle of mutual trust. To that end,

grounds for non-recognition should be reduced to the minimum

necessary. This is also the basis on which any dispute should be resolved where the courts of two Member States both claim competence to open the main insolvency proceedings. The decision of the

first court to open proceedings should be recognised in the other

Member States without those Member States having the power to

scrutinise the court’s decision.

(23) This Regulation should set out, for the matters covered by

it, uniform rules on conflict of laws which replace, within their scope

of application, national rules of private international law. Unless otherwise stated, the law of the Member State of the opening of the proceedings should be applicable (lex concursus). This rule on conflict of

laws should be valid both for the main proceedings and for local proceedings; the lex concursus determines all the effects of the insol-
Appendix C: European Union Regulation on Insolvency Proceedings

1 3 9 

vency proceedings, both procedural and substantive, on the persons

and legal relations concerned. It governs all the conditions for the

opening, conduct and closure of the insolvency proceedings.

(24) Automatic recognition of insolvency proceedings to which

the law of the opening State normally applies may interfere with the

rules under which transactions are carried out in other Member

States. To protect legitimate expectations and the certainty of transactions in Member States other than that in which proceedings are

opened, provisions should be made for a number of exceptions to the

general rule.

(25) There is a particular need for a special reference diverging

from the law of the opening State in the case of rights in rem, since

these are of considerable importance for the granting of credit. The

basis, validity and extent of such a right in rem should therefore normally be determined according to the lex situs and not be affected by

the opening of insolvency proceedings. The proprietor of the right in

rem should therefore be able to continue to assert his right to segregation or separate settlement of the collateral security. Where assets

are subject to rights in rem under the lex situs in one Member State

but the main proceedings are being carried out in another Member

State, the liquidator in the main proceedings should be able to request the opening of secondary proceedings in the jurisdiction where

the rights in rem arise if the debtor has an establishment there. If a

secondary proceeding is not opened, the surplus on sale of the asset

covered by rights in rem must be paid to the liquidator in the main

proceedings.

(26) If a set-off is not permitted under the law of the opening

State, a creditor should nevertheless be entitled to the set-off if it is

possible under the law applicable to the claim of the insolvent debtor.

In this way, set-off will acquire a kind of guarantee function based on

legal provisions on which the creditor concerned can rely at the time

when the claim arises.

(27) There is also a need for special protection in the case of

payment systems and financial markets. This applies for example to

the position-closing agreements and netting agreements to be found
International Insolvency

140

in such systems as well as to the sale of securities and to the guarantees provided for such transactions as governed in particular by Directive 98/26/EC of the European Parliament and of the Council of

19 May 1998 on settlement finality in payment and securities settlement systems.5

 For such transactions, the only law which is material

should thus be that applicable to the system or market concerned.

This provision is intended to prevent the possibility of mechanisms

for the payment and settlement of transactions provided for in the

payment and set-off systems or on the regulated financial markets of

the Member States being altered in the case of insolvency of a business partner. Directive 98/26/EC contains special provisions which

should take precedence over the general rules in this Regulation.

(28) In order to protect employees and jobs, the effects of insolvency proceedings on the continuation or termination of employment and on the rights and obligations of all parties to such employment must be determined by the law applicable to the agreement in

accordance with the general rules on conflict of law. Any other insolvency-law questions, such as whether the employees’ claims are protected by preferential rights and what status such preferential rights

may have, should be determined by the law of the opening State.

(29) For business considerations, the main content of the decision

opening the proceedings should be published in the other Member

States at the request of the liquidator. If there is an establishment in

the Member State concerned, there may be a requirement that publication is compulsory. In neither case, however, should publication be

a prior condition for recognition of the foreign proceedings.

(30) It may be the case that some of the persons concerned are

not in fact aware that proceedings have been opened and act in good

faith in a way that conflicts with the new situation. In order to protect such persons who make a payment to the debtor because they are

unaware that foreign proceedings have been opened when they

should in fact have made the payment to the foreign liquidator, it

5. OJ L 166, 11.6.1998, p. 45.
Appendix C: European Union Regulation on Insolvency Proceedings

1 4 1 

should be provided that such a payment is to have a debt-discharging

effect.

(31) This Regulation should include Annexes relating to the organisation of insolvency proceedings.

As these Annexes relate exclusively to the legislation of Member

States, there are specific and substantiated reasons for the Council to

reserve the right to amend these Annexes in order to take account of

any amendments to the domestic law of the Member States.

(32) The United Kingdom and Ireland, in accordance with Article 3 of the Protocol on the position of the United Kingdom and

Ireland annexed to the Treaty on European Union and the Treaty

establishing the European Community, have given notice of their

wish to take part in the adoption and application of this Regulation.

(33) Denmark, in accordance with Articles 1 and 2 of the Protocol on the position of Denmark annexed to the Treaty on European

Union and the Treaty establishing the European Community, is not

participating in the adoption of this Regulation, and is therefore not

bound by it nor subject to its application,

HAS ADOPTED THIS REGULATION:

CHAPTER I

GENERAL PROVISIONS

Article 1

Scope

1. This Regulation shall apply to collective insolvency proceedings which entail the partial or total divestment of a debtor and the

appointment of a liquidator.

2. This Regulation shall not apply to insolvency proceedings

concerning insurance undertakings, credit institutions, investment

undertakings which provide services involving the holding of funds

or securities for third parties, or to collective investment undertakings.
International Insolvency

142

Article 2

Definitions

For the purposes of this Regulation:

(a) “insolvency proceedings” shall mean the collective proceedings referred to in Article 1(1). These proceedings are listed in Annex

A;

(b) “liquidator” shall mean any person or body whose function is

to administer or liquidate assets of which the debtor has been divested

or to supervise the administration of his affairs. Those persons and

bodies are listed in Annex C;

(c) “winding-up proceedings” shall mean insolvency proceedings

within the meaning of point (a) involving realising the assets of the

debtor, including where the proceedings have been closed by a composition or other measure terminating the insolvency, or closed by

reason of the insufficiency of the assets. Those proceedings are listed

in Annex B;

(d) “court” shall mean the judicial body or any other competent

body of a Member State empowered to open insolvency proceedings

or to take decisions in the course of such proceedings;

(e) “judgment” in relation to the opening of insolvency proceedings or the appointment of a liquidator shall include the decision

of any court empowered to open such proceedings or to appoint a

liquidator;

(f) “the time of the opening of proceedings” shall mean the time

at which the judgment opening proceedings becomes effective,

whether it is a final judgment or not;

(g) “the Member State in which assets are situated” shall mean, in

the case of:

- tangible property, the Member State within the territory of

which the property is situated,

- property and rights ownership of or entitlement to which

must be entered in a public register, the Member State under

the authority of which the register is kept,

- claims, the Member State within the territory of which the

third party required to meet them has the centre of his main

interests, as determined in Article 3(1);
Appendix C: European Union Regulation on Insolvency Proceedings

1 4 3 

(h) “establishment” shall mean any place of operations where the

debtor carries out a non-transitory economic activity with human

means and goods.

Article 3

International jurisdiction

1. The courts of the Member State within the territory of which

the centre of a debtor’s main interests is situated shall have jurisdiction to open insolvency proceedings. In the case of a company or

legal person, the place of the registered office shall be presumed to be

the centre of its main interests in the absence of proof to the contrary.

2. Where the centre of a debtor’s main interests is situated within

the territory of a Member State, the courts of another Member State

shall have jurisdiction to open insolvency proceedings against that

debtor only if he possesses an establishment within the territory of

that other Member State.

The effects of those proceedings shall be restricted to the assets of

the debtor situated in the territory of the latter Member State.

3. Where insolvency proceedings have been opened under paragraph 1, any proceedings opened subsequently under paragraph 2

shall be secondary proceedings. These latter proceedings must be

winding-up proceedings.

4. Territorial insolvency proceedings referred to in paragraph 2

may be opened prior to the opening of main insolvency proceedings

in accordance with paragraph 1 only:

(a) where insolvency proceedings under paragraph 1 cannot be

opened because of the conditions laid down by the law of the Member State within the territory of which the centre of the debtor’s main

interests is situated; or

(b) where the opening of territorial insolvency proceedings is

requested by a creditor who has his domicile, habitual residence or

registered office in the Member State within the territory of which

the establishment is situated, or whose claim arises from the operation

of that establishment.
International Insolvency

144

Article 4

Law applicable

1. Save as otherwise provided in this Regulation, the law applicable to insolvency proceedings and their effects shall be that of the

Member State within the territory of which such proceedings are

opened, hereafter referred to as the “State of the opening of proceedings.”

2. The law of the State of the opening of proceedings shall determine the conditions for the opening of those proceedings, their

conduct and their closure. It shall determine in particular:

(a) against which debtors insolvency proceedings may be

brought on account of their capacity;

(b) the assets which form part of the estate and the treatment of

assets acquired by or devolving on the debtor after the opening of the

insolvency proceedings;

(c) the respective powers of the debtor and the liquidator;

(d) the conditions under which set-offs may be invoked;

(e) the effects of insolvency proceedings on current contracts to

which the debtor is party;

(f) the effects of the insolvency proceedings on proceedings

brought by individual creditors, with the exception of lawsuits

pending;

(g) the claims which are to be lodged against the debtor’s estate

and the treatment of claims arising after the opening of insolvency

proceedings;

(h) the rules governing the lodging, verification and admission

of claims;

(i) the rules governing the distribution of proceeds from the

realisation of assets, the ranking of claims and the rights of creditors

who have obtained partial satisfaction after the opening of insolvency

proceedings by virtue of a right in rem or through a set-off;

(j) the conditions for and the effects of closure of insolvency

proceedings, in particular by composition;

(k) creditors’ rights after the closure of insolvency proceedings;

(l) who is to bear the costs and expenses incurred in the insolvency proceedings;
Appendix C: European Union Regulation on Insolvency Proceedings

1 4 5 

(m) the rules relating to the voidness, voidability or unenforceability of legal acts detrimental to all the creditors.

Article 5

Third parties’ rights in rem

1. The opening of insolvency proceedings shall not affect the

rights in rem of creditors or third parties in respect of tangible or intangible, moveable or immoveable assets - both specific assets and

collections of indefinite assets as a whole which change from time to

time - belonging to the debtor which are situated within the territory

of another Member State at the time of the opening of proceedings.

2. The rights referred to in paragraph 1 shall in particular mean:

(a) the right to dispose of assets or have them disposed of and to

obtain satisfaction from the proceeds of or income from those assets,

in particular by virtue of a lien or a mortgage;

(b) the exclusive right to have a claim met, in particular a right

guaranteed by a lien in respect of the claim or by assignment of the

claim by way of a guarantee;

(c) the right to demand the assets from, and/or to require restitution by, anyone having possession or use of them contrary to the

wishes of the party so entitled;

(d) a right in rem to the beneficial use of assets.

3. The right, recorded in a public register and enforceable against

third parties, under which a right in rem within the meaning of paragraph 1 may be obtained, shall be considered a right in rem.

4. Paragraph 1 shall not preclude actions for voidness, voidability

or unenforceability as referred to in Article 4(2)(m).

Article 6

Set-off

1. The opening of insolvency proceedings shall not affect the

right of creditors to demand the set-off of their claims against the

claims of the debtor, where such a set-off is permitted by the law applicable to the insolvent debtor’s claim.

2. Paragraph 1 shall not preclude actions for voidness, voidability

or unenforceability as referred to in Article 4(2)(m).
International Insolvency

146

Article 7

Reservation of title

1. The opening of insolvency proceedings against the purchaser

of an asset shall not affect the seller’s rights based on a reservation of

title where at the time of the opening of proceedings the asset is situated within the territory of a Member State other than the State of

opening of proceedings.

2. The opening of insolvency proceedings against the seller of an

asset, after delivery of the asset, shall not constitute grounds for rescinding or terminating the sale and shall not prevent the purchaser

from acquiring title where at the time of the opening of proceedings

the asset sold is situated within the territory of a Member State other

than the State of the opening of proceedings.

3. Paragraphs 1 and 2 shall not preclude actions for voidness,

voidability or unenforceability as referred to in Article 4(2)(m).

Article 8

Contracts relating to immoveable property

The effects of insolvency proceedings on a contract conferring

the right to acquire or make use of immoveable property shall be

governed solely by the law of the Member State within the territory

of which the immoveable property is situated.

Article 9

Payment systems and financial markets

1. Without prejudice to Article 5, the effects of insolvency proceedings on the rights and obligations of the parties to a payment or

settlement system or to a financial market shall be governed solely by

the law of the Member State applicable to that system or market.

2. Paragraph 1 shall not preclude any action for voidness, voidability or unenforceability which may be taken to set aside payments

or transactions under the law applicable to the relevant payment system or financial market.
Appendix C: European Union Regulation on Insolvency Proceedings

1 4 7 

Article 10

Contracts of employment

The effects of insolvency proceedings on employment contracts

and relationships shall be governed solely by the law of the Member

State applicable to the contract of employment.

Article 11

Effects on rights subject to registration

The effects of insolvency proceedings on the rights of the debtor

in immoveable property, a ship or an aircraft subject to registration in

a public register shall be determined by the law of the Member State

under the authority of which the register is kept.

Article 12

Community patents and trade marks

For the purposes of this Regulation, a Community patent, a

Community trade mark or any other similar right established by

Community law may be included only in the proceedings referred to

in Article 3(1).

Article 13

Detrimental acts

Article 4(2)(m) shall not apply where the person who benefited

from an act detrimental to all the creditors provides proof that: - the

said act is subject to the law of a Member State other than that of the

State of the opening of proceedings, and - that law does not allow

any means of challenging that act in the relevant case.

Article 14

Protection of third-party purchasers

Where, by an act concluded after the opening of insolvency proceedings, the debtor disposes, for consideration, of:

- an immoveable asset, or

- a ship or an aircraft subject to registration in a public register, or

- securities whose existence presupposes registration in a register

laid down by law, the validity of that act shall be governed by the law
International Insolvency

148

of the State within the territory of which the immoveable asset is

situated or under the authority of which the register is kept.

Article 15

Effects of insolvency proceedings on lawsuits pending

The effects of insolvency proceedings on a lawsuit pending concerning an asset or a right of which the debtor has been divested shall

be governed solely by the law of the Member State in which that

lawsuit is pending.

CHAPTER II

RECOGNITION OF INSOLVENCY PROCEEDINGS

Article 16

Principle

1. Any judgment opening insolvency proceedings handed down

by a court of a Member State which has jurisdiction pursuant to Article 3 shall be recognised in all the other Member States from the time

that it becomes effective in the State of the opening of proceedings.

This rule shall also apply where, on account of his capacity, insolvency proceedings cannot be brought against the debtor in other

Member States.

2. Recognition of the proceedings referred to in Article 3(1) shall

not preclude the opening of the proceedings referred to in Article

3(2) by a court in another Member State. The latter proceedings shall

be secondary insolvency proceedings within the meaning of Chapter

III.

Article 17

Effects of recognition

1. The judgment opening the proceedings referred to in Article

3(1) shall, with no further formalities, produce the same effects in any

other Member State as under this law of the State of the opening of

proceedings, unless this Regulation provides otherwise and as long as

no proceedings referred to in Article 3(2) are opened in that other

Member State.
Appendix C: European Union Regulation on Insolvency Proceedings

1 4 9 

2. The effects of the proceedings referred to in Article 3(2) may

not be challenged in other Member States. Any restriction of the

creditors’ rights, in particular a stay or discharge, shall produce effects

vis-à-vis assets situated within the territory of another Member State

only in the case of those creditors who have given their consent.

Article 18

Powers of the liquidator

1. The liquidator appointed by a court which has jurisdiction

pursuant to Article 3(1) may exercise all the powers conferred on him

by the law of the State of the opening of proceedings in another

Member State, as long as no other insolvency proceedings have been

opened there nor any preservation measure to the contrary has been

taken there further to a request for the opening of insolvency proceedings in that State. He may in particular remove the debtor’s assets

from the territory of the Member State in which they are situated,

subject to Articles 5 and 7.

2. The liquidator appointed by a court which has jurisdiction

pursuant to Article 3(2) may in any other Member State claim

through the courts or out of court that moveable property was removed from the territory of the State of the opening of proceedings

to the territory of that other Member State after the opening of the

insolvency proceedings. He may also bring any action to set aside

which is in the interests of the creditors.

3. In exercising his powers, the liquidator shall comply with the

law of the Member State within the territory of which he intends to

take action, in particular with regard to procedures for the realisation

of assets. Those powers may not include coercive measures or the

right to rule on legal proceedings or disputes.

Article 19

Proof of the liquidator’s appointment

The liquidator’s appointment shall be evidenced by a certified

copy of the original decision appointing him or by any other certificate issued by the court which has jurisdiction.

A translation into the official language or one of the official languages of the Member State within the territory of which he intends
International Insolvency

150

to act may be required. No legalisation or other similar formality shall

be required.

Article 20

Return and imputation

1. A creditor who, after the opening of the proceedings referred

to in Article 3(1) obtains by any means, in particular through enforcement, total or partial satisfaction of his claim on the assets belonging to the debtor situated within the territory of another Member State, shall return what he has obtained to the liquidator, subject

to Articles 5 and 7.

2. In order to ensure equal treatment of creditors a creditor who

has, in the course of insolvency proceedings, obtained a dividend on

his claim shall share in distributions made in other proceedings only

where creditors of the same ranking or category have, in those other

proceedings, obtained an equivalent dividend.

Article 21

Publication

1. The liquidator may request that notice of the judgment opening insolvency proceedings and, where appropriate, the decision appointing him, be published in any other Member State in accordance

with the publication procedures provided for in that State. Such publication shall also specify the liquidator appointed and whether the

jurisdiction rule applied is that pursuant to Article 3(1) or Article 3(2).

2. However, any Member State within the territory of which the

debtor has an establishment may require mandatory publication. In

such cases, the liquidator or any authority empowered to that effect

in the Member State where the proceedings referred to in Article

3(1) are opened shall take all necessary measures to ensure such publication.

Article 22

Registration in a public register

1. The liquidator may request that the judgment opening the

proceedings referred to in Article 3(1) be registered in the land regis-
Appendix C: European Union Regulation on Insolvency Proceedings

1 5 1 

ter, the trade register and any other public register kept in the other

Member States.

2. However, any Member State may require mandatory registration. In such cases, the liquidator or any authority empowered to that

effect in the Member State where the proceedings referred to in Article 3(1) have been opened shall take all necessary measures to ensure

such registration.

Article 23

Costs

The costs of the publication and registration provided for in Articles 21 and 22 shall be regarded as costs and expenses incurred in the

proceedings.

Article 24

Honouring of an obligation to a debtor

1. Where an obligation has been honoured in a Member State for

the benefit of a debtor who is subject to insolvency proceedings

opened in another Member State, when it should have been honoured for the benefit of the liquidator in those proceedings, the person honouring the obligation shall be deemed to have discharged it if

he was unaware of the opening of proceedings.

2. Where such an obligation is honoured before the publication

provided for in Article 21 has been effected, the person honouring

the obligation shall be presumed, in the absence of proof to the contrary, to have been unaware of the opening of insolvency proceedings; where the obligation is honoured after such publication has

been effected, the person honouring the obligation shall be presumed,

in the absence of proof to the contrary, to have been aware of the

opening of proceedings.

Article 25

Recognition and enforceability of other judgments

1. Judgments handed down by a court whose judgment concerning the opening of proceedings is recognised in accordance with

Article 16 and which concern the course and closure of insolvency

proceedings, and compositions approved by that court shall also be
International Insolvency

152

recognised with no further formalities. Such judgments shall be enforced in accordance with Articles 31 to 51, with the exception of

Article 34(2), of the Brussels Convention on Jurisdiction and the

Enforcement of Judgments in Civil and Commercial Matters, as

amended by the Conventions of Accession to this Convention.

The first subparagraph shall also apply to judgments deriving directly from the insolvency proceedings and which are closely linked

with them, even if they were handed down by another court.

The first subparagraph shall also apply to judgments relating to

preservation measures taken after the request for the opening of insolvency proceedings.

2. The recognition and enforcement of judgments other than

those referred to in paragraph 1 shall be governed by the Convention

referred to in paragraph 1, provided that that Convention is applicable.

3. The Member States shall not be obliged to recognise or enforce a judgment referred to in paragraph 1 which might result in a

limitation of personal freedom or postal secrecy.

Article 266

Public policy

Any Member State may refuse to recognise insolvency proceedings opened in another Member State or to enforce a judgment

handed down in the context of such proceedings where the effects of

such recognition or enforcement would be manifestly contrary to that

State’s public policy, in particular its fundamental principles or the

constitutional rights and liberties of the individual.

6. Note the Declaration by Portugal concerning the application of Articles 26 and 37 (OJ C

183, 30.6.2000, p. 1).
Appendix C: European Union Regulation on Insolvency Proceedings

1 5 3 

CHAPTER III

SECONDARY INSOLVENCY PROCEEDINGS

Article 27

Opening of proceedings

The opening of the proceedings referred to in Article 3(1) by a

court of a Member State and which is recognised in another Member

State (main proceedings) shall permit the opening in that other

Member State, a court of which has jurisdiction pursuant to Article

3(2), of secondary insolvency proceedings without the debtor’s insolvency being examined in that other State. These latter proceedings

must be among the proceedings listed in Annex B. Their effects shall

be restricted to the assets of the debtor situated within the territory of

that other Member State.

Article 28

Applicable law

Save as otherwise provided in this Regulation, the law applicable

to secondary proceedings shall be that of the Member State within

the territory of which the secondary proceedings are opened.

Article 29

Right to request the opening of proceedings

The opening of secondary proceedings may be requested by:

(a) the liquidator in the main proceedings;

(b) any other person or authority empowered to request the

opening of insolvency proceedings under the law of the Member

State within the territory of which the opening of secondary proceedings is requested.

Article 30

Advance payment of costs and expenses

Where the law of the Member State in which the opening of

secondary proceedings is requested requires that the debtor’s assets be

sufficient to cover in whole or in part the costs and expenses of the

proceedings, the court may, when it receives such a request, require
International Insolvency

154

the applicant to make an advance payment of costs or to provide appropriate security.

Article 31

Duty to cooperate and communicate information

1. Subject to the rules restricting the communication of information, the liquidator in the main proceedings and the liquidators in the

secondary proceedings shall be duty bound to communicate information to each other. They shall immediately communicate any information which may be relevant to the other proceedings, in particular

the progress made in lodging and verifying claims and all measures

aimed at terminating the proceedings.

2. Subject to the rules applicable to each of the proceedings, the

liquidator in the main proceedings and the liquidators in the secondary proceedings shall be duty bound to cooperate with each other.

3. The liquidator in the secondary proceedings shall give the liquidator in the main proceedings an early opportunity of submitting

proposals on the liquidation or use of the assets in the secondary proceedings.

Article 32

Exercise of creditors’ rights

1. Any creditor may lodge his claim in the main proceedings and

in any secondary proceedings.

2. The liquidators in the main and any secondary proceedings

shall lodge in other proceedings claims which have already been

lodged in the proceedings for which they were appointed, provided

that the interests of creditors in the latter proceedings are served

thereby, subject to the right of creditors to oppose that or to withdraw the lodgement of their claims where the law applicable so provides.

3. The liquidator in the main or secondary proceedings shall be

empowered to participate in other proceedings on the same basis as a

creditor, in particular by attending creditors’ meetings.
Appendix C: European Union Regulation on Insolvency Proceedings

1 5 5 

Article 33

Stay of liquidation

1. The court, which opened the secondary proceedings, shall stay

the process of liquidation in whole or in part on receipt of a request

from the liquidator in the main proceedings, provided that in that

event it may require the liquidator in the main proceedings to take

any suitable measure to guarantee the interests of the creditors in the

secondary proceedings and of individual classes of creditors. Such a

request from the liquidator may be rejected only if it is manifestly of

no interest to the creditors in the main proceedings. Such a stay of

the process of liquidation may be ordered for up to three months. It

may be continued or renewed for similar periods.

2. The court referred to in paragraph 1 shall terminate the stay of

the process of liquidation:

- at the request of the liquidator in the main proceedings,

- of its own motion, at the request of a creditor or at the request

of the liquidator in the secondary proceedings if that measure no

longer appears justified, in particular, by the interests of creditors in

the main proceedings or in the secondary proceedings.

Article 34

Measures ending secondary insolvency proceedings

1. Where the law applicable to secondary proceedings allows for

such proceedings to be closed without liquidation by a rescue plan, a

composition or a comparable measure, the liquidator in the main

proceedings shall be empowered to propose such a measure himself.

Closure of the secondary proceedings by a measure referred to in

the first subparagraph shall not become final without the consent of

the liquidator in the main proceedings; failing his agreement, however, it may become final if the financial interests of the creditors in

the main proceedings are not affected by the measure proposed.

2. Any restriction of creditors’ rights arising from a measure referred to in paragraph 1 which is proposed in secondary proceedings,

such as a stay of payment or discharge of debt, may not have effect in

respect of the debtor’s assets not covered by those proceedings without the consent of all the creditors having an interest.
International Insolvency

156

3. During a stay of the process of liquidation ordered pursuant to

Article 33, only the liquidator in the main proceedings or the debtor,

with the former’s consent, may propose measures laid down in paragraph 1 of this Article in the secondary proceedings; no other proposal for such a measure shall be put to the vote or approved.

Article 35

Assets remaining in the secondary proceedings

If by the liquidation of assets in the secondary proceedings it is

possible to meet all claims allowed under those proceedings, the liquidator appointed in those proceedings shall immediately transfer any

assets remaining to the liquidator in the main proceedings.

Article 36

Subsequent opening of the main proceedings

Where the proceedings referred to in Article 3(1) are opened

following the opening of the proceedings referred to in Article 3(2)

in another Member State, Articles 31 to 35 shall apply to those

opened first, in so far as the progress of those proceedings so permits.

Article 377

Conversion of earlier proceedings

The liquidator in the main proceedings may request that proceedings listed in Annex A previously opened in another Member

State be converted into winding-up proceedings if this proves to be

in the interests of the creditors in the main proceedings.

The court with jurisdiction under Article 3(2) shall order conversion into one of the proceedings listed in Annex B.

Article 38

Preservation measures

Where the court of a Member State which has jurisdiction pursuant to Article 3(1) appoints a temporary administrator in order to

ensure the preservation of the debtor’s assets, that temporary admin7. Note the Declaration by Portugal concerning the application of Articles 26 and 37 (OJ C

183, 30.6.2000, p. 1).
Appendix C: European Union Regulation on Insolvency Proceedings

1 5 7 

istrator shall be empowered to request any measures to secure and

preserve any of the debtor’s assets situated in another Member State,

provided for under the law of that State, for the period between the

request for the opening of insolvency proceedings and the judgment

opening the proceedings.

CHAPTER IV

PROVISION OF INFORMATION FOR CREDITORS AND

LODGEMENT OF THEIR CLAIMS

Article 39

Right to lodge claims

Any creditor who has his habitual residence, domicile or registered office in a Member State other than the State of the opening of

proceedings, including the tax authorities and social security authorities of Member States, shall have the right to lodge claims in the insolvency proceedings in writing.

Article 40

Duty to inform creditors

1. As soon as insolvency proceedings are opened in a Member

State, the court of that State having jurisdiction or the liquidator appointed by it shall immediately inform known creditors who have

their habitual residences, domiciles or registered offices in the other

Member States.

2. That information, provided by an individual notice, shall in

particular include time limits, the penalties laid down in regard to

those time limits, the body or authority empowered to accept the

lodgement of claims and the other measures laid down. Such notice

shall also indicate whether creditors whose claims are preferential or

secured in rem need lodge their claims.

Article 41

Content of the lodgement of a claim

A creditor shall send copies of supporting documents, if any, and

shall indicate the nature of the claim, the date on which it arose and

its amount, as well as whether he alleges preference, security in rem
International Insolvency

158

or a reservation of title in respect of the claim and what assets are

covered by the guarantee he is invoking.

Article 42

Languages

1. The information provided for in Article 40 shall be provided

in the official language or one of the official languages of the State of

the opening of proceedings. For that purpose a form shall be used

bearing the heading “Invitation to lodge a claim. Time limits to be

observed” in all the official languages of the institutions of the European Union.

2. Any creditor who has his habitual residence, domicile or registered office in a Member State other than the State of the opening

of proceedings may lodge his claim in the official language or one of

the official languages of that other State. In that event, however, the

lodgement of his claim shall bear the heading “Lodgement of claim”

in the official language or one of the official languages of the State of

the opening of proceedings. In addition, he may be required to provide a translation into the official language or one of the official languages of the State of the opening of proceedings.

CHAPTER V

TRANSITIONAL AND FINAL PROVISIONS

Article 43

Applicability in time

The provisions of this Regulation shall apply only to insolvency

proceedings opened after its entry into force. Acts done by a debtor

before the entry into force of this Regulation shall continue to be

governed by the law which was applicable to them at the time they

were done.

Article 44

Relationship to Conventions

1. After its entry into force, this Regulation replaces, in respect of

the matters referred to therein, in the relations between Member
Appendix C: European Union Regulation on Insolvency Proceedings

1 5 9 

States, the Conventions concluded between two or more Member

States, in particular:

(a) the Convention between Belgium and France on Jurisdiction and the Validity and Enforcement of Judgments, Arbitration

Awards and Authentic Instruments, signed at Paris on 8 July 1899;

(b) the Convention between Belgium and Austria on Bankruptcy, Winding-up, Arrangements, Compositions and Suspension of

Payments (with Additional Protocol of 13 June 1973), signed at

Brussels on 16 July 1969;

(c) the Convention between Belgium and the Netherlands on

Territorial Jurisdiction, Bankruptcy and the Validity and Enforcement

of Judgments, Arbitration Awards and Authentic Instruments, signed

at Brussels on 28 March 1925;

(d) the Treaty between Germany and Austria on Bankruptcy,

Winding-up, Arrangements and Compositions, signed at Vienna on

25 May 1979;

(e) the Convention between France and Austria on Jurisdiction, Recognition and Enforcement of Judgments on Bankruptcy,

signed at Vienna on 27 February 1979;

(f) the Convention between France and Italy on the Enforcement of Judgments in Civil and Commercial Matters, signed at

Rome on 3 June 1930;

(g) the Convention between Italy and Austria on Bankruptcy,

Winding-up, Arrangements and Compositions, signed at Rome on

12 July 1977;

(h) the Convention between the Kingdom of the Netherlands

and the Federal Republic of Germany on the Mutual Recognition

and Enforcement of Judgments and other Enforceable Instruments in

Civil and Commercial Matters, signed at The Hague on 30 August

1962;

(i) the Convention between the United Kingdom and the

Kingdom of Belgium providing for the Reciprocal Enforcement of

Judgments in Civil and Commercial Matters, with Protocol, signed at

Brussels on 2 May 1934;

(j) the Convention between Denmark, Finland, Norway, Sweden and Iceland on Bankruptcy, signed at Copenhagen on 7 November 1933;
International Insolvency

160

(k) the European Convention on Certain International Aspects

of Bankruptcy, signed at Istanbul on 5 June 1990.

2. The Conventions referred to in paragraph 1 shall continue to

have effect with regard to proceedings opened before the entry into

force of this Regulation.

3. This Regulation shall not apply:

(a) in any Member State, to the extent that it is irreconcilable

with the obligations arising in relation to bankruptcy from a convention concluded by that State with one or more third countries before

the entry into force of this Regulation;

(b) in the United Kingdom of Great Britain and Northern Ireland, to the extent that is irreconcilable with the obligations arising in

relation to bankruptcy and the winding-up of insolvent companies

from any arrangements with the Commonwealth existing at the time

this Regulation enters into force.

Article 45

Amendment of the Annexes

The Council, acting by qualified majority on the initiative of one

of its members or on a proposal from the Commission, may amend

the Annexes.

Article 46

Reports

No later than 1 June 2012, and every five years thereafter, the

Commission shall present to the European Parliament, the Council

and the Economic and Social Committee a report on the application

of this Regulation. The report shall be accompanied if need be by a

proposal for adaptation of this Regulation.
Appendix C: European Union Regulation on Insolvency Proceedings

1 6 1 

Article 47

Entry into force

This Regulation shall enter into force on 31 May 2002.

This Regulation shall be binding in its entirety and directly applicable in the Member States in accordance with the Treaty establishing the European Community.

Done at Brussels, 29 May 2000.

For the Council

The President

A. Costa
International Insolvency

162

ANNEX A

Insolvency proceedings referred to in Article 2(a)

AUSTRIA

- Das Konkursverfahren

- Das Ausgleichsverfahren

BELGIUM

- Het faillissement/La faillite

- Het gerechtelijk akkoord//Le concordat judiciaire

- De collectieve schuldenregeling/Le règlement collectif de dettes

FINLAND

- Konkurssi/konkurs

- Yrityssaneeraus/företagssanering

FRANCE

- Liquidation judiciaire

- Redressement judiciaire avec nomination d’un administrateur

GERMANY

- Das Konkursverfahren

- Das gerichtliche Vergleichsverfahren

- Das Gesamtvollstreckungsverfahren

- Das Insolvenzverfahren

GREECE

- Ptwjceush

- H eidikhj ekkaqajrish

- H proswrinhj diaceijrish etairija§. H dioijkhsh kai h diaceijr

twn pistwtwjn

- H upagwghj epiceijrhsh§ upoj epijtropo me skopoj th sujnayh

sumbibasmouj me tou§ pistwtej§
Appendix C: European Union Regulation on Insolvency Proceedings

1 6 3 

IRELAND

- Compulsory winding up by the court

- Bankruptcy

- The administration in bankruptcy of the estate of persons dying

insolvent

- Winding-up in bankruptcy of partnerships

- Creditors’ voluntary winding up (with confirmation of a Court)

- Arrangements under the control of the court which involve the

vesting of all or part of the property of the debtor in the Official Assignee for realisation and distribution

- Company examinership

ITALY

- Fallimento

- Concordato preventivo

- Liquidazione coatta amministrativa

- Amministrazione straordinaria

- Amministrazione controllata

LUXEMBOURG

- Faillite

- Gestion contrôlée

- Concordat préventif de faillite (par abandon d’actif)

- Régime spécial de liquidation du notariat

NETHERLANDS

- Het faillissement

- De surséance van betaling

- De schuldsaneringsregeling natuurlijke personen

PORTUGAL

- O processo de falência

- Os processos especiais de recuperação de empresa, ou seja:

- A concordata

- A reconstituição empresarial

- A reestruturação financeira

- A gestão controlada
International Insolvency

164

SPAIN

- Concurso de acreedores

- Quiebra

- Suspensión de pagos

SWEDEN

- Konkurs

- Företagsrekonstruktion

UNITED KINGDOM

- Winding up by or subject to the supervision of the court

- Creditors’ voluntary winding up (with confirmation by the

court)

- Administration

- Voluntary arrangements under insolvency legislation

- Bankruptcy or sequestration
Appendix C: European Union Regulation on Insolvency Proceedings

1 6 5 

ANNEX B

Winding up proceedings referred to in Article 2(c)

AUSTRIA

- Das Konkursverfahren

BELGIUM

- Het faillissement/La faillite

FINLAND

- Konkurssi/konkurs

FRANCE

- Liquidation judiciaire

GERMANY

- Das Konkursverfahren

- Das Gesamtvollstreckungsverfahren

- Das Insolvenzverfahren

GREECE

- Ptwjceuoh

- H eidikhj ekkaqajrioh

IRELAND

- Compulsory winding up

- Bankruptcy

- The administration in bankruptcy of the estate of persons dying

insolvent

- Winding-up in bankruptcy of partnerships

- Creditors’ voluntary winding up (with confirmation of a court)

- Arrangements under the control of the court which involve the

vesting of all or part of the property of the debtor in the Official Assignee for realisation and distribution
International Insolvency

166

ITALY

- Fallimento

- Liquidazione coatta amministrativa

LUXEMBOURG

- Faillite

- Régime spécial de liquidation du notariat

NETHERLANDS

- Het faillissement

- De schuldsaneringsregeling natuurlijke personen

PORTUGAL

- O processo de falência

SPAIN

- Concurso de acreedores

- Quiebra

- Suspensión de pagos basada en la insolvencia definitiva

SWEDEN

- Konkurs

UNITED KINGDOM

- Winding up by or subject to the supervision of the court

- Creditors’ voluntary winding up (with confirmation by the

court)

- Bankruptcy or sequestration
Appendix C: European Union Regulation on Insolvency Proceedings

1 6 7 

ANNEX C

Liquidators referred to in Article 2(b)

AUSTRIA

- Masseverwalter

- Ausgleichsverwalter

- Sachwalter

- Treuhänder

- Besondere Verwalter

- Vorläufiger Verwalter

- Konkursgericht

BELGIUM

- De curator/Le curateur

- De commissaris inzake opschorting/Le commissaire au sursis

- De schuldbemiddelaar/Le médiateur de dettes

FINLAND

- Pesänhoitaja/boförvaltare

- Selvittäjä/utredare

FRANCE

- Représentant des créanciers

- Mandataire liquidateur

- Administrateur judiciaire

- Commissaire à l’exécution de plan

GERMANY

- Konkursverwalter

- Vergleichsverwalter

- Sachwalter (nach der Vergleichsordnung)

- Verwalter

- Insolvenzverwalter

- Sachwalter (nach der Insolvenzordnung)

- Treuhänder

- Vorläufiger Insolvenzverwalter
International Insolvency

168

GREECE

- O sujndiko

- O proswrinoj§ diaceiristhj§. H dioikoujsa epitrophj twn

pistwtwjn

- O eidikoj§ ekkaqaristhj§

- O epijtro po§

IRELAND

- Liquidator

- Official Assignee

- Trustee in bankruptcy

- Provisional Liquidator

- Examiner

ITALY

- Curatore

- Commissario

LUXEMBOURG

- Le curateur

- Le commissaire

- Le liquidateur

- Le conseil de gérance de la section d’assainissement du notariat

NETHERLANDS

- De curator in het faillissement

- De bewindvoerder in de surséance van betaling

- De bewindvoerder in de schuldsaneringsregeling natuurlijke

personen

PORTUGAL

- Gestor judicial

- Liquidatário judicial

- Comissão de credores
Appendix C: European Union Regulation on Insolvency Proceedings

1 6 9 

SPAIN

- Depositario-administrador

- Interventor o Interventores

- Síndicos

- Comisario

SWEDEN

- Förvaltare

- God man

- Rekonstruktör

UNITED KINGDOM

- Liquidator

- Supervisor of a voluntary arrangement

- Administrator

- Official Receiver

- Trustee

- Judicial factor
The Federal Judicial Center

Board

The Chief Justice of the United States, Chair

Judge Stanley Marcus, U.S. Court of Appeals for the Eleventh Circuit

Judge Pauline Newman, U.S. Court of Appeals for the Federal Circuit

Chief Judge Jean C. Hamilton, U.S. District Court for the Eastern District of Missouri

Senior Judge Robert J. Bryan, U.S. District Court for the Western District of Washington

Judge William H. Yohn, Jr., U.S. District Court for the Eastern District of Pennsylvania

Chief Judge Robert F. Hershner, Jr., U.S. Bankruptcy Court for the Middle District of Georgia

Magistrate Judge Robert B. Collings, U.S. District Court for the District of Massachusetts

Leonidas Ralph Mecham, Director of the Administrative Office of the U.S. Courts

Director

Judge Fern M. Smith

Deputy Director

Russell R. Wheeler

About the Federal Judicial Center

The Federal Judicial Center is the research and education agency of the federal judicial system.

It was established by Congress in 1967 (28 U.S.C. §§ 620–629), on the recommendation of the

Judicial Conference of the United States.

By statute, the Chief Justice of the United States chairs the Center’s Board, which also includes the director of the Administrative Office of the U.S. Courts and seven judges elected by

the Judicial Conference.

The Director’s Office is responsible for the Center’s overall management and its relations

with other organizations. Its Systems Innovation & Development Office provides technical

support for Center education and research. Communications Policy & Design edits, produces,

and distributes all Center print and electronic publications, operates the Federal Judicial Television Network, and through the Information Services Office maintains a specialized library

collection of materials on judicial administration.

The Judicial Education Division develops and administers education programs and services

for judges, career court attorneys, and federal defender office personnel. These include orientation seminars, continuing education programs, and special-focus workshops. The Interjudicial

Affairs Office provides information about judicial improvement to judges and others of foreign

countries, and identifies international legal developments of importance to personnel of the

federal courts.

The Court Education Division develops and administers education and training programs

and services for nonjudicial court personnel, such as those in clerks’ offices and probation and

pretrial services offices, and management training programs for court teams of judges and managers.

The Research Division undertakes empirical and exploratory research on federal judicial

processes, court management, and sentencing and its consequences, often at the request of the

Judicial Conference and its committees, the courts themselves, or other groups in the federal

system. The Federal Judicial History Office develops programs relating to the history of the

judicial branch and assists courts with their own judicial history programs.