Given the current worldwide economic climate, the number of companies facing insolvency that have assets in multiple jurisdictions around the world has increased dramatically. It is not unusual in today’s global economy for a corporation to have commercial offices, production plants and/ or research facilities in many different countries. A company that is faced with the bleak picture of insolvency may be forced to make decisions on whether to seek protection under a number of different statutory structures. Protecting corporate assets in one country will not provide an entity with adequate protection if creditors are able to liquidate corporate property in other jurisdictions.
Entities are required to initiate proceedings in all jurisdictions containing assets. This can result in chaos without some regime that provides coordination and communication between the various courts. The international business community recognized the importance of providing uniform procedures for insolvency proceedings throughout the world; therefore, on December 15, 1997, the General Assembly of the United Nations adopted the Model Law on Cross-Border Insolvency (UNCITRAL “Model Law”). In 2005, The U.S. adopted the Model Law by including the new Chapter 15 in the Bankruptcy Abuse Prevention and Consumer Protection Act. The Model Law provides for the coordination of cross border insolvency proceedings.
The objective of Chapter 15 is to allow a non- U.S. debtor to receive some of the protections of the U.S. bankruptcy law without having to commence a full proceeding in the U.S. A worldwide forum is provided for an insolvency proceeding instead of conducting several parallel and potentially conflicting proceedings in multiple international jurisdictions. Chapter 15 proceedings are intended to be ancillary to cases brought in a debtor ’s home country unless a U.S. bankruptcy case is commenced under another chapter of the bankruptcy code. If a debtor initiates a Chapter 11, the court may decide to stay or dismiss it and limit the U.S. Bankruptcy Court’s role to that of an ancillary Court. The court would recognize the “main bankruptcy case” as that of the foreign proceeding in the location of the debtor’s central business.
Chapter 15 provides that “in the absence of evidence to the contrary” the location of the debtor’s registered office is presumed to be the “center of debtor’s main interest.” This jurisdiction becomes the locus of the “main proceeding” with the other locations of business serving as the “non-main proceeding”. To date, fifteen countries have adopted the Model Law.
Typically, the parties to the various proceedings develop a cross-border insolvency protocol. This protocol addresses the coordination of issues including administration, procedure, asset sales and distribution, claim filing, and the development of plans of corporate reorganization in the various jurisdictions. In many cases, joint hearings are conducted to resolve the many cross-border issues.
Chapter 15 has been successful in providing a vehicle to increase and simplify collaboration between courts in multijurisdiction insolvency proceedings. The use of a cross-border protocol has proven to be very effective in coordinating the different proceedings. With the interconnected world business community facing the current worldwide recession, Chapter 15 proceedings can expedite complex cross-border insolvency issues.