On 15 July 2019, UNCITRAL formally approved a new model law (linked here) for enterprise group insolvencies on how to administer group insolvencies across multiple jurisdictions. A lesson learnt from the 2008 global financial crisis when we saw the collapse of Lehman Brothers was the absence of legislation that dealt with group insolvencies. This has been identified as a major gap in UNCITRAL’s model law on cross-border insolvency (MLCBI).
UNCITRAL’s new model law, which will complement the MLCBI, will provide member states with a legislative framework to deal with aspects of enterprise group insolvencies, the coordination of court hearings and communication between insolvency professionals across different jurisdictions. Key points include:
- Under the new model law, a “group insolvency solution” refers to a proposal or set of proposals developed in a planning proceeding for the reorganization, sale or liquidation of some or all of the assets and operations of one or more enterprise group members, with the goal of protecting, preserving, realizing or enhancing the overall combined value of those enterprise group members.
- A group insolvency solution may be developed in a “planning proceeding” where multiple group members will be able to voluntarily participate in a single insolvency proceeding, during which a group representative will be appointed.
- Subject to fulfilling certain requirements, the court may recognize as a planning proceeding a proceeding that has been approved by a court with jurisdiction over a main proceeding of an enterprise group member for the purpose of developing a group insolvency solution.
- Alongside the model law, UNCITRAL has prepared a guide to enactment to aid member states choosing to add the law to their domestic statute book and a directors’ guide setting out directors’ obligations in the period approaching insolvency in the context of enterprise groups. Additional recommendations discuss where a director holds a management or executive position in more than one enterprise group member, and a conflict arises in discharging the obligations owed to the different members.
In Asia Pacific, member states who have adopted the MLCBI in their legislation include Australia, Japan, the Philippines and Singapore. Although Hong Kong and China have yet to adopt the model law, we are seeing developments that indicate positive steps for increased recognition of foreign insolvency proceedings. At the start of this year, the Hong Kong government introduced a mutual recognition regime with China for civil and commercial judgments – insolvency matters were specifically excluded. Nevertheless, landmark Hong Kong cases such as Re Supreme Tycoon Limited (08/02/2018, HCMP833/2017) confirms the Hong Kong court’s willingness to assist foreign liquidators including in creditors’ voluntary liquidations, provided the insolvency regime of the foreign jurisdiction is similar to that of Hong Kong. In China, it is noteworthy that earlier this year, specialist bankruptcy courts have been set up in Shanghai and Shenzhen. The Shenzhen Bankruptcy Court has also been directed by China’s Supreme Court in Beijing to rule on cross-border cases and “other cases that fall into its jurisdiction.”