From modest beginnings, the concept of Cross-Border Insolvency Protocols as a means of enhancing cooperation between administrations in international cases has become an established practice in major cases. From their origins in the International Bar Association’s Cross-Border Insolvency Concordat through the early Protocols in Maxwell Communication and Everfresh Beverages, Protocols have become a mainstay in international reorganizations and restructurings. To date, Cross-Border Insolvency Protocols have been approved by Courts in between 35 and 40 separate proceedings in almost a dozen countries and, within the United States, by 10 District and Bankruptcy Courts.

In two recent cases in the Southern District of New York, the science of international Protocols has been refined and advanced in several new and important directions. The Protocols in point arose out of the Madoff Securities and Lehman Bros. insolvencies which are being supervised by Hon. Burton R. Lifland and Hon. James M. Peck, respectively. Both Protocols had unique and precedent - setting features.

Lehman Bros. has been described as the largest bankruptcy in history with over US$613 billion in liabilities. Lehman had been in business for over 150 years and, on its filing date, had over 4,000 different subsidiaries around the world. As a result of its Chapter 11 filing, approximately 80 of Lehman’s foreign direct and indirect subsidiaries had become involved in either voluntary or involuntary insolvency, administration or liquidation proceedings. Because of the highly integrated nature of Lehman's business, negotiations commenced early in the proceedings among the insolvency representatives from its major global subsidiaries with a view to establishing a framework within which international issues could be discussed and resolved. After several months of negotiations, insolvency representatives in seven countries agreed on the form of a Cross-Border Insolvency Protocol for the Lehman Bros. group of companies. The intention of the Protocol is to facilitate coordination of the various insolvency proceedings in which Lehman entities were involved and to enable the insolvency representatives and the supervising Courts to cooperate in the administration of those proceedings.

A Cross-Border Insolvency Protocol on the scope and scale of the protocol in Lehman Bros. has never before been attempted. Most existing Protocols are bilateral arrangements between Courts in two countries. The Lehman proceedings, however, involved sixteen different jurisdictions including both common law and civil law jurisdictions in Europe and in Asia. The Protocol was specifically prepared to encourage notice, communication and data sharing among the various Lehman administrations, to permit insolvency representatives in one country to appear and be heard at meetings and hearings in other countries, to communicate among Courts and committees and to maximize the realization on the assets in each country. Special provisions were inserted to deal with the complex issues arising from the extensive intercompany claims among the various Lehman entities.

The Protocol was first submitted to the United States Bankruptcy Court for the Southern District of New York where it was quickly approved. The Protocol contains provisions under which it is contemplated that the approval or approbation of the other Courts that are involved in other aspects of the Lehman Bros. international business will be sought as well. The Lehman Protocol is also notable for adopting the III/ALI Guidelines for Court-to-Court Communications in Cross-Border Cases. The motion for approval of the Cross-Border Insolvency Protocol in Lehman Bros. can be accessed here.

In Madoff Securities, Judge Burton R. Lifland was faced with a complex case involving the apparent disappearance of huge sums of money in a complex structure of international entities and accounts. Insolvency proceedings had been undertaken in England and proceedings had been taken under the Securities Investor Protection Actin the United States and insolvency representatives had been appointed in each of the cases. The joint administrators (in England) and the Trustee (in the United States) consequently negotiated a Cross-Border Insolvency Protocol to coordinate their administrations. Under the Protocol, each insolvency representative has the right to appear in the proceedings in the other country and both representatives agreed to provide each other with notice of hearings, meetings, applications, deadlines and other matter in which the other representative had an interest. The insolvency representatives also entered into a separate Protocol for the formal sharing of information between their respective estates.

One of the primary objectives of the Protocol in Madoff Securities was to improve communication, information sharing and access for each of the insolvency representatives to the proceedings in the other country. To that end, the Protocol in Madoff Securities also adopted in full and in their entirety the III/ALI Guidelines for Court-to-Court Communications in Cross-Border Cases. A copy of the Cross-Border Insolvency Protocol in Madoff Securities is accessible here.

The protocols in Lehman and Madoff represent major steps forward in international cooperation in insolvency and restructuring cases. The adoption of the III/ALI Guidelines, particularly by the insolvency representatives in civil law jurisdictions in the Lehman proceedings, is another step forward in international cooperation.

The International Insolvency Institute maintains a collection of major cross-border insolvency protocols which can be accessed here.