On 1 July 2009, UNCITRAL adopted the Practice Guide on Cross-Border Insolvency Cooperation. The Practice Guide provides a useful reference source on some practical aspects of cooperation and communication to deal with many of the conflicts and tensions between stakeholders and jurisdictions inevitable in cross-border cases. To ease these tensions, it is often essential for creditors and, importantly, the courts concerned to reach agreement about how the process will be handled.
A hot topic in recent years is the effect of the European Insolvency Regulation and Cross-Border Insolvency Regulations 2006 (adopting the UNCITRAL Model Law) on cross-border restructurings. EC courts have, on the whole, been favourable to the UK insolvency regime. Companies and creditors have successfully used the Regulations to ensure groups of companies are all brought within the UK administration regime. This approach has however highlighted the inherent differences of culture and approach between jurisdictions.
An important consideration is how easily an insolvency procedure will be recognised in other jurisdictions, which may or may not already have their own insolvency procedures in place. Courts have, understandably, been reluctant to cede autonomy to other courts. While the US courts have always considered their jurisdiction far reaching and universal, since adopting the Model Law they have shown themselves more willing to cooperate with their counterparts in other jurisdictions.
What have UNCITRAL done to help?
The principal aim of the Practice Guide is to help those negotiating cross-border insolvency agreements or “protocols”. It provides a user-friendly analysis of more than 39 such agreements, ranging from written agreements approved by courts to oral arrangements that various stakeholders have negotiated. The Practice Guide is not intended to be prescriptive or binding. Clearly however it will be persuasive.
Communication between stakeholders
A common goal of cross-border agreements is to fix procedures for communication between parties, e.g. creditors. Agreements might contain terms dealing with information sharing, timing, frequency and content of communication, giving notice of actions to each other, and confidentiality.
Communication between courts
The Practice Guide says direct communication between the courts in cross-border insolvencies is essential. It can prevent undue delay and cost and inconsistent treatment of creditors. However it points out that direct communication must always be subject to national law. Court cooperation in practice.
The Practice Guide explores three cases in which this firm was involved: Federal Mogul, Collins & Aikman and Cenargo. Federal Mogul remains the most instructive of the English cases for judicial cooperation purposes. The group adopted a protocol between the UK and the US to deal with pending English asbestos claims, which was approved by both the US bankruptcy court and the English courts. The US debtors in possession were given responsibility for developing a reorganisation plan and handling claims. The protocol also covered communication, confidentiality, rights to appear before the respective courts, the mutual recognition of stays of proceedings, and employing and compensating insolvency representatives and professionals.
Cenargo is an illustration of direct oral communication between courts. It involved concurrent insolvency proceedings in the United States and the United Kingdom. Judicial communication arose out of a jurisdictional stand-off, and was initiated by the US court. The parties arranged direct communication between the judges via a telephone conference in which the various parties’ counsel also took part.
Obviously you cannot force a court to agree to limit proceedings in its own jurisdiction or dictate how those proceedings should run. To try would also be to ignore the differences in jurisdiction, both substantively and procedurally, which must sit over any protocol. However if this Guide can be used as a way to steer newcomers through the problems, and give stakeholders some guidance on what can be achieved, then creditors, practitioners and judges alike should all welcome it.