The Insolvency Working Group of the United Nations Commission on International Trade Law (“UNCITRAL”)1 has been busy this past year, working on three new model laws and developing work on at least two possible future projects.2 The Insolvency Working Group is responsible for drafting the Model Law on Cross-Border Insolvency (the “CBI Model Law”) in 1997, which has since been adopted in 46 countries and is under consideration in several others. In 2005, the United States adopted the CBI Model Law as Chapter 15 of the United States Bankruptcy Code.
In May 2018, the Insolvency Working Group completed its work on a Model Law on Recognition and Enforcement of Insolvency-Related Judgments (the “IRJ Model Law”). The Insolvency Working Group determined that there was a need for the IRJ Model Law after judicial decisions in certain countries declined to recognize judgments related to foreign insolvency proceedings. In addition, the Insolvency Working Group noted that many international treaties addressing foreign judgments exclude insolvency-related judgments, and countries that do recognize foreign insolvency-related judgments have inconsistent rules about when a judgment is related to an insolvency proceeding. (For more information, please read our article published in INSOL International’s Special Report (March 2019), UNCITRAL’s Model law on Recognition and Enforcement of Insolvency-Related Judgments—A Universalist Approach to Cross-Border Insolvency.)
By providing a uniform set of definitions, procedures, and policies, the IRJ Model Law facilitates an efficient, streamlined path to recognition of foreign judgments. It is drafted in a form that can either be integrated into the CBI Model Law or enacted as a stand-alone statutory regime.
In July 2018, UNCITRAL formally adopted the IRJ Model Law. While it is too soon to gauge countries’ reception to the IRJ Model Law, it was strongly supported by the member countries of UNCITRAL represented in the Insolvency Working Group. Nevertheless, there is historically a gap of several years between the time UNCITRAL adopts a model law and the time countries begin to enact local legislation based on the model law.
Enterprise Group Insolvency
At its most recent session in May 2019, the Insolvency Working Group completed work on a Model Law on Enterprise Group Insolvency (the “Enterprise Group Model Law”). The purpose of the Enterprise Group Model Law is “to equip States with modern legislation addressing the domestic and cross-border insolvency of enterprise groups.” (Enterprise Group Insolvency: Draft Guide to Enactment, 2, UNCITRAL (March 2019), available at undocs.org/en/A/CN.9/ WG.V/WP.165.) The Enterprise Group Model Law addresses situations of multinational affiliated companies being the subject of insolvency proceedings in two or more countries. It provides procedures to harmonize the various proceedings and address such issues as intercompany claims, duties of directors in the period approaching insolvency, avoiding inconsistent rulings affecting the enterprise group, appoint ing a single group representative, and developing a group insolvency solution for all or part of an enterprise group through a single insolvency proceeding in a jurisdiction where at least one group member has its center of main interest.
In July 2018, UNCITRAL formally adopted the IRJ Model Law. While it is too soon to gauge countries’ reception to the IRJ Model Law, it was strongly supported by the member countries of UNCITRAL represented in the Insolvency Working Group.
It is expected that UNCITRAL will formally adopt the Enterprise Group Model Law at its upcoming session this July.
Micro-, Small-, and Medium-Sized Enterprises
During the May 2019 session, the Insolvency Working Group made substantial progress on recommendations concerning the insolvency of micro-, small-, and mediumsized enterprises (“MSMEs”). The Insolvency Working Group has a mandate to prepare commentary and proposals on a simplified insolvency regime for MSMEs. The issue arose from UNCITRAL’s acknowledgment that ordinary business insolvency procedures are not always suited to individual entrepreneurs and businesses owned and operated by individuals or families with intermingled business and personal debts. Such debtors may also be discouraged by current insolvency procedures that tend to be expensive, drawn out, subject to rigorous and inflexible rules, and involve loss of control over the business. At the same time, MSMEs burdened by debt may become trapped in a cycle of debt or driven to non-traditional forms of debt from sources of questionable repute.
The Insolvency Working Group’s goal is to develop a simplified regime with a view to allowing MSMEs to remain commercially viable and retaining the entrepreneur’s or the family’s know-how and skills.
Possible Future Work
Two topics for future work were discussed at the May session. First, members of the European Union proposed work to harmonize conflict-of-law issues. The EU currently has two cross-border insolvency model laws: the CBI Model Law and the Recast EU Insolvency Regulations. They are not consistent in many respects, and countries in the EU may be subject to both. The proposal received broad support.
Second, the delegates discussed whether work on a model law on cross-border asset tracing and recovery is needed. While support for this proposal is mixed, a majority of members agreed to continue studying the issue to determine whether it is an appropriate subject for the Insolvency Working Group.