The Cross-Border Insolvency law is an international regulation created by the UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE LAW (UNCITRAL) to provide methods or instruments to take care of cases of insolvency across borders. (UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE 1997) It is important to note that insolvency proceedings do not necessarily involve the involvement of a judicial authority. The term ‘court’ in this Regulation should be given a extensive connotation to include a person or body authorized by national law to open insolvency proceedings.
(Official Journal of the European Communities 2000) Among the intentions for this law are to: a. Promote collaboration between courts and competent authorities of foreign states and in such cases; b. Ensure legal certainty for trade and investment; c. Manage cases of cross-border insolvencies that offers the interests of all interested parties, including the debtor reasonably and competently ; d. Safeguard and take full advantage of the value of the debtor’s assets;
e. Make the liberation of financially troubled businesses possible (UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE 1997) The UNCITRAL Model Law has a very high opinion of the diversity among national procedural laws as the United Nations member nations are very much diverse in their laws and cultures. As such, the Model Law does not attempt a substantive amalgamation of insolvency laws as some principles might not sit well with the laws from other cultures.
In essence, the Model Law presents answers that might help using unpresumptuous approaches. (UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE 1997) To sum up, the UNCITRAL Model Law is meant to provide practical self-awareness to users of the text such judges, practitioners ,students and professors. Complications encountered where assets are in two or more jurisdictions When a corporate debtor acquires assets in two or more jurisdictions, complications or problems are certainly bound to arise.
Most of the issues concerned are matters with regard to jurisdiction as is depicted in the next sections. The COUNCIL OF THE EUROPEAN UNION has also come up with a council regulation regarding insolvency proceedings on May 29, 2000. Here are points to consider with regard to assets or liabilities in two or more jurisdictions according to the council regulation: a. Which court to assign the jurisdiction to open insolvency proceedings with regard to the debtor’s main interests.
Usually, the courts of the Member State within the territory of which the centre of a debtor’s main interests is located handles the proceedings (Official Journal of the European Communities 2000) b. In such a case as stated in point “a” of this section, the courts of another state will only have jurisdiction to open insolvency proceedings against the debtor if he owns an establishment within the territory of that other Member State. Also, the effects of the proceedings will be limited to the assets of the debtor located in the territory of the latter Member State.
(Official Journal of the European Communities 2000) c. In cases where insolvency proceedings have been opened under the conditions in point “a”, the proceedings that will be opened after that are under the conditions in point “b”, will be considered secondary proceedings (Official Journal of the European Communities 2000) d. Territorial insolvency proceedings defined in ” b” may be opened before the opening of main insolvency proceedings that comply with the conditions of “a” only (Official Journal of the European Communities 2000)
The European Convention on Certain International Aspects of Bankruptcy presents two possible solutions when dealing with bankrupt debtor’s assets that are located in more than one state: 1. It allows liquidators appointed in the State in which a bankruptcy is opened to exercise some of their authority. This includes administration, management and disposal of the debtor’s assets directly in the country in which the bankrupt debtor’s assets are located. In such cases, liquidators must act in accordance with the national law of the State in which they are set to to take action.
(Council of Europe 1990) 2. The convention facilitates the opening of secondary bankruptcies. A secondary bankruptcy can be opened in any other party in which bankrupt defaulter had acquired assets, without any need for their indebtedness to be established, the main bankruptcy will be enough. It is important to note that secondary bankruptcy will be governed by the national law of the State in which the case is opened. (Council of Europe 1990) As in most international businesses, it is very much likely that creditors are spread over several states.
For the protection of the creditors and ease in conducting transactions with the debtors, the Council has imparted a number of procedures wherein they may be informed so that they may be able to settle their claims in the bankruptcy cases opened in other State in an uncomplicated manner. The objective behind this is to the bureaucracy of such transactions, thereby contributing to the more efficient management of such operations. (Council of Europe 1990) Keeping Abreast with the needs of the Times for Harmony in Proceedings
As the cross-border insolvency law tackles problems on an international scale, it is important for lawmakers of the different member states that are subject to the UNCITRAL Model Law to keep themselves abreast of the newest trends in international business and update their international business laws accordingly. (UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE 1997) Being well-equipped to handle cross-border insolvency cases means being well-versed with international laws and their implications on the laws of other countries.
This requires that lawmakers should be up-to-date with changes in the laws in other member states. It is very important that this be given enough attention to avoid incongruous decisions or rulings on such sensitive cases. More often than not, relationships between countries are built and strengthened by business ties they have with each other. If differences are not ironed out at the onset, they could lead to serious problems with regard to diplomatic ties that could lead to matters that are more serious and could even start wars.
As such, these international policies should be carefully studied before they are drafted. (UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE 1997) Issues to consider when drafting International Treaties In the case of drafting international treaties dealing with cross-border insolvency are drafted, there are several important points to consider. The Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil and Commercial Matters is an example of such treaty. This was adapted under the sponsorship of the Hague Conference on Private International Law.
This treaty deals with the issue on courses of action for passing on judicial or extrajudicial documents to addressees abroad. (Council of Europe 1990) Notifying Foreign Creditors One of the important, though seemingly trivial, issues with regard to dealing with cross-border insolvency is the matter of notifying creditors of the bankruptcy of a debtor. The subject of the bankruptcy is often complicated already as it is but the fact that the debtor is located in a foreign state makes it all the more convoluted.
The reason why the sending of notices is something that should not be taken for granted is that any delays in the notifications could mean more complications in the cases and longer time needed for the cases to be solved. (UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE 1997) Article 14 of the UNCITRAL Model Law on Cross-Border Insolvency with Guide to Enactment enumerates guidelines to sending “Notification to foreign creditors of a proceeding under [identify laws of the enacting State relating to insolvency] “(UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE 1997).
According to UNCITRAL, among the important points to consider in sending the notifications are the following: a. Location of the creditors; (UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE 1997) b. Foreign creditors should be sent individual notices. They could either be notified through mail or any other medium that does not request for information in order to push through (UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE 1997) c. When a notification of the start of a proceeding is to be given to foreign creditors, the notice should have three things.
(1) Suggest a reasonable time period for filing claims and identify the place for their filing; (2) state whether secured creditors need to file their secured claims; (3) have any other information required to be included in such a notification to creditors pursuant to the law of the State and the orders of the court. (UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE 1997) The fact of the matter is treaties such as these are inappropriate and could not be applicable for cross-border insolvency cases. These processes are often burdensome and time-consuming.
The employment of such methods will prove to be impractical since the foreign creditors are unlikely to receive notice of insolvency proceedings on time. (UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE 1997) This consideration is similar to the issue that the European Convention on Certain International Aspects of Bankruptcy aimed to resolve. However, in dealing with such proceedings where there is the urgent need for documents to be sent without delay to the intended recipients, those involved should be aware of the danger involved in trying to expedite the sending of important documents such as interception or loss.
In the framework of insolvency proceedings, parties involved should be produce the notifications instantaneously, using methods that would cut down on the formalities, but methods that the courts would approve of. (UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE 1997) Do international treaties provide the most appropriate and practical means of arriving at a workable solution to the problems of cross border insolvency? Right now, cross-border insolvency laws international trade agreements between countries still need a significant amount of work in order to keep with the pace of the way the world is doing business.
There are significant efforts to improve on these policies and there is some proof that there has been considerable progress. One good example of getting there is the United Kingdom’s The Insolvency Service website. The Insolvency Service website is a good resource for people who would like to know how to deal with the problem of insolvency mostly from the point of view of the creditor and insolvency practitioners. Several sections of the website are devoted to helping people involved get familiar with and deal with bankruptcy.
(The Insolvency Service 2006) The Insolvency Service website is proof that the United Kingdom has invested in keeping apace with the needs to the times. The website provides useful and practical information to the target users. The website also has options to complete forms online. Information about othe issues that come with insolvency such as redundancy, compulsory liquidation, director disqualification and restriction, insolvency profession and legislation can also be found on the website.
(The Insolvency Service 2006) In addition, there is a section about alternatives to bankruptcy. Among the options that one can choose from are: Debt Relief Orders, informal arrangements, administration orders, and individual voluntary arrangements. These options give users other choices to deal with their situation and give them the possibility eliminating the option of filing for bankruptcy and opting of a better way to take care of their business affairs. (The Insolvency Service 2006)
The alternatives to bankruptcy page of the website gives the users the opportunity to thoroughly assess and qualify the state of their financial health through the use of this tool. There are guidelines and brackets based on the amount of the loan or the current state of liquidity of an individual or company. The website is a very useful tool to educate the target users as well as the public on how to deal with such a situation. (The Insolvency Service 2006) Other Appropriate Options
When dealing with failures, particularly in business, it is important to rule out all the possible mistakes and misconceptions about the situation. This is especially in the case of bankruptcies where employment and significant amounts placed in investments are at stake. Filing for bankruptcy should be the last resort when businesses fail. All other options should be exhausted before deciding on filing for bankruptcy. A company should explore other options such as those mentioned in the insolvency service. More importantly, great care should be taken when handling business deals with foreign creditors or debtors.
The failure or success of these ventures will have significant impact between the diplomatic relations between two countries or states. Insolvency is a matter that should be treated with utmost care. Bibliography Council of Europe. “European Convention on Certain International Aspects of Bankruptcy . ” Council of Europe. May 6, 1990. http://conventions. coe. int/Treaty/en/Summaries/Html/136. htm (accessed April 12, 2009). Official Journal of the European Communities. “COUNCIL REGULATION (EC) No 1346/200. ” http://eur-lex. europa. eu/.
May 29, 2000. http://eur-lex. europa. eu/LexUriServ/site/en/oj/2000/l_160/l_16020000630en00010018. pdf (accessed April 12, 2009). The Insolvency Service . “The Insolvency Service . ” The Insolvency Service . 2006. http://www. insolvency. gov. uk/ (accessed April 13, 2009). UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE. “UNCITRAL Model Law on Cross-Border Insolvency with Guide to Enactment. ” UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE. 1997. http://www. uncitral. org/pdf/english/texts/insolven/insolvency-e. pdf (accessed April 12, 2009).