Cross-Border Insolvencies

• Author: Roderick J. Wood
• Profession: Faculty of Law University of Alberta
• Pages: 545-566

545

CHA PTER 22

cross-Border

Insolv encIes

Cross-border insolvencies, also known as transn ational or international

insolvencies, involve a foreign element. The debtor may b e located in

another country, some or all of the assets may be located in another

country, or some or all of the creditors may be foreigners. This book

has been structured around the various insolvency regimes t hat have

been legisl atively cre ated. This st ructure, together with the fact th at the

BIA contain s a separate Part on cross-border insolvencies, m ay lead the

reader to think that th is chapter is about an international insolvency

regime t hat govern s such insolvencies. Such is not the case. Although

many believe that the best solution to the problem of cross-border insol-

ven cies is t he cr eat ion of an in ter nati ona l conv enti on th at wo uld c reat e a

single, universal body of substantive insolvency law principles for trans-

national businesses, this is c urrently a hope rather than a reality.1

The 2007 amendments to Canadian insolvency statutes have imple-

mented many features of the UNCITRAL Model Law on Cross-Border

Insolvency. Several other countries, including the United States, the

United Kingdom, and New Zealand, have done so as well. The Model

Law does not create a separate in solvency regime for international in-

solvencies. It does not purport to cre ate substant ive insolvency law at

all. Instead, it provides a mechanism to faci litate cooperation and co -

ordination of international in solvencies by providing for the recogni-

1 See J.L. Westbrook, “A Global Solution to Multin ational Default” (2000) 98

Mich. L. Rev. 2276.

Bankr uptcy a nd Insolvency l aw546

tion of foreign insolvency proceedings. A lthough these prov isions can

by no st retch of t he imag ination be regarded as a t ransnational insol-

vency regime, it is possible that they may be the f‌irst stage in a process

that will eventually realize t he universalist idea l. Only time wil l tell.

A. FUNDAMENTA L PRINCIPLES

1) The Rival Principles of Universalism and

Territorialism

There are differing views on the most appropriate way to deal w ith

cross-border insolvencies. At its most basic level, the debate i s about

the relative merits of the principle of universalism over its r ival, the

principle of terr itorialism. Universalism contemplates an insolvency

proceeding that deals with all of the debtor’s assets regardless of where

in the world they m ay be located. Territorialism env isages i nsolvency

proceedings that are limited to the assets located in a particular coun-

try. This dichotomy gives rise to two further opposing principles: unity

and pluralism. The principle of unity g ives carr iage of the proceedings

to a single court in the location of the debtor’s home jurisdiction. The

principle of pluralism accepts t hat there will be concurrent insolvency

proceedings in different jurisdictions.

A territorialist approach to inter national i nsolvencies must by ne-

cessity also adopt a pluralist approach. Because the proceedings are ter-

ritorially li mited, an international insolvency must involve concurrent

proceedings in e ach jurisdiction where assets are located.2 For the ter-

ritorialist, the solution to cross-border insolvencies is to foster greater

cooperation and coordination among the cour ts and administrators

in the parallel insolvency proceed ings. This h as been referred to as

cooperative territoriality.

In its pure form, a universalist approach would involve a single

court administering the debtor’s assets on a worldwide basis. This

would most likely be achieved by the adoption of an intern ational in-

solvency law regime. As this requires the negotiation of an internation-

al multilateral convention, it is not regarded as a realistic possibility

in the short term. The interi m solution for the universalist is a system

of modif‌ied universalism in which ancillar y or parallel proceedings in

different jurisdictions are accepted as necessary, but in which the insol-

vency courts and administrators in t he various jurisdictions cooperate

2 See Orient L easing Co. v. “Kosei Maru” (1978), 94 D.L.R. (3d) 658 (F.C.T.D.).