A Judicial Perspective on International Cooperation in Insolvency Cases

A Judicial Perspective on International Cooperation in Insolvency Cases

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ncreased trade and investment has led to an increasing frequency of cross-border insolvencies. In many countries, it is difficult to imagine a major corporate insolvency that would not involve some cross-border ramifications. How do the courts in international matters conduct themselves to maximize value for the affected parties? We must avoid becoming bogged down in non-productive diversions that are destructive to the value of the enterprise. Of course, we in the judiciary must recognize the sovereignty of each country’s insolvency regime, but there are significant commonalities upon which to build.

A state of insolvency leading either to a liquidation or reorganization involves "real time litigation." Matters must be dealt with urgently and upon critical paths dictated by the prospect of values flying out the window if there is any delay. This may be contrasted with "autopsy" litigation whereby it matters very little as to whether the case is dealt with this month or next year. Real time litigation, of course, requires judges to be more activist than the normal passive role customarily adopted by the judiciary.

Cooperation among courts means that matters can be dealt with efficiently and effectively. In an ideal world, justice would prevail smoothly and with due dispatch. In the real world, however, some players will attempt to hijack the process. In a purely domestic matter we would not allow participants in a lawsuit on one side or the other to hijack the process. In international matters we should not allow anything similar. In international matters, there is even more opportunity for the process to become derailed either through miscommunication or disinformation by the players or their representatives or a misunderstanding by the courts of where each is headed, keeping in mind that there are differences in legal regimes, languages, concepts and terminology.

Judges agree that it is important to avoid these problems and that, where there are concurrent proceedings, it should be determined whether deferring to the other court on material issues more directly affecting that jurisdiction might be possible and with reciprocal treatment. We must, of course, recognize the sensitivity of the situation; countries will have concerns about the integrity of their jurisdiction that must be accommodated. Through improved communications, however, there could be a timely exchange of valid information amongst the concerned courts. We have seen the development of Protocols in a number of cases. The International Bar Association in 1995-96 approved its Cross-Border Insolvency Concordat, which was developed using bench and bar resources from 25 countries. The Concordat is a set of general principles that can be adapted to meet individual circumstances. Typically the major players would develop a draft Protocol, have it agreed to by the interested parties and present it to the various courts for approval.

The most recent examples of the use of the Concordat to build Protocols were in the Everfresh1 and Nakash2 cases. Everfresh was a case involving the Canadian and U.S. bankruptcy courts in a reorganization involving a sale as a going concern. The matter was of medium size —the value of the enterprise was some $50 million dollars. A Protocol was developed within about a month. There was a functional resolution of the matter within the next month in Canada, somewhat earlier than in the United States. Through the cooperation of the two courts involved, the Canadian reorganization was approved within the mandatory six months under the Bankruptcy and Insolvency Act. It is of particular interest to point to the preservation of value in the Everfresh case. It has been estimated that there was a 40 percent enhancement or preservation of value as a result of the use of the Protocol and the ensuing cooperation which it engendered amongst the parties. Nakash was an interesting situation in which a Protocol was developed to allow the facilitation of investigations under the auspices of the United States bankruptcy court and the Israeli court. It is particularly notable since the Protocol was approved by those two courts notwithstanding the objection of the debtor.

We must also recognize the tremendous cooperation and advancement achieved over the past two years by the UNCITRAL Working Group (of 80 members drawn from throughout the world) in developing the UNCITRAL Model Law on Cross-Border Insolvencies. There is no reason why a Protocol could not now be developed using the guidelines of the UNCITRAL Model Law. Several judges are communicating to various governments the desirability, and indeed the necessity, of implementing the UNCITRAL Model Law.

International judicial cooperation and communication will be achieved within the substantive and procedural laws of each country with the result that an objective observer will be satisfied in the circumstances that the parties were fairly and reasonably dealt with and that the integrity of all courts was maintained. For instance in Everfresh, there was a telephone conference hearing with former Chief Judge Burton R. Lifland, U.S. Bankruptcy Court, S.D.N.Y. There was an opportunity for all concerned parties to participate, to be heard and to be considered. This facility allowed matters to be discussed openly. As a result, the Protocol was approved by both courts and there was no difficulty in my deferring the hearing in Canada for several weeks to accommodate U.S. concerns as to timing of events. What we were involved in was not anything that was radical in concept (although it may have been radical in the sense of perhaps not having been done before). It is, of course, common sense.

Communication among the courts was somewhat controversial at the First Judicial Colloquium in Toronto in 1995. But now upon reflection and with experience with careful communications, a recognition of the desirability of facilitating communication appears to have developed. There is no reason, of course, why communication must be restricted to any particular vehicle. It is not necessary to limit communications to formal orders or even to conference telephone calls. We can build upon simple technology (e.g., fax or e-mail) to inquire of another court as to its views during any one of our hearings, quite possibly with an adjournment pending the contemplation and advice from that other court.

How do the bar and insolvency practitioners fit into this equation?

Judges will rely on counsel and insolvency practitioners to take the lead in providing the conduit for judicial co-operation and communication. We are confident that we can rely upon you as professionals to ensure that justice is done. International insolvencies are fully international; they are not local with merely local solutions. We have progressed beyond national interests, we are now clearly looking at international concerns.


1In re Everfresh Beverages Inc., Ontario Court of Justice, Toronto (Court File No. 32-077978: December 20, 1995) and U.S. Bankruptcy Court, S.D.N.Y. (Case No. 95 B 45405: December 20, 1995). Return to Text

2In re Nakash, 190 B.R. 763 (Bankr. S.D.N.Y. 1996), and District of Jerusalem (Case No. 1595/87-May 23, 1996). Return to Text

Bankruptcy Code: 
Journal Date: 
Sunday, March 1, 1998