A Judicial Perspective on International Cooperation in Insolvency Cases
A Judicial Perspective on International Cooperation in Insolvency Cases
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.
How do the bar and insolvency practitioners fit into this equation?
- The judiciary rely upon you as professionals—skilled practitioners in the field—to implement these proposals and generally to assist in these matters.
- You will know what is expected of you and how to implement it through building on the Concordat and the UNCITRAL Model Law and other valuable initiatives. Taking the opportunity in the early stages of a case to see whether using the Concordat and the UNCITRAL Model Law can lead to harmonization between concurrent proceedings hopefully will lead to the timely and cost-effective development of a Protocol amongst affected parties for the consideration and approval of the courts. It will be helpful to the parties concerned and the legal system generally to make every effort to effect this protocol harmonization.
- The courts will rely on you to carry the message of cooperation and communication as expressed in formal orders and accompanying reasons to the other courts—reliably and faithfully.
- We in the judiciary may need your assistance to ensure that where transcripts are not a regular feature of the domestic court that a transcript to the extent desired by the judge can be made available forth-with. Judges also need your assistance with respect to excellence of translation—not mere words but concepts.
- You will be expected to advise the local court of what procedures are taking place in other jurisdictions and to maintain an update of that situation. 6) The courts will recognize the need for you to return to them to obtain appropriate relief from time to time including adjustment of any initial order or orders which may have been deployed in the immediate emergency circumstances.
Footnotes
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