The UNCITRAL Model Law on Cross-Border Insolvency was adopted by the United Nations Commission on International Trade Law in 1997 and is designed to assist States to manage transnational insolvency cases in an efficient, fair and cost-effective manner. In its simplest form, a transnational insolvency involves an insolvency proceeding in one country, with creditors located in at least one additional country. In the most complex case, it involves multiple proceedings, subsidiaries, affiliated entities, assets, operations and creditors in dozens of nations.

The Model Law does not attempt to harmonise local insolvency law. The main issues addressed by the Model Law include the recognition of foreign proceedings, coordination of proceedings concerning the same debtor, rights of foreign creditors, rights and duties of foreign insolvency representatives, and cooperation between authorities in different States. Since the Model Law is not binding on any State, its operation depends on how it is enacted locally.

In the United Kingdom, Section 14 of the UK Insolvency Act 2000 gives the Secretary of State power to enact the Model Law, with or without modification, by secondary legislation. Pursuant to this power, the Cross-Border Insolvency Regulations 2006 (the "Regulations") have been enacted, effective as of 4 April 2006. In enacting the Regulations, the UK Government's policy has been, to the extent possible, to adopt the Model Law as drafted.

Most of the differences between the British legislation and the original Model Law provisions are to take account into the established local requirements and are not meant to depart from the underlying intent of the Model Law. These differences include references to Council Regulation (EC) 1346/2000 on Insolvency Proceedings (EU Regulation), section 426 of the Insolvency Act 1986, the British court systems, and the different forms of relief available under British insolvency law. The scope of the automatic stay following the recognition of a foreign main proceeding has also been clarified.

In addition, representing a slight departure from the original Model Law provisions, the U.K. Insolvency Act 2000 provides that where notification to British creditors is by advertisement only, then the notification to the known foreign creditors may be by advertisement in such foreign newspapers as the British insolvency officeholder considers most appropriate. The main provisions and effect of the Regulations in the United Kingdom are summarised below.

Scope and Structure of the Regulations

The Regulations only apply to Great Britain (thus, excluding Northern Ireland). Regulation 2 provides that the Model Law in the form set out in Schedule 1 to the Regulations shall have the force of law in Great Britain. As mentioned above, the government's approach has been to "graft" the Model Law onto British insolvency law.

At present, the Regulations do not apply to certain entities (such as credit institutions, building societies, insurance companies, utility companies and certain statutory bodies). However, we understand that the Model Law will apply to credit institutions and insurance companies pursuant to future statutory instruments.

The Model Law will apply to the following cases:

• where assistance is sought in Great Britain by a foreign court or a foreign representative in connection with a foreign insolvency proceeding;
• where assistance is sought in a foreign State in connection with a British insolvency proceeding;
• where a foreign insolvency proceeding and a British insolvency proceeding in respect of the same debtor are taking place concurrently; or
• where creditors or other interested persons in a foreign State have an interest in requesting the commencement of, or participating in, a British insolvency proceeding.

To the extent that the Model Law conflicts with an obligation of the United Kingdom under the EU Regulation, the requirements of the latter will prevail.

Section 426 of the Insolvency Act 1986 will continue to be available to provide assistance (and very powerful assistance at that) in cross-border insolvency matters on the current terms. The Model Law, the EU Regulation and section 426 will therefore operate in parallel and provide a foreign insolvency representative a menu of cross-border insolvency regimes to consider when seeking judicial assistance in Great Britain. Advice should be sought in every case as to which is the most appropriate and effective in any particular case.

Recognition of Foreign Insolvency Proceedings

The Model Law allows a foreign insolvency representative to apply directly to a British court without having to meet any formal requirements such as licences or consular formalities. A British court is required to decide on an application for recognition of a foreign insolvency proceeding at the earliest possible time. The court may, at the request of the foreign representative, grant relief of a provisional nature, such as staying execution against the debtor's assets, where such relief is urgently needed to protect the assets of the debtor or the interests of the creditors. Provided certain criteria are met (such as the production of a certificate from the foreign court affirming the existence of the foreign proceeding and of the appointment of the foreign representative), the British court is required to recognise the foreign proceeding.

The consequences of recognition differ depending on whether the foreign proceeding is a foreign main or non-main proceeding. A foreign main proceeding is a foreign proceeding taking place in the State where the debtor has the centre of its main interests (COMI), whereas a foreign non-main proceeding is a foreign proceeding taking place in a State where the debtor merely has an establishment. The concepts of COMI and establishment are similar to those in the EU Regulation. While COMI has no defined meaning, "establishment" is defined to mean a place of operations where the debtor carries out a nontransitory economic activity with human means and assets or services. Note that in the absence of proof to the contrary, the debtor's registered office, or habitual residence in the case of an individual, is presumed to be the COMI.

Upon recognition of a foreign main proceeding, the following matters are automatically stayed or suspended:

• commencement or continuation of individual actions or individual proceedings concerning the debtor's assets, rights, obligations or liabilities is stayed;
• execution against the debtor's assets; and
• the right to transfer, encumber or otherwise dispose of any assets of the debtor is suspended.

Note that this automatic stay does not affect any right to enforce security over the debtor's property, to repossess goods in the debtor's possession under a hire-purchase agreement and to exercise set-off, provided it is a right that would have been exercisable if the debtor, in the case of an individual, had been adjudged bankrupt or, in the case of a corporate debtor, had been made the subject of a winding-up order.

Upon recognition of a foreign non-main proceeding, where necessary to protect the assets of the debtor or the interests of the creditors, the court may, at the request of the foreign representative, grant any appropriate relief, including the matters covered by the automatic stay arising from the recognition of a foreign main proceeding. Other forms of available relief include the following:

• providing for the examination of witnesses, the taking of evidence or the delivery of information concerning the debtor's assets, affairs, rights, obligations or liabilities;
• entrusting the administration or realisation of all or part of the debtor's assets located in Great Britain to the foreign representative or another person designated by the court; and
• any additional relief that may be available to a British insolvency office-holder under the law of Great Britain.

In granting, modifying or denying the forms of relief discussed above, the court must be satisfied that the interests of the creditors (including any secured creditors or parties to hire-purchase agreements) and other interested persons, including, if appropriate, the debtor, are adequately protected.

Apart from seeking judicial recognition of a foreign insolvency proceeding, a foreign insolvency representative is entitled to participate in a proceeding regarding the debtor under British insolvency law, to intervene in any proceedings in which the debtor is a party and to make an application to the court to avoid acts detrimental to creditors (such as unlawful preferences and transactions at an undervalue).

Cooperation with Foreign Courts and Foreign Insolvency Representatives

The court may cooperate to the maximum extent possible with foreign courts or foreign representatives, either directly or through a British insolvency officeholder. In this connection, the court is entitled to communicate directly with, or to request information or assistance directly from, foreign courts or foreign representatives.

A British insolvency officeholder is, in the exercise of his functions and subject to the supervision of the court, mandated to cooperate to the maximum extent possible with foreign courts or foreign representatives, provided it is consistent with his other duties under the law of Great Britain. In this connection, the British insolvency officeholder is entitled to communicate directly with foreign courts or foreign representatives.

The forms of cooperation mentioned above include the following:

• the appointment of a person to act at the direction of the court;
• communication of information by any means considered appropriate by the court;
• coordination of the administration and supervision of the debtor's assets and affairs;
• approval or implementation by courts of agreements concerning the coordination of proceedings; and
• coordination of concurrent proceedings regarding the same debtor.

Creditor Protection

The Model Law contains various provisions aimed at protecting creditors' interests. For example, the Model Law provides that foreign creditors have the same rights regarding the commencement of, and participation in, a proceeding under British insolvency law as creditors in Great Britain. Whenever under British insolvency law notification is to be given to creditors in Great Britain, such notification shall also be given to the known creditors that do not have addresses in Great Britain.

Enacting the "hotchpot" rule, it is provided that a creditor that has received partial payment in respect of its claim in a proceeding pursuant to a law relating to insolvency in a foreign State may not receive a payment for the same claim in a proceeding under British insolvency law regarding the same debtor, so long as the payment to the other creditors of the same class is proportionately less than the payment the creditor has already received. This is without prejudice to secured claims or rights in rem.

Concluding Remarks

Since the EU Regulation will apply in every situation where the COMI of the debtor is located within the EU (apart from Denmark), and section 426 of the Insolvency Act 1986—with its very broad range of substantive assistance—will be available in many cases where there is an insolvency proceeding on foot in another Commonwealth country, it is likely that U.S. practitioners will be calling most often on the UNCITRAL Model Law in the U.K. context.

We believe that the availability of the Model Law in both the United Kingdom and the United States will inspire extensions of the considerable body of common law authority developed over many years in response to the obvious need for cooperation on insolvency matters between two major trading partners. The adoption of the Model Law in the United Kingdom is cause for celebration.