Comity across the Atlantic Cross-Border Insolvency Law
Professor Gerard McCormack
University of Leeds
UNCITRAL Model Law
• Aims to improve cross-border insolvency law
• Art of the possible
• Implemented in UK by CBIR and in US by
Chapter 15 Bankruptcy Code but manner
slightly different
• Intention to stay faithful to spirit and consistent
interpretation
• More changes in terminology in US to conform
to US practice
• 3 areas – COMI, protection of interested parties,
additional assitance
Centre of main interests (COMI)
• Provides basis for recognition of foreign
main proceedings
• Automatic consequences under Art 20
• Stay on proceedings, executions, right to
transfer assets suspended
• Also discretionary consequences – Art 21
• Non-main proceedings – establishment
test – purely discretionary consequences
COMI 2
• Registered office/place of incorporation
presumption
• Same concept/presumption under EIR
• EIR has recital 13 description - should
correspond to place where debtor conducts
administration of his interests on a regular basis
and is therefore ascertainable by 3rd parties
• Stanford – Euro case law including that on effect
of recital 13 applies to CBIR
Difficulties in applying COMI test
• Fuzzy as a concept
• Forum shopping – last minute changes in COMI
• Strength of presumption Eurofood – offshore
jurisdictions
• Competency to conduct efficient proceedings
• Stanford - ascertainability – publicly available
information
• Head office functions test
• What constitutes head office functions?
COMI in US
• In US presumption rebuttable by evidence rather than
proof to contrary
• Bear Stearns presumption included for speed and
convenience of proof where no serious controversy
• COMI determined by most material contacts
• Debtor HQ, management direction and control of assets,
location of a majority of creditors, jurisdiction whose law
would apply to most disputes
• Re Sphinx - more discretionary approach towards COMI
– consent of parties relevant
European Insolvency Regulation
• Regulation applies directly throughout EU
except Denmark
• Intended that opening of insolvency proceedings
in one country should have immediate and
unqualified effects throughout EU
• Principle of comity – courts should not second
guess others
• Appeal should be to courts in “opening” State
and not try to open proceedings elsewhere
Model Law v EU Regulation
• Model Law looser more exhortatory in tone
• Recognition of foreign insolvency proceedings
dependent on application to court – not
automatic
• Consequences of recognition depend partly on
law of recognising State
• Does not say which law governs insolvency
proceedings opened – under Reg is law of the
forum
• Case for different COMI test under the two
instruments
Handover of assets to foreign
representative
• Interests of creditors and others must be adequately protected – Art
21(2)
• Distribution same as under English law – Re SwissAir
• See generally HIH [2008] 1 WLR 852 – broader advantages to
creditors
• S 1521 in US - interests of creditors to be ‘sufficiently protected’
• ‘adequate protection’ established expression under US Bankruptcy
Code – desire to avoid confusion
• Does it differ from UK law?
• Old s 304 - see Re Blackwell – no need for effective congruence
between US distribution schemes and the country in which the
foreign proceeding is pending
• Re Treco would assets surrendered in case be distributed in
substantially the same way
Additional assistance
• Art 7 but s1507 additional assistance contingent
on recognition
• US law replaces old s304 Bankruptcy Code –
some significant variations
• Bear Stearns – s 1507 sole gateway for
providing assistance
• Carefully crafted set of compromises
• Undermine legislative intent to recognise
residual discretion
• UK law more faithful to Model Law – many
gateways for assistance including s 426 IA
Conclusion
• Different manner of implementation
• US courts loyal to spirt of Art 8 with foreign
case law cited
• But different dynamics – COMI test
uncertain
• EC pull easier not to follow in US
• Compromises in US legislative scheme
but also somewhat two-faced