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Comity across the Atlantic - Cross-Border Insolvency Law

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

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Comity across the Atlantic - Cross-Border Insolvency Law

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  1. Comity across the Atlantic - Cross-Border Insolvency Law Professor Gerard McCormack University of Leeds

  2. 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

  3. 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

  4. 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

  5. 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?

  6. 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

  7. 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

  8. 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

  9. 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

  10. 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

  11. 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

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