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Virtual Territoriality

Edward J. Janger

Brooklyn Law School

July 24, 2013

48 Colum. J. Transn'l L. 401 (2010)
Brooklyn Law School, Legal Studies Paper No. 169

Current efforts to unify the laws of secured credit and bankruptcy are predicated on the belief that regularizing the law of debtor’s rights and creditor’s remedies will cause global business to flourish, and benefit both developed and less-developed countries. Certain and predictable remedies for creditors will facilitate lending and development, and coordination among courts will create opportunities to protect the going concern value of troubled businesses. The benefits that accompany such legal harmonization may, however, come at a price. Centralizing control of a bankruptcy case may create opportunities for forum shopping, and local legal variation can be a product of local culture, considered policy choices, or innovation. As a result, excessive harmonization can sweep away cultural differences, produce political resistance and stifle efficient experimentation and evolution of the law.

In this article I explore whether choice-of-law rules might be used to address these concerns about harmonization of bankruptcy law, and advocate a choice-of-law principle that I call “virtual territoriality.” Virtual territoriality envisions a global, procedurally centralized bankruptcy case that, to the extent possible, respects the entitlements created by the various jurisdictions where the debtor does business. To accomplish this, a jurisdiction’s bankruptcy procedure must be distinguished from that jurisdiction’s law of substantive legal entitlements. The procedural bankruptcy laws of the “home” country should govern the case, but even in a case where all assets are administered centrally, the choice of substantive law should be determined by ordinary (non-bankruptcy) choice-of-law principles. I then seek to show that this principle can form the basis for a cross-border bankruptcy architecture that simultaneously (1) facilitates the administration of a global bankruptcy, and (2) facilitates the international acceptance of rescue based domestic insolvency regimes.

First, this article describes existing and proposed choice-of-law regimes for cross-border bankruptcy cases, and shows that the dominant approach (“modified universalism”) has caused forum choice to become a major fighting issue in cross-border cases. Second, the article explains how concerns about forum shopping, capture, and the need to respect local policy choices mandates a cross-border regime that, while procedurally centralized, respects the entitlements that exist under local debtor/creditor laws. Third, the article explores which bankruptcy rules must be governed by the law at the debtor’s center of main interest, and which rules can be allowed to vary depending on national choices and private international law. Fourth and finally, it will give two examples of how principles of virtual territoriality already, as a practical matter, influence cross-border bankruptcy cases.

Number of Pages in PDF File: 42

Keywords: bankruptcy, international bankruptcy, harmonization, international business transactions

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Date posted: September 7, 2009 ; Last revised: July 24, 2013

Suggested Citation

Janger, Edward J., Virtual Territoriality (July 24, 2013). 48 Colum. J. Transn'l L. 401 (2010); Brooklyn Law School, Legal Studies Paper No. 169. Available at SSRN: http://ssrn.com/abstract=1468615 or http://dx.doi.org/10.2139/ssrn.1468615

Contact Information

Edward J. Janger (Contact Author)
Brooklyn Law School ( email )
250 Joralemon Street
Brooklyn, NY 11201
United States
718-780-7995 (Phone)
718-780-0376 (Fax)

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