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Procedural Incrementalism: A Model for International Bankruptcy


John A. E. Pottow


University of Michigan Law School


Virginia Journal of International Law, Vol. 45, No. 4, Summer 2005
Michigan Law and Economics Research Paper No. 05-001

Abstract:     
From Parmalat to Yukos, the pace of cross-border bankruptcy filings has been accelerating. Scholarly attention and policy reform have increasingly focused on the financial distress of enterprises with assets and creditors dispersed throughout multiple jurisdictions. Yet despite ongoing globalization and economic integration, insolvency law has remained stubbornly resistant to treaties and other international efforts to design some form of unified, global regime for resolving private financial defaults. Part of the reason progress remains so elusive is that two competing paradigms of international bankruptcy - universalism and territorialism - continue to divide academics and policymakers alike. Proposed treaties premised on one approach have failed to attract proponents of the other.

This article offers a model for how international bankruptcy efforts might find support notwithstanding the ongoing divide between universalism and territorialism. It constructs this model in part by looking at the startling success of one specific reform: the recently adopted UNCITRAL Model Law on Cross-Border Insolvency, which is already being proposed for domestic enactment as Title 15 to the United States Bankruptcy Code. By looking at what made this specific mechanism of bankruptcy reform successful in the face of so many past failures, and in the face of ongoing normative disagreement about international bankruptcy system design, the article seeks to extrapolate from the Model Law's unique characteristics a general model for global bankruptcy reform.

The principal attributes that made the Model Law able to break the international bankruptcy loggerhead, this article argues, were a modesty of scope and focus on procedural law - "procedural incrementalism." By adopting such an approach, the drafters of the Model Law enabled skeptical territorial states a chance to acclimate to a form of proto-universalism - a system that is not universalist in the strict, traditional sense, but one that engages, this article contends, the two theoretical cores of the universalist model. Drawing on some insights of modern conflicts theory, this article further argues that the focus on low stakes, procedural matters at the periphery of bankruptcy law enabled the drafters to earn concessions of regulatory sovereignty - a necessary condition of universalism - that might otherwise have been impossible. The article tests its model of procedural incrementalism against very recent reform efforts that have built upon the growing momentum of the Model Law, such as UNCITRAL's voluminous Draft Legislative Guide for best practices bankruptcy, and finds some preliminary support.

Number of Pages in PDF File: 83

Keywords: Bankruptcy, international law/trade, contract and commercial law

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Date posted: January 11, 2005  

Suggested Citation

Pottow, John A. E., Procedural Incrementalism: A Model for International Bankruptcy. Virginia Journal of International Law, Vol. 45, No. 4, Summer 2005; Michigan Law and Economics Research Paper No. 05-001. Available at SSRN: http://ssrn.com/abstract=646962

Contact Information

John A. E. Pottow (Contact Author)
University of Michigan Law School ( email )
625 South State Street
Ann Arbor, MI 48109-1215
United States
734-647-3736 (Phone)

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