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Global and Out of Control


Lynn M. LoPucki


University of California, Los Angeles (UCLA) - School of Law


American Bankruptcy Law Journal, Vol. 79, June 2005

Abstract:     
Multinational bankruptcy cases have tremendous potential for forum shopping because changing forum country also changes the law that will determine the debtor's remedies and the creditors' priorities. That potential has been held in check by the multinational companies' need that the courts of other countries recognize the decree of the forum court. Thus, the need for recognition is the lynchpin that holds forum shopping largely in check.

Many of the world's leading bankruptcy professionals are now seeking to eliminate the recognition requirement by adopting universalist laws and regulations. This paper briefly describes three such efforts. First, the European Union has adopted a regulation, effective in 2002, requiring EU countries to recognize multinational bankruptcies filed in the debtor's home country (provided that country is in the EU). Second, UNCITRAL has promulgated, and the U.S. is about to adopt, a Model Law that encourages recognition of multinational bankruptcies filed in the debtor's home country. Third, the American Law Institute has promulgated Principles of Cooperation in Transnational Insolvency Cases that, when combined with the Model Law, make recognition of home country multinational bankruptcies effectively mandatory.

This paper was initially published as Chapter 8 of Courting Failure: How Competition for Big Cases Is Corrupting the Bankruptcy Courts (2005). Other chapters of the book describe forum shopping and court competition in and to the U.S. This paper describes rampant forum shopping and court competition in European Union cases since the adoption of the regulation. It predicts that worldwide rampant forum shopping and court competition will result from the adoption of the Model Law, and explains how that will occur.

Universalist bankruptcy laws lead to forum shopping because multinational companies do not have home countries in any meaningful sense and, to the extent that they do, they can easily change them to gain legal advantage over their creditors. The paper speculates that some universalists are deliberately seeking to throw the international bankruptcy system into chaos in order to force countries to rapidly harmonize their laws (which will reduce the incentives for forum shopping). What the Universalists have not anticipated, however, is the potential for a race to the bottom as courts and countries compete for the multibillion dollar business of multinational bankruptcy.

Number of Pages in PDF File: 21

Keywords: bankruptcy, forum shopping, court competition, competition, universalism, European Union, UNCITRAL, insolvency

JEL Classification: K10, K22, K33, K41, K42, K29, K19

Accepted Paper Series


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Date posted: March 30, 2005  

Suggested Citation

LoPucki, Lynn M., Global and Out of Control. American Bankruptcy Law Journal, Vol. 79, June 2005. Available at SSRN: http://ssrn.com/abstract=693601

Contact Information

Lynn M. LoPucki (Contact Author)
University of California, Los Angeles (UCLA) - School of Law ( email )
385 Charles E. Young Dr. East
Room 1242
Los Angeles, CA 90095-1476
United States
(310) 794-5722 (Phone)
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