Download This PaperEmpirical Study: Corporate Restructuring and Investment Treaty Protections
Ed Poulton, Yarik Kryvoi, Ekaterina Finkel and Janek Bednarz, Corporate Restructuring and Investment Treaty Protections, BIICL/Baker McKenzie, London, 2020
36 Pages Posted: 22 Apr 2020 Last revised: 27 Apr 2020
Date Written: 2020
Abstract
The British Institute of International and Comparative Law and Baker McKenzie present the first comprehensive empirical study on corporate restructuring and investment treaty protections. The study examines all publicly available decisions of investor-state tribunals dealing with issues of corporate structuring and restructuring. The key findings are as follows.
A majority of tribunals find they have jurisdiction despite the respondents’ objections to restructuring. In all decisions but one, tribunals reviewed the validity of the corporate restructuring as part of ascertaining whether or not they had jurisdiction.
A large portion of the respondent states’ objections relies on traditional jurisdictional grounds, such as the definition of “investor” or “investment” to criticize the claimants’ restructuring. These traditional grounds are rarely successful and in two-thirds of the decisions tribunals find that they have jurisdiction despite the respondents’ objections to the restructuring.
Once tribunals find that they have jurisdiction, they are significantly more likely to find in the claimant’s favor on the merits.
Timing is key to the decision on the validity of restructuring, but it is viewed subjectively. Tribunals distinguish between original investment structuring and subsequent restructuring. Where the claim is brought by the original investor, tribunals tend to abide by the strict wording of the treaty.
Where the claimant is not the original investor, the tribunals are more likely to apply additional criteria, e.g. considering whether the corporate restructuring was an abuse of process or applying the Salini test.
The investor-state tribunals pay particular attention to whether the restructuring was done before or after the dispute arose and whether such dispute was foreseeable to the investor at the time of restructuring.
The treaty’s scope of the application appears critical to the decision on the validity of the restructuring. Tribunals rendered the vast majority of decisions under bilateral or multilateral investment treaties, with almost two-thirds issued under the ICSID Convention. Therefore, international law or a combination of international and domestic law govern the issues of restructuring.
While the study finds no significant effect on the outcome of the respondent state’s objections as a result of the applicable arbitration rules (e.g. ICSID Convention, UNCITRAL, SCC or ICSID Additional Facility), the exact language of the investment treaty matters.
The majority of claims are brought under a treaty with a broad scope of application. Where the claim is based on a broadly worded investment treaty, claimants succeed in overcoming objections to a restructuring in 83.5% of decisions.
Claimants with a genuine economic activity in the host state and a good reason for the restructuring seem more likely to succeed. Where tribunals find that the claimant engaged in a genuine economic activity in the respondent state, the investors succeed in overcoming jurisdictional objections in nearly all decisions.
In the absence of genuine economic activity in the respondent state, tribunals almost always agree with the respondent state’s objections (92.5%). Where the tribunal is persuaded that the reasons for the restructuring were other than solely access to ISDS, the respondents’ objections fail in over 80% of decisions. If the tribunal decides that the only purpose was access to ISDS, the state respondents’ jurisdictional objections are much more likely to prevail.
Keywords: ISDS, ICSID, BITs, IIAs, Investment Protection, Treaty Shopping, Jurisdiction, Corporate Law, Investor-State Disputes, International Investment Law
Suggested Citation: Suggested Citation