The Case for Cooperative Territoriality in International Bankruptcy

37 Pages Posted: 8 May 2000  

Lynn M. LoPucki

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

Abstract

This manuscript is part of an ongoing debate over the fundamental principles that govern the bankruptcies of multinational companies. Essentially three positions have emerged. Universalists assert that the bankruptcy of a multinational company should take place in the courts of the company's "home country" and the law of the home country should govern the distribution. Contractualist Robert K. Rasmussen asserts that the bankruptcy of each constituent entity of the company should take place in the courts of the country selected by that entity in its articles of incorporation and the law of the selected country should govern the distribution. This manuscript argues for a separate bankruptcy proceeding in each country where the multinational has assets. International cooperation should be achieved by agreement among the representatives of the bankruptcy estates, in the shadow of a default rule under which the law of the country where the asset is located would govern the distribution of that asset.

Universalism must be rejected because it is not in fact a workable system. Universalist theory depends upon the assumption that each multinational company has an easily recognizable "home country." But universalists are unable to specify a rule or standard for identification of that home country when the debtor's place of incorporation, headquarters, principal operations, and principal assets are located in different countries, or to specify whether, in the case of a corporate group the home country would be that of the group, or of particular entities within the group. Absent such specification, forum shopping for favorable law would destabilize and destroy the system. Contractualism would be inefficient because (1) the costs of contracting would be huge, (2) debtors would externalize much of their costs by shopping for fora that would deny recovery to tort and other insufficiently adjusting creditors, and (3) the complexity of the system would make it vulnerable to fraud and mistake.

Suggested Citation

LoPucki, Lynn M., The Case for Cooperative Territoriality in International Bankruptcy. Michigan Law Review, Vol. 98, P. 2216, 2000. Available at SSRN: https://ssrn.com/abstract=224103 or http://dx.doi.org/10.2139/ssrn.224103

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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