Resolving Transnational Insolvencies Through Private Ordering
31 Pages Posted: 21 Feb 2001
This essay argues that transactional insolvencies should not be governed by a rigid commitment to either a universalist or territorial approach. Rather, firms should be allowed, before the onset of financial distress, to select which country's or countries' bankruptcy law would apply should the firm become insolvent. Firms would sort themselves depending on whether it would be more efficient to handle financial distress in one proceeding or in several proceedings. This approach has the additional benefit that it would create a regulatory competition among nations to provide more efficient bankruptcy laws. Bankruptcy attorneys would have the incentive to lobby their country to enact laws that more efficiently handled the financial distress of transnational firms. Contrary to some critics, this proposal would not induce debtors to select jurisdictions simply for the purpose of depriving involuntary creditors protection that they would otherwise receive.
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