Coordinating Cross-Border Bankruptcy: How Territorialism Saves Universalism
46 Pages Posted: 1 Jul 2015
Date Written: 2009
This article explores the difficulties of coordinating cross-border bankruptcies. These difficulties arise from the lack of a binding set of uniform international rules, forcing multinational businesses to look to domestic laws for guidance. The problem is that without coordinated, concurrent insolvency proceedings, an effective reorganization of a multinational corporation is impossible because a multitude of separate judgments ultimately leads to the dismemberment of a debtor's estate.
To address this challenge, an increasing number of countries – including the United States and several European countries such as Germany, Poland, Romania, Spain, and the United Kingdom – have enacted a Model Law on cross-border insolvency. This legal development has awoken the debate between territorialism and universalism with new fervor. Traditionally, territorialism allows the bankruptcy court of a particular jurisdiction to apply its laws, for the benefit of its jurisdictional creditors, whereas universalism requires all involved jurisdictions to relinquish their sovereignty and apply the law of a foreign jurisdiction. The Model Law is based on a modified universalist concept with significant territorialist elements. It envisions that one court will coordinate the insolvency proceedings of a multinational enterprise, no matter where its assets and creditors are found.
Thus far, the debate between territorialism and universalism has focused on the respective strengths and weaknesses of each system, and the Model Law has been lauded for its universalist strengths and condemned for its alleged failure to protect domestic creditors. However, this Article argues that the Model Law's combination of territorialist and universalist features will make it successful in achieving its goals of efficiency, cost savings, and predictability. More specifically, this Article suggests that the Model Law's territorialist aspects, rather than its universalist aspects, will protect the interests of domestic creditors and other stakeholders. Finally, the Article concludes that the United States' enactment of the Model Law is a major step toward international cooperation for the United States and that domestic businesses will only be advantaged by this new cooperative approach.
Keywords: Cross-Border Bankruptcy, Multinational Business, Territorialism, Universalism
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