Time to Renew the Debate on Cross- Border Insolvency Law: Out with Theoretical Ideals, in with Pragmatism

Abstract

Over the last couple of decades, academics have vigorously debated which approach to cross-border insolvency is best. The debate usually centers on questions of predictability, certainty, national sovereignty, fairness and efficiency. In this academic discourse over the most appropriate design for an international insolvency system, two theoretical approaches have traditionally been identified: these are universalism and territorialism. Universalism means that one jurisdiction should administer the insolvency proceedings and the debtor’s assets should be dealt with on a worldwide basis. Since universalism requires a single law to be applied, it goes hand in hand with harmonisation of insolvency law, both procedural and substantive. The most eloquent 8 and effective proponent of universalism in the last decade has been Professor Jay Westbrook. Territorialism on the other hand means that any State in which the debtor’s assets are located has jurisdiction to open insolvency proceedings, applying its own domestic insolvency law to distribute the assets for the benefit of local creditors. In the most recent past Professor Lynn LoPucki has traditionally been the main advocate for a territorialist insolvency system.

Even though it has widely been accepted in academic literature that universalism is preferable, the reality of the international insolvency scene is quite different. As noted by Professor Ian Fletcher, the substantive differences in domestic insolvency laws have precluded the development of a uniform approach to multinational default: “[t]he ensuing diversity of [insolvency laws] has been unusually intense, even by the standards of private international law, with the result that the quest for unifying principles has so far proved to be elusive.” 9 As a matter of fact, if universalism has been advocated as the ideal solution to the issue of cross-border insolvencies, it is now also accepted that it is an unreasonable objective in the foreseeable future. Recent international developments, such as the UNCITRAL Model Law on Cross-Border Insolvency and the European Insolvency Regulation, show that it has largely been discarded and replaced by a more reasonable, grounded approach, trying to achieve solutions which, although more modest than the initial goal of universalism, are also more achievable in the present circumstances.

Keywords: Cross-border insolvency law, insolvency law, restructuring, rescue, EU integration