A Commitment Rule for Insolvency Forum

27 Pages Posted: 26 Jan 2024 Last revised: 24 Apr 2024

See all articles by Anthony J. Casey

Anthony J. Casey

University of Chicago Law School; European Corporate Governance Institute (ECGI)

Aurelio Gurrea-Martínez

Singapore Management University - Yong Pung How School of Law

Robert K. Rasmussen

University of Southern California Gould School of Law

Date Written: January 23, 2024

Abstract

In this article, we propose a new rule for determining the proper forum for insolvency proceedings. Currently, the Model Law on Cross-Border Insolvency—promulgated by the United Nations Commission on International Trade Law (“UNCITRAL”)—looks to a debtor’s center of main interest (“COMI”) to determine the proper forum for a foreign main insolvency proceeding. This rule is flawed. It is both inflexible and manipulable. It is also indeterminate and neither requires nor allows advance commitment by debtors. As a result, it leads to uncertainty, increases litigation costs, and opens the door to opportunistic manipulation by debtors. These costs, in turn, raise the cost of credit for all companies.

And so, we propose a better approach—the “Commitment Rule”—for determining proper insolvency forum. In short, the Commitment rule allows debtors to signal an advance commitment to a particular insolvency forum. To make this commitment public and binding, the debtor must put it in their company’s constitution. This upfront and observable commitment eliminates uncertainty and opportunistic manipulation.

The Commitment Rule presents a rare “win-win” legal reform requiring no major tradeoff. It would reduce strategic forum shopping and minimize litigation costs while also promoting the development and selection of efficient insolvency forums, which benefit all stakeholders – debtors, creditors and society at large. These improvements support the development of financial markets, entrepreneurial innovation, and economic growth more generally. UNCITRAL should adopt the Commitment Rule as part of the Model Law.

Keywords: Insolvency, bankruptcy, forum, venue, civil procedure, cross-border

JEL Classification: K22, K41

Suggested Citation

Casey, Anthony Joseph and Gurrea-Martínez, Aurelio and Rasmussen, Robert K., A Commitment Rule for Insolvency Forum (January 23, 2024). European Corporate Governance Institute - Law Working Paper No. 754/2024, USC CLASS Research Paper No. 24-13, Singapore Management University School of Law Research Paper No. 5/2024, University of Chicago Coase-Sandor Institute for Law & Economics Research Paper No. 1003, Available at SSRN: https://ssrn.com/abstract=4704029 or http://dx.doi.org/10.2139/ssrn.4704029

Anthony Joseph Casey (Contact Author)

University of Chicago Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States
773.702.9578 (Phone)

HOME PAGE: http://www.law.uchicago.edu/faculty/casey

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Aurelio Gurrea-Martínez

Singapore Management University - Yong Pung How School of Law ( email )

55 Armenian Street
Singapore, 179943
Singapore
(+65) 6808-5160 (Phone)

HOME PAGE: http://https://law.smu.edu.sg/faculty

Robert K. Rasmussen

University of Southern California Gould School of Law ( email )

699 Exposition Boulevard
Los Angeles, CA 90089-0071
United States
213-740-6473 (Phone)
213-740-5502 (Fax)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
186
Abstract Views
852
Rank
298,114
PlumX Metrics