Where are All the Transnational Bankruptcies?: The Puzzling Case for Universalism

20 Pages Posted: 27 Apr 2007

See all articles by Robert K. Rasmussen

Robert K. Rasmussen

University of Southern California Gould School of Law

Date Written: 2007

Abstract

Debates about transnational insolvencies rest on the assumption that the increasing global reach of companies will lead to more cases where more than one country assets jurisdiction over a debtor's assets. The challenge in this discussion is to delineate which set of rules countries should adopt so that value is not destroyed. The so-called "universalists" worry about inefficient liquidations and stress the need for countries to cooperate with each other. Territorialists, on the other hand, worry about a race to the bottom where the debtor chooses a friendly country to handle its insolvency and the rest of the countries where the debtor has assets reflexively cooperate. Yet both camps agree that as businesses expand across borders, multiple insolvency proceedings are inevitable. The only open question is the extent to which the involved jurisdictions should cooperate with each other.

This paper challenges this accepted wisdom. It demonstrates that there are relatively few reorganization cases that involve multiple proceedings. The explanation for this puzzle is that debtors can control the number of proceedings that are opened in any given case. There are multiple proceedings only when it suits the debtor's interest. This control that debtors have over the process requires a reorientation in the literature. Rather than focusing on the rules that countries adopt, we have to examine the actions that debtors take and assess the welfare concerns.

Keywords: corporation reorganization, transnational insolvency

Suggested Citation

Rasmussen, Robert K., Where are All the Transnational Bankruptcies?: The Puzzling Case for Universalism (2007). Vanderbilt Law and Economics Working Paper No. 07-13. Available at SSRN: https://ssrn.com/abstract=982678 or http://dx.doi.org/10.2139/ssrn.982678

Robert K. Rasmussen (Contact Author)

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)

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