CHAPTER 5 UNCITRAL MODEL ON CROSS BORDER INSOLVENCY

5.1 Introduction and Development of UNCITRAL Model Law

The United Nations Commission on International Trade Law (UNCITRAL) was recognized in
1966 as a supplementary body of the General Assembly of the United Nations with the general
consent to more the progressive organization and unification of the law of international trade.
The UN General Assembly is the major deliberative, policymaking and representative body of
the United Nations. Comprising all 193 Members of the United Nations, it provides a unique
forum for joint discussion of the full spectrum of international issues covered by its Charter.
India is also a member of UN General Assembly and UNCITRAL.

5.1 (i) Origin of the Model Law1

The increasing incidence of cross-border insolvencies reproduces the continuing global

expansion of trade and investment. However, national insolvency laws generally have not kept
pace with the trend, and they are often ill-equipped to handle cases of a cross-border nature. This
often results in insufficient and dissonant legal approaches, which obstruct the rescue of
economically troubled businesses, are not conducive to a fair and efficient management of cross-
border insolvencies, obstruct the protection of the assets of the bankrupt debtor against
dissipation and obstruct maximization of the value of those assets. Moreover, the nonappearance
of predictability in the handling of cross-border insolvency cases can impede capital flow and be
a hindrance to cross-border investment. Fraud by insolvent debtors, in particular by concealing
assets or transfer them to foreign jurisdictions, is a growing problem, in terms of both its
frequency and its magnitude. The modern, unified world makes the fraud easier to conceive and
carry out. The cross-border cooperation mechanisms recognized by the Model Law are planned
to confront such international fraud. Only some countries have a legislative framework for
dealing with cross-border insolvency that is fit to the needs of international trade and investment.
Various procedures and ideas are employed in the absence of a specific legislative or treaty
structure for dealing with cross-border insolvency. These comprise the following: application of
the doctrine of comity by courts in common-law jurisdictions; issuance for equal purposes of

1
UNCITRAL, UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE LAW, “UNCITRAL Model
Law on Cross-Border Insolvency Law with Guide to Enactment and Interpretation” ,E.14.V.2 ISBN 978-92-1-
133819-5 e-ISBN 978-92-1-056399-4 UNITED NATIONS PUBLICATION, New York
enabling guidelines (exequatur) in civil-law jurisdictions; the enforcement of foreign insolvency
orders relying on legislation for enforcement of foreign judgments; and method such as letters
rogatory for transmitting requirements for judicial assistance. Approaches were based on the
doctrine of comity or on exequatur do not provide the same degree of inevitability and reliability
as can be provided by definite legislation, such as contained in the Model Law, on judicial
cooperation, acknowledgment of foreign insolvency trial and access for foreign representatives
to courts.

The Model Law takes into account the consequences of other international efforts, including the
discussions leading to the European Council (EC) Regulation No. 1346/200O of 29 May 20O0
on insolvency trial (the “EC Regulation”), the European Convention on Some International
Aspects of Bankruptcy (199O)2, the Montevideo treaties of international commercial law (1889
and 1940), the Convention of concerning Bankruptcy between Nordic States (1933) and the
Convention of Private International Law (Bustamante Code) (1928). 3 idea from non-government
organizations that have been taken into consideration include the Model International Insolvency
Cooperation Act and the Cross-Border Insolvency Concordat, both developed by the earlier
Committee J (Insolvency) of the Section on company Law of the International Bar Association.

The EC Regulation establish a cross-border insolvency system within the European Union for
cases where the debtor has the centre of its main welfare in a State member of the Union. The
Regulation does not deal with cross-border insolvency matters expand beyond a State member of
the European Union into a non-member State. Thus, the Model Law suggest to States members
of the European Union a complementary regime of considerable practical value that could
address the many cases of cross-border cooperation not covered by the EC Regulation.

5.1 (ii) The objectives of the model 4

2
European Treaty Series, No. 136
3
3League of Nations, Treaty Series, vol. LXXXVI, No. 1950.
4
THE INSTITUTE OF COMPANY SECRETARIES OF INDIA, STUDY MATERIAL PROFESSIONAL
PROGRAMME CORPORATE RESTRUCTURING VALUATION AND INSOLVENCY
The purpose of the Model Law is to provide effectual mechanisms for dealing with cases of cross
-border insolvency so as to endorse the objectives of:

(a) Cooperation between the courts and other capable authorities of different countries dealing
with cases of cross-border insolvency;

(b) Greater legal certainty for the trade and investment;

(c) Fair and efficient management of cross-border insolvencies that protects the interests of all
creditors and other interested persons, including the debtor;

(d) Safety and maximization of the value of the debtor’s assets; and

(e) Facilitation of the rescue of economically troubled businesses, thereby protecting investment
and protecting employment.

5.1 (iii) Scope of application of the Model Law 5

5
UNCITRAL legislative Guide on Insolvency Law, UNITED NATIONS COMMISSION ON INTERNATIONAL
TRADE LAW, UNITED NATIONS PUBLICATION, E.05.V.10 ISBN 92-1-133736-4, UNITED NATIONS New
York, 2005
 The Model Law can be applied in a number of cross-border insolvency situations, including the
following:

(a) In The case of an inward-bound request for recognition of a foreign proceeding;

(b) in outward-bound request from a court or commissioner in the enacting State for recognition
of an insolvency proceeding commenced under the laws of the enacting State;

(c) Harmonization of concurrent proceedings in two or more States; and

(d) Contribution of foreign creditors in insolvency trial taking place in the enacting State

5.1 (iv) Purpose of the Model Law 6

6
UNCITRAL, UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE LAW, “UNCITRAL Model
Law on Cross-Border Insolvency Law with Guide to Enactment and Interpretation” ,E.14.V.2 ISBN 978-92-1-
133819-5 e-ISBN 978-92-1-056399-4 UNITED NATIONS PUBLICATION, New York
1. The UNCITRAL Model Laws of Cross Border Insolvency were adopted in 1997, was planned
to help States to equip their insolvency laws with a modern, harmonized and fair structure to
address more effectively occurrence of cross-border proceedings regarding debtors experiencing
severe financial distress or insolvency. Those case include cases where the debtor has assets in
over one State or where some of the creditors of the debtor are not from the State where the
insolvency proceeding is taking place. In policy the proceeding waiting in the debtor’s centre of
key interests is expected to have principal responsibility for running the insolvency of the debtor
regardless of the number of States in which the debtor has assets and creditors, subject to suitable
management procedures to accommodate local needs.

2. The Model Law reflects practice in cross-border insolvency subject that are feature of modern,
efficient insolvency systems. Thus, the States endorse the Model Law would be introduce useful
additions and growth in national insolvency rule planned to resolve problems arise in cross-
border insolvency cases. By take on legislation based upon the Model Law, States recognize that
some laws relating to insolvency may have to be or might have been amended in order to meet
internationally recognized standards.

3. The Model Law respects the differences among national procedural laws and does not attempt
a substantive unification of insolvency law. Rather, it provides a framework for cooperation
between jurisdictions, offering solutions that help in several modest but significant ways and
facilitate and promote a uniform approach to cross-border insolvency. Those solutions include
the following

(a) Providing the person administering a foreign insolvency proceeding (“foreign

representative”) with access to the courts of the enacting State, thereby authorizing the foreign
representative to seek a provisional “breathing space”, and giving power to the courts in the
enacting State to determine what synchronization among the jurisdictions or other relief is
warranted for optimal disposition of the insolvency;

(b) Determining when a foreign insolvency happening should be accorded “recognition” and
what the consequences of recognition may be;

(c) Providing a transparent regime for the right of foreign creditors to start, or participate in, an
insolvency proceeding in the enacting State;
 (d) Permitting courts in the enacting State to cooperate more efficiently with foreign courts and
foreign representatives involved in an insolvency matter;

(e) Authorizing courts in the enacting State and persons administering insolvency proceedings in
the enacting State to seek assistance abroad;

(f) Providing for court jurisdiction and establishing rules for coordination where an insolvency
proceeding in the enacting State is taking place concurrently with an insolvency proceeding in a
foreign State;

(g) Establishing rules for coordination of relief granted in the enacting State to assist two or more
insolvency proceedings that may take place in foreign States regarding the same debtor.

4. For jurisdictions that currently have to deal with numerous cases of cross-border insolvency,
as well as jurisdictions that wish to be well prepared for the increasing likelihood of cases of
cross-border insolvency, the Model Law is an essential reference for developing an effective
cross-border cooperation framework.

5.1 (v) Key provisions of Model Law7

The Model Law focuses on 4 identified elements, viz.

(a) access;

(b) recognition;
7
THE INSTITUTE OF COMPANY SECRETARIES OF INDIA, STUDY MATERIAL PROFESSIONAL
PROGRAMME CORPORATE RESTRUCTURING VALUATION AND INSOLVENCY
(c) relief (assistance) and

(d) cooperation.

(a) Access

The provisions relating (i) to access give representatives of foreign insolvency proceedings and
creditors a right of access to the courts of an enacting (domestic) country to seek assistance; and

(ii) to authorize representatives of local proceedings being conducted in the enacting country
(domestic) to seek assistance elsewhere.

For example, in a cross-border insolvency involving Indian and Australian companies, the
access is with respect to representatives of Australian proceedings to Indian court and vice versa.

(a) Recognition

These center provisions accord recognition to orders issued by foreign courts beginning
qualifying foreign proceedings and appointing the foreign representative of those proceedings.
Provided it satisfies particular requirements, a qualifying foreign proceeding should be
recognized as also a main proceeding, taking place where the debtor had its centre of main
interests at the date of commencement of the foreign proceeding or a non-main proceeding,
captivating place where the debtor has an establishment. Recognition of foreign proceedings
under the Model Law has several effects - principal amongst them is the relief accorded to assist
the foreign proceeding.

(c) Relief

A basic principle of the Model Law is that the relief measured necessary for the orderly and fair
conduct of cross-border insolvencies should be accessible to assist foreign proceedings. By
specifying the relief that is available, the Model Law neither imports the consequences of foreign
law into the bankruptcy system of the enact State nor applies to the foreign proceedings the relief
that would be available under the law of the enacting State. Key elements of the relief include
interim relief at the discretion of the court between the making of an application for recognition
and the decision on that application, an automatic stay upon recognition of main proceedings and
relief at the discretion of the court for both main and non-main proceedings following
recognition.

d)Cooperation and coordination

These provisions address cooperation among the courts of different countries where the debtor's
assets are located and coordination of coexisting proceedings concerning that debtor. The Model
Law expressly empowers courts to cooperate in the areas governed by the Model Law and to
communicate directly with foreign matching part. Cooperation between courts and foreign
representatives and between representatives, both foreign and local, is also authorized. The
provisions addressing coordination of concurrent proceedings aim to promote decisions that
would best achieve the objectives of both proceedings, whether local and foreign proceedings or
multiple foreign proceedings.

5.2 The UNCITRAL Model Law on Cross-border Insolvency8

The United Nations Commission on International Trade Law (UNCITRAL) was established in
1966 as the organ through which the UN can attempt to reduce or remove obstacles to
international commerce.The United Nations Commission on International Trade Law has
adopted a UNCITRAL model on cross-border insolvency. The Model Law on Cross-Border
Insolvency was adopted by UNCITRAL in May 1997.
8
See Fletcher (2000b); Omar (2002).
 It was approved by the General Assembly in December 1997 with a recommendation that
Member States review their insolvency legislation and give favourable consideration to enacting
the Model Law. The Model Law consists of 32 articles drafted as model provisions capable of
being enacted into the existing laws of any state. States can decide to use as much or as little of
the Model Law as they see fit and have complete freedom as to how the provisions should be
incorporated. The Model Law is along similar lines to the European Regulation.

Chapter II contains provisions enabling access to the courts for representatives of foreign
insolvency proceedings (broadly, collective insolvency proceedings subject to court control). On
application for recognition, provisional relief may be available (for example, a stay on
proceedings). Chapter III provides for recognition of foreign proceedings. These may be
recognised as either ‘main’, if taking place in the state where the debtor has the centre of its main
interests, or ‘non-main’, if taking place in a state where the debtor has an establishment. Article
20 provides for certain automatic consequences of recognition as a main proceeding (for
example, a stay over any type of execution against the debtor’s rights) and Article 21 contains
certain other discretionary powers which apply to all recognised proceedings. Recognition of a
foreign proceeding enables the foreign representative to initiate proceedings to avoid acts
detrimental to the interests of creditors of the sort available to officeholders in local insolvency
proceedings.

Chapter IV contains provisions designed to promote cross-border co-operation between courts

and officeholders and Chapter V deals with the co-ordination of concurrent proceedings.
Creditors are also given rights of access and participation by Chapter II. Success for the Model
Law will depend upon its adoption by a significant number of countries. Reciprocity is not a
requirement for the operation of the Model Law, although the extent to which a foreign
jurisdiction has enacted the Model Law might be a relevant consideration in exercising a
discretion as to whether to provide assistance in relation to an insolvency in that jurisdiction. It is
thought that, provided a critical mass of countries were to adopt it, a ‘snowballing effect’ would
then take place.9

So far the Model Law has only been adopted by Eritrea, Mexico, South Africa and Montenegro.
A number of other countries are considering adopting it; these include Australia, Canada, New
Zealand and the US. In England, s 14 of the Insolvency Act 2000 provides for the Model Law to
be brought into operation by statutory instrument and this forms part of the Insolvency Service
Strategic Plan for 2002–05.

The model law has been adopted by only a small number of countries, which do not include
Ireland. However, it is understood that the US and the UK will be adopting the UNCITRAL
model law in the near future.

5.3 UNCITRAL Model Law on Cross-Border Insolvency and Guide to Enactment 10

Preamble

Chapter I. General provisions

Article 1. Scope of application.

Article 2. Definitions
9
See Fletcher (2000b) at p 174.
10
UNCITRAL Model Law on Cross-Border Insolvency with Guide to Enactment and Interpretation, UNITED
NATIONS COMMISSION ON INTERNATIONAL TRADE LAW, UNITED NATIONS PUBLICATION,
E.14.V.2 ISBN 978-92-1-133819-5 e-ISBN 978-92-1-056399-4, UNITED NATIONS New York, 2014
Article 3. International obligations of this State

Article 4. [Competent court or authority]

Article 5. Authorization of [insert the title of the person or body administering a reorganization
or liquidation under the law of the enacting State] to act in a foreign State

Article 6. Public policy exception

Article 7. Additional assistance under other laws.

Article 8. Interpretation

Chapter II. Access of foreign representatives and creditors to courts in this State

Article 9. Right of direct access

Article 10. Limited jurisdiction

Article 11. Application by a foreign representative to commence a proceeding under [identify

laws of the enacting State relating to insolvency]

Article 12. Participation of a foreign representative in a proceeding under [identify laws of the
enacting State relating to insolvency]
Article 13. Access of foreign creditors to a proceeding under [identify laws of the enacting State
relating to insolvency]

Article 14. Notification to foreign creditors of a proceeding under [identify laws of the enacting
State relating to insolvency

Chapter III. Recognition of a foreign proceeding and relief

Article 15. Application for recognition of a foreign proceeding

Article 16. Presumptions concerning recognition

Article 17. Decision to recognize a foreign proceeding

Article 18. Subsequent information

Article 19. Relief that may be granted upon application for recognition of foreign proceeding

Article 20. Effects of recognition of a foreign main proceeding

Article 21. Relief that may be granted upon recognition of a foreign proceeding

Article 22. Protection of creditors and other interested persons

Article 23. Actions to avoid acts detrimental to creditors

Article 24. Intervention by a foreign representative in proceedings in this State

Chapter IV. Cooperation with foreign courts and foreign representatives

Article 25. Cooperation and direct communication between a court of this State and foreign
courts or foreign representatives

Article 26. Cooperation and direct communication between the [insert the title of a person or
body administering a reorganization or liquidation under the law of the enacting State] and
foreign courts or foreign representatives

Article 27. Forms of cooperation

 Chapter V. Concurrent proceedings

Article 28. Commencement of a proceeding under [identify laws of the enacting State relating to
insolvency] after recognition of a foreign main proceeding

Article 29. Coordination of a proceeding under [identify laws of the enacting State relating to
insolvency] and a foreign proceeding

Article 30. Coordination of more than one foreign proceeding

Article 31. Presumption of insolvency based on recognition of a foreign main proceeding

Article 32. Rule of payment in concurrent proceedings

5.4 DEVELOPMENTS IN CROSS-BORDER INSOLVENCY LAW AND ADOPTION OF

THE MODEL LAW

The growth of the practical implication of legal aspects of cross border insolvency in the wake of
the global growth of economic activity in the early 1990s, when work on the Model Law was
begun, continued unabated in the following decade. As one critic recently noted, "technological
growth in the fields of communication, travel, and e-commerce have greatly enlarged the ability
of businesses to stretch their corporate structures, assets, and transactions across a multitude of
borders."' ' The critic also noted, however, that while nationwide governments have ever more
sought to cooperate with other governments on definite laws and regulations related to cross-
border dealings, their efforts in the area of cross border insolvency "have significantly lagged
after efforts seen in other fields and it remains a field filled with different national laws and
inefficient solutions to cross-border insolvencies .This wrapping up closely resembles the
conclusion reached by the UNCITRAL INS0L studies a decade prior, and it appears that not
much has changed. A recent publication of INS0L International11' notes in the introduction that
since 1996 there have been major advances in the region of cross-border insolvency, (although
the examples given are of developments internationally) in particular the UNCITRAL Model
Law in 1997 and the European Insolvency Regulation in 2000.

It is also noted, however, that much of what the Model Law contains is missing from the 39
insolvency laws surveyed for the publication.12 There have been, however, some developments in
national law reform. Legislation based on the Model Law has been adopted by Eritrea, Mexico,
South Africa, Japan, Montenegro, Romania, and Poland. Several countries have draft legislation
which implements, or is based upon, the Model Law (including, to the writer's information, the
United States of America, Argentina, Pakistan, and the Republic of Korea); the United Kingdom
has enacted legislation which provides for the Model Law to be adopted by way of regulation;
New Zealand' 13 and Australia14 have both decided in favour of adoption of the Model Law, and a
number of other countries are considering adoption, including Canada and India. Moreover,
adoption of the Model Law has been strongly recommended by recent reports on insolvency law
reform by the Asian Development Bank15, ‘ the International Monetary Fund16,'the World
Bank17,"' and others as the best practice standard for addressing issues of cross-border
insolvency. Much of the legislative reform activity leading to adoption of the Model Law has
been part of a larger process of reform of insolvency law. International interest in the important
11
CROSs-BORDER INSOLVENCY: A GUIDE TO RECOGNITION AND ENFORCEMENT (INSOL ed., 2003)
(updating an earlier edition published in 1995)
12
see Ronald W Harmer, The UNCITRAL Model Law on Cross-Border Insolvency or 'Trivial Pusuit, available at
http://www.insol.org/pdf/cross-pdfs/ACL%20Ron%2OHarmer %202.pdf (last visited Mar. 20, 2004).
13
NEW ZEALAND LAW COMM'N, REPORT 52: CROSS-BORDER INSOLVENCY: SHOULD NEW
ZEALAND ADOPT THE UNCITRAL MODEL LAW ON CROSS-BoRDER INSOLVENCY?(1999).

14
COMMONWEALTH OF AUSTRALIA, CROSS-BORDER INSOLVENCY: PROMOTING INTERNATIONAL
COOPERATION AND COORDINATION, CORPORATE LAW ECONOMIC REFORM PROGRAM
PROPOSALS FOR REFORM: PAPER No. 8, 3 (2002)
15
ASIAN DEV. BANK, LAW AND POLICY REFORM AT THE ASIAN DEVELOPMENT BANK 52- 53 (2000)
16
INT'L MONETARY FUND, ORDERLY AND EFFECTIVE INSOLVENCY PROCEDURES: KEY ISSUES
82(1999).
17
WORLD BANK, PRINCIPLES AND GUIDELINES FOR EFFECTIVE INSOLVENCY AND CREDITOR
RIGHTS SYSTEMS, 80 (2001).
task of national insolvency law reform led to UNCITRAs second project on insolvency law in
2001- the development of a legislative guide on insolvency law18. Given the complexity of the
task of national insolvency law reform, it is perhaps not surprising that adoption of the Model
Law, or legislation based upon it, has not been more widespread.

The following discussion considers some of the legislation that has enacted, or provides for the
enactment of, the Model Law and some of the changes to the provisions of the Model Law
countries have adopted.

1. Mexico

Mexico adopted the Model Law with few changes as part of a complete reform of its insolvency
law in 2000.19 In order to reflect the provisions of its domestic insolvency law, Mexico limits the
application of the law to merchants. It has adopted a reciprocity provision 20 ,but it appears that
adoption of the Model Law by a jurisdiction whose representative seeks recognition may be
sufficient to satisfy that requirement for reciprocity. A further departure relates to the stay
provided against individual actions against the debtor. The Model Law provides for application

18
The draft Legislative Guide gained approval in principle by UNCITRAL in 2003. [2003] XXXIV Y.B.
UNCITRAL 197, U.N. Doc. A/58/17, available athttp://www.uncitral.org. It is due to be finalized by Working
Group V (Insolvency Law) at a session in March/April 2004 for referral to the Commission for adoption in June
2004.
19
Ley de Concursos Mercantiles, D.O. 12 de Mayo de 2000(Mex.)[hereinafter Mexican Law]
20
is translated as "the provisions of this Title [Title 12 Cooperation in International Proceedings] shall apply if no
other means is available in the international treaties to which Mexico may be a party, unless there is no international
reciprocity."
of the stay to the commencement or continuation of individual actions or proceedings against the
debtor or its assets. These provisions are omitted from the equivalent Mexican provisions,
articles 299 and 300. The first decision recognizing foreign insolvency proceedings under the
provisions of the Model Law of which the author is aware was smade by the Federal District
Court of Mexico City on December 19, 2002.21

2. South Aftica

The South African Cross-Border Insolvency Act was passed in 2000 and entered into force in
22
late 2003. It is based on the Model Law but, like Mexico, South Africa adopts a test of
reciprocity. This requires the Minister to designate those countries to which it will accord
recognition if the recognition accorded by the law of such State to proceedings under the laws of
the Republic relating to insolvency "justifies the application of this Act to foreign proceedings in
such State23." Notices designating countries for these purposes must be approved by Parliament.
To the writer's knowledge, no countries have yet been designated under the Act.

3. Japan

In November 2000, Japan enacted the Law relating to Recognition and Assistance for Foreign
Insolvency Proceedings (Law No. 129 of 2000), which entered into force in April 2001 24. The
Law is based on the Model Law with various adaptations and amendments. 25 The Law does not,
for example, provide for the automatic effects of article 20 of the Model Law. Relief, including
interim relief, is available only on the basis of an application to the court by a party in interest or

21
An abstract of this decision should be available under the UNCITRAL case law reporting system CLOUT (Case
Law on UNCITRAL Texts) in 2004.
22
Cross-Border Insolvency Act, 42 (2000), art. 34 (S. Aft.)
23
Cross-Border Insolvency Act, arts. 2(2)-(4)(S. Aft.)
24
Law Relating to Recognition and Assistance for Foreign Insolvency Proceedings, Law No. 129 (2000) (Japan)
[hereinafler Japanese Law]. For a detailed comparison of the UNCITRAL Model Law and the Law on Recognition
and Assistance of a Foreign Insolvency Proceedings see Yamamoto, supra note 55, at 83.
25
These comments are based upon an English translation of the Law on file with the author by Professor Junichi
Matsushita and Stacey Steele (May 30, 2002); see also Yamamoto, supm note 55, at 85-86.
by the court on its own motion, and it is available before the court decides on the application for
recognition or at the time of, or after, the decision on that application.'" One of the reasons
suggested for deciding against making relief apply automatically on recognition was the
possibility that judicial prudence in considering such an application (and, in particular, the need
to consider the interests of local creditors) might frustrate the simple and rapid recognition
process provided by the Model Law. The types of relief available under the Law appear to be
broadly similar to those provided in articles 20 and 21 of the Model Law, with the exception of
commencement of individual actions or proceedings. The Japanese law suspends individual
judicial or administrative proceedings already commenced against the debtor's assets, and it stays
the commencement and continuation of execution against the debtor's assets. Continuation of
execution by a secured creditor can be stayed, but the commencement of such execution cannot
be stayed. ' It also appears that since Japanese law does not consider the enforcement of a tax
claim to be a judicial proceeding that would be restrained under domestic law, enforcement of
such claims in Japan will not be restrained. , A further departure from the Model Law is the
absence of the provision in article 25 of the Model Law for direct communication between
Japanese and foreign courts, although the Japanese Law does provide for such communication
between the insolvency representative and the courts. One explanation for this approach is that it
is difficult to envisage a need for cooperation where no local proceedings are taking place, and,
where local proceedings are taking place, communication between insolvency representatives,
who are more likely to be familiar with that type of international contact than judges, will be
more efficient than communication between courts. The commentator notes that the court has the
inherent power to cooperate with foreign courts if it judges such cooperation to be necessary and
that the "internationalization of our judicial system will make this type of cooperation much
easier in the future than today. The concurrent proceedings addressed in articles 28-30 of the
Model Law are also unavailable in Japan. If there is an application for recognition of foreign
proceedings when there is already a local proceeding involving the same debtor, the Japanese
court must dismiss the application for recognition or suspend the local proceeding.

It appears that the Law supports dismissal of the foreign proceeding unless (1) the foreign
proceeding is a foreign main proceeding, (2) the court is satisfied that recognition of the foreign
proceeding meets the general interests of creditors, and (3) there is no likelihood that recognition
of the foreign proceeding would be detrimental to the interest of creditors in Japan. It is difficult
to predict how the second and third requirements in article 57 will be interpreted. As noted by
one commentator, the approach appears to be one which favors one proceeding for one debtor at
any one time, and thus it avoids issues of coordination and cooperation between multiple
proceedings.

4. United Kingdom

The Insolvency Act 2000 authorizes adoption of the Model Law by regulation, with or without
modification26. The regulation-making procedure to be followed requires the approval of the
Parliament." ' At the time of writing, no regulations had been promulgated.

5. Romania

In December 2002, Romania enacted the Law on Regulating Private International Law Relations
in the Field of Insolvency which adopts the UNCITRAL Model Law with very few changes 27. It
also includes a number of provisions that give effect to EC Regulation 1346/2000 on insolvency
proceedings. Article 2 specifies a number of exceptions to the application of the legislation
including banks, insurance, financial and investment institutions, commodity exchange members,
clearing houses, and brokerage companies and traders. Article 17 includes an additional
requirement of reciprocity as to the effect of foreign judgments for recognition of foreign
proceedings. Article 21, on application of the stay, provides an exception to the equivalent article
of the Model Law (article 20(1)(c)) for transfers, encumbrances, or other disposal carried out in
the ordinary course of business. Under article 29 on concurrent proceedings the opening of local
proceedings following the recognition of foreign main proceedings requires an establishment, not
just the presence of assets, in Romania.

6. Poland

In February 2003, Poland enacted a new law on insolvency and restructuring, which includes two
provisions concerning international insolvency proceedings based on the UNCITRAL Model

26
Insolvency Act 2000, ch. 39, § 14(1) (Eng.).
27
Law on Regulating Private International Law Relations in the Field of Insolvency, Law No. 931/2002 (Rom.).
English text of the Law, available athttp://www.iiiglobal.org/country/ romania/internationallaw.pdf (last visited Mar.
22, 2004). This discussion is based on an English translation of the law on file with the author.
Law, with some changes and omissions28. The law does not provide specifically that the foreign
representative is entitled to apply directly to the courts of Poland; however, under article 386,
proceedings for recognition can only be commenced on the petition of the foreign representative,
and provision is made for the foreign representative to apply for the commencement of or to
participate in local proceedings, as well as to commence avoidance actions. It is not clear from
Part Two whether particular courts have jurisdiction over such applications or whether a
particular bankruptcy court has jurisdiction under the general provisions of the law. Article 380
provides that foreign creditors (i.e., those residing or having their seat abroad) shall enjoy the
same rights as domestic creditors, but clearly excludes tax and social insurance dues and certain
penalties from local proceedings. Article 393(2) provides that the recognition decision shall
summon creditors to make their claims and include certain information as to the making of those
claims. Although the terms of this article are presumably wide enough to include foreign
creditors, no specific means for notifying them of the recognition decision along the lines of
article 14 of the Model Law appears to be included.

5.5 Impact of Cross-border Insolvencies on East Asian Jurisdictions –through various case
studies29

There have been a number of high-profile cross-border insolvencies impacting on jurisdictions in

East Asia. The complexity of these cases partly reflects the growing range and scope of products
offered in global financial markets.30

Peregrine Group – Hong Kong

28
Cross-border Insolvencies Impacting on East Asian Jurisdictions There have been a number of high-profile cross-
border insolvencies impacting on jurisdictions in East Asia. The complexity of these cases partly reflects the
growing range and scope of products offered in global financial markets.
Law on Insolvency and Restructuring, 2003 (Pol.)
29
ROMAN TOMASIC, INSOLVENCY LAW IN EAST ASIA, Ashgate Publishing Limited, Hampshire GU11
3HR USA England
30
ANGUS FRANCIS Griffith University , INSOLVENCY LAW IN EAST ASIA , Cross-border Insolvency in East
Asia: Formal and Informal Mechanisms and UNCITRAL’s Model Law, Ashgate Publishing Limited, Hampshire
GU11 3HR USA England
 On 13 January 1998, provisional liquidators were appointed to the Peregrine group following
the presentation of winding up petitions in respect of Peregrine Investments Holdings Limited,
Peregrine Derivates Limited and Peregrine Fixed Income Limited (‘PFIL’). The Peregrine group
was reputed at the time to be the largest investment bank in the region outside Japan. The group
collapsed with estimated liabilities of US$4.5 billion. The three major operating arms of the
group were Peregrine Investments Holdings Limited, Peregrine Derivatives Limited, and PFIL.
The court wound up the companies on 18 March 1998. There had been considerable public
concern in Hong Kong over the collapse. The Financial Secretary successfully applied to the
court for a declaration that the affairs of Peregrine Investments Holdings Ltd and PFIL be
investigated by an inspector to be appointed by the Financial Secretary under section 143(1)(a)
of the Companies Ordinance (Cap 32).31 The official report into the causes of the insolvency was
expected shortly at the time of writing. In 1998 the Hong Kong Court of First Instance rejected
an application for a court order that the compulsory winding up of PFIL be converted into a
creditors’ voluntary winding up. The grounds included that the court was not willing to divest
itself of the control of the liquidation in circumstances where the collapse of PFIL was a matter
of public concern ‘affecting as they do Hong Kong’s standing as a financial centre’32. A
substantial portion of the group’s assets and liabilities involved unsettled derivatives transactions
undertaken by PFIL.

PFIL was the largest operating arm of the Peregrine group. These derivative transactions
included more than 2000 swaps, forwards, options and other products, transacted with close to
300 counterparties. The transactions had a total notional value greater than US$15 billion and
represented total debtor and creditor positions of approximately US$1.5 billion and US$1 billion
respectively. The majority of these transactions were carried out under International Swaps &
Derivatives Association (ISDA) Master Agreements. The majority of these agreements were
subject to English law. Most of Peregrine’s ISDA agreements provided for the automatic
termination of the derivative transactions on the commencement of liquidation of the Peregrine
group.

31
Re Peregrine Investments Holdings Ltd (In Liq) & Anor [1999] 3 HKC 285

32
Re Peregrine Fixed Income Ltd (In Liq) [1998] 4 HKC 151, per Le Pichon J at 160.
The sudden collapse of the Peregrine group inevitably resulted in a number of issues in relation
to the default and automatic termination terms of the agreements. The liquidators of the
Peregrine group negotiated settlements of these agreements with PFIL’s numerous counterparties
outside Hong Kong In addition, as the agreements were subject to English law, the liquidators
sought clarification from the English High Court on the issue of whether (and to what extent) the
credit standing of a counterparty to a terminated transaction under an ISDA Master Agreement
should be taken into account in valuing the terminated transaction. This valuation issue, also
impacting on Peregrine Investments Holdings Limited and Peregrine Derivatives Limited, had a
large effect on the number and value of ISDA creditors of PFIL. The decision of the English
High Court on 18 May 2000 effectively rejected significant discounting of ISDA claims on the
basis of credit standing. Many of the PFIL assets recovered have been from US and European
investment bank counterparties to derivative contracts. Future payouts to creditors will also
depend on recovering from debtors in Indonesia (where PFIL’s exposure was estimated at
US$1.1 billion) and Thailand (where PFIL’s exposure was estimated at US$300 million). In
particular, the liquidators have had difficulty in recovering from Steady Safe, the Indonesian taxi
firm to which PFIL had an exposure of US$265 million.

Other cross-border elements in the liquidation of the group include the protocol between
liquidators in Hong Kong and Bermuda approved by the courts in the respective jurisdictions in
December 1999. The protocol prevented separated liquidations being carried out in each
jurisdiction in respect of Peregrine Investments Holdings Ltd.

Kunnan Enterprises Ltd – Taiwan

Kunnan Enterprises Ltd, a company incorporated in Taiwan, was the manufacturer of the Pro-
Kennex tennis racquet. The company entered into reorganization proceedings under Taiwan’s
Company Law. Creditors of the company included a number of professional tennis players
claiming amounts owed under endorsement contracts for the racquet. The players sued Kunnan
Enterprises Ltd for damages in the US District Court in Washington DC in late 199533.

33
Paul Haarhuis & Others v. Kunnan Enterprises Ltd, Case No. 95-1967 (TPJ)
 Kunnan filed a separate Section 304 petition in the US Bankruptcy Court34. This petition could
be filed on behalf of a company undergoing liquidation or reorganization in a foreign
jurisdiction. The US bankruptcy judge exercised considerable discretion in providing relief to aid
the foreign proceedings. Kunnan was successful and the court ordered a permanent injunction
against the continuation of the US District Court action, effectively requiring that the players and
other creditors of Kunnan pursue their claims through the reorganization process in Taiwan.

In Re Kunnan, the US Bankruptcy Court held that reorganization procedures of Taiwan were
consistent with the principles of fairness and due process and did not cause undue prejudice or
inconvenience to the creditors involved.

The Linter Litigation – Australia

The Linter Group was an Australian group of companies. The group’s principal business was the
manufacture and distribution of clothing. In May 1988 the group required funds to pay for the
acquisition of a large number of companies featuring well-known Australian clothing brand
names. The group decided to raise funds in the US through a subordinated debenture issue.
Linter Textiles Corporation issued a prospectus in New York offering debentures maturing in

34
In re Kunnan Enterprises Ltd, Case No. 97-0630 (U.S. Bankr. D.C.)
October 2000 and carrying 13.75 per cent interest. The prospectus issue raised US$200 million.
The Linter Group collapsed in 1990 with an estimated deficiency of A$550 million. The Linter
Group was put into receivership. At the outset the receivers sought a scheme of arrangement
between the companies and their respective creditors but subsequently sold each of the
businesses and brand names. US debenture holders and Australian and foreign banks bore the
main loss. In 1991 and 1992 the companies were put into liquidation, the liquidators holding the
proceeds of the sale of the businesses (about A$400 million). The breakdown of the group led to
a number of proceedings in Australia and the US, including:

 proceedings in Australia to determine whether the subordination was effective in the winding
up of the Linter companies under Australian law35;

• proceedings in the US (New York) by the debenture holders against certain banks and
professional advisers;

• proceedings in Australia by the US debenture holders and also by some banks against other
banks and professional advisers36;

• proceedings in Australia by the liquidators of Linter to recover property of Linter paid in

breach of directors’ duties;37 and

• proceedings in Australia to determine the distribution of the A$400 million held by the
liquidators from the sale of the businesses38.

Guangdong International Trust and Investment Corp. – People’s Republic of China

On 16 January 1999 the Guangdong International Trust and Investment Corporation (GITIC)
sought protection from its creditors under the People’s Republic of China State Enterprise
Bankruptcy Law 1986. GITIC, the PRC’s second largest trust and investment company, was
established in 1980 as the main fundraising arm of the Guangdong provincial government.

35
United States Trust Co of New York & Others v. Australia and New Zealand Banking Group Limited & Others
(1995) 37 NSWLR 131
36
Allstate Life Insurance Co & Others v. Australia and New Zealand Banking Group Limited & Others (No 19)
(1995) 134 ALR 187.
37
Linter Group Ltd v. Goldberg & Others (1992) 7 ACSR 580
38
United States Trust Co of New York & Others v. Australia and New Zealand Banking Group Limited & Others
(1993) 11 ACSR
GITIC is the biggest bankruptcy in the history of the PRC. GITIC has total liabilities of US$4.37
billion. Foreign creditors are owed US$3.7 billion. This is the first time that the PRC Bankruptcy
Law has been used in the insolvency of a major financial institution or for a debtor with
significant foreign liabilities.

5.6 Implications of India Adopting the UNCITRAL Model Law on Cross-Border

Insolvency39

The management of international insolvencies are aimed to be resolved through a formal cross-
border approach through the UNCITRAL Model Law on Cross-Border Insolvency(Model Law)

39
Aastha Kaushal & Saurav Gurjer, Implications of India Adopting the UNCITRAL Model Law on Cross border
insolvency ,https://indiacorplaw.in/.../implications-india-adopting-uncitral-model-law-cross-borderinsolvency
( accessed on 7th april 3.00 p.m )
which was approved by the United Nations General Assembly through a resolution in 1997. The
Model Law is the product of lengthy deliberations and was passed as a model law and not a
convention to allow for greater flexibility in terms of nations adopting the same into their
domestic laws. This allows for nations to alter, exclude or include certain provisions in addition
to the existing model, thereby giving states the choice to adopt the model law in the manner they
deem fit for their national convenience.

5.6 (i) Prevailing scenario in India

The present cross- border insolvency-related provisions under sections 234 and 235 of the
Insolvency and Bankruptcy Code, 2016 (IBC), which were included following the
recommendations of the Joint Committee on the Insolvency and Bankruptcy Code, 2015, require
bilateral agreements to be entered with other countries to administer the cross- border
ramifications of insolvency proceedings. This calls for the application of the doctrine of
reciprocity, whereby letters of request may be issued by the National Company Law Tribunal
(NCLT) or the authorized court to a foreign court or tribunal where the corporate debtor’s assets
are located. However, at present, India has not entered into any bilateral treaty with any other
nation to further the development of the same. Furthermore, the uncertainty in the
implementation of the cross- border bilateral treaties stems from the assumption that treaties with
different nations would have varying provisions entailed. The burden on the judiciary will no
doubt be lessened if the reciprocal arrangements are adopted in a uniform manner. However, this
would require lengthy negotiations between nations in their individual capacities with the
question of achieving cooperation being left uncertain and which would consequently complicate
the insolvency proceedings of the corporate debtors.

5.6 (ii)India’s approach towards adopting the Model Law

The Model Law clarifies the extent of coordination and cooperation between courts beyond
borders and the recognition of the insolvency proceedings commenced in multiple jurisdictions.
The adoption of the Model Law in India has been recommended in the past by the Eradi
Committee and the N.L. Mitra Committee in the years 2000 and 2001 respectively, but the same
have not been taken into consideration by the legislators. The Model Law has laid down the most
widely accepted practices in cross-border insolvencies and has been adopted by 44 states. If
India is to adopt the Model Law, then the assistance sought in India by a foreign court or a
foreign representative in respect of a foreign proceeding,and the converse in connection with
proceedings under the 2016 Code, would be granted. Further, several corporate debtors have
establishments in more than one country. While facing insolvency, the foreign proceedings and
the proceeding under the IBC may be carried out concurrently without giving rise to a conflict of
laws. The impact of globalization on the economy has direct and consequent impact on the
restructuring of companies under financial distress, which in turn impacts the nation’s economy.
In June this year, the Government of India released the suggested draft chapter on cross-border
insolvency as an addition to the IBC.

5.6(iii) Provisions of the Model Law and the consequent impact on the Indian scenario, if
adopted

The Model Law specifies the following key components for the orchestration of cross-border
insolvencies:

(a) Access to courts in an enacting state;

(b) Recognition of foreign proceedings, as either a foreign main proceeding or a foreign non-
main proceeding;

(c) Relief that is to be given for the fair and orderly conduct of the cross-border insolvency; and

(d) Co-operation and co-ordination between courts where the debtor’s assets are situated and the
court in which concurrent proceedings are being carried out.

The Model Law lays down circumstances when the foreign proceedings are to be recognized and
how they should be recognized. The recognition is granted based on where the debtor has its
center of main interests (COMI) which is in turn dependent on its place of establishment.
Further, the proceedings may be recognized as foreign main proceedings if the debtor has its
COMI in the jurisdiction of the country in which the proceedings are being carried out, or as a
foreign non- main proceedings if the COMI is not in that country. COMI has not been defined
under the Model Law. However, there is a rebuttable presumption that the COMI of a debtor is
where the debtor’s registered office is located. The court is not compelled to recognize a
proceeding unless the COMI has been proved. Chapter 15 of the US Bankruptcy Code facilitates
co-operation between US and foreign courts and to clarify administration of international
insolvency proceedings. It is not a blanket rule that recognition is granted to all insolvency
proceedings;rather it is the discretionary power of the court or tribunal in which recognition is
being sought. For instance, the US courts have been denied recognition on several occasions
such as in the case of SEC v. Stanford International Bank.

The rebuttable presumption against the COMI being in the place of the registered office, is
contingent on the ascertainment of the COMI by third parties objectively. Hence, a major issue
that will be faced by Indian courts and tribunals is ascertaining the COMI to grant the
recognition of insolvency proceedings as either foreign main proceedings or foreign non-main
proceedings.

The relief that is provided for after recognizing foreign-main proceedings is generally in the form
of granting a stay on local proceedings by creditors against the debtor undergoing insolvency.
This suggests that a moratorium would be imposed on the assets of the debtor and the
administration of the debtor’s assets in that State are to be entrusted to the foreign representative.
Article 21 of the Model Law is similar to the provisions of section 14 of the IBC, thereby not
prejudicing the assets of the debtor, whether in a foreign main proceeding or a foreign non-main
proceeding. This confers certain automatic and discretionary rights to the foreign proceedings,
thereby making the recovery of the local assets of the debtor by the foreign representative
uncomplicated. Furthermore, additional discretionary relief may also be granted by the court or
tribunal. The extent of the relief is to be determined based on the principle of comity and
assistance, although the Model Law does not hinge on the need for reciprocity. This implies that
if the Model Law is to be incorporated into Indian law, then Indian representatives (resolution
professionals or interim trustees) cannot seek access to foreign insolvency proceedings of a state
that has not adopted the Model Law. Nevertheless, a state that has not adopted the Model Law
may seek access to the insolvency proceedings of a State that has adopted it. The principle of
reciprocity that has currently been included in the IBC may however continue to exist even if the
Model Law is to be adopted.

5.6 (iv)The Road Ahead for the Indian Insolvency regime

The Government of India has proposed to adopt the Model Law, with certain modifications,into
the existing IBC. This would facilitate the access to insolvency proceedings that are being
carried out in foreign jurisdictions, accordingly reducing the burden on the judiciary, such that
the objectives of completing the resolution process in a time- bound manner and to maximize the
value of the assets of the corporate debtor are upheld. The suggested draft chapter does not
provide for the bankruptcies of individuals, which restricts the scope of cross- border
insolvencies to corporate debtors. Reciprocity per se is not a requirement of the Model Law, but
adopting the same will not restrict India from preserving the current provisions pertaining to
cross- border insolvencies.

Cross- jurisdictional issues are bound to arise considering the difficulties that courts in the US,
UK and other countries adopting the Model Law have faced while proving the COMI of the
corporate debtor. The application for the recognition of foreign proceedings in India will have to
be made to the NCLT by the foreign representatives pursuant to the Model Law as the tribunal is
not compelled to automatically recognize the concurrent proceedings. Foreign main proceedings
are granted recognition by courts or tribunals once the foreign representative satisfies the burden
of proving where the COMI of the corporate debtor is located. Broad parameters for the use of
discretionary powers of the tribunal in respect of granting moratorium in case of foreign non-
main proceedings need to be laid down to prevent an abuse of the powers. The adoption of the
Model Law will no doubt help in the ease of doing business and significantly increase the inflow
of FDI. Finally, the Model Law should be adopted in order to achieve harmonization of
insolvency laws, through international co-operation and co-ordination.

5.6 ( v) THE CURRENT LEGAL FRAMEWORK IN INDIA40

Sections 234 and 235 of the Code deal with cross border insolvency in a cursory manner,
empowering the government to make treaties and further empowering the Adjudicating
Authority under the Code, to issue a letter of request to a court in a country, with which an
agreement has been entered into, to deal with the assets in a specified manner (presumably, in
accordance with the provisions of the Code). Theoretically, this should also provide a framework
Ran Chakrabarti ,IndusLaw, India: India's Proposed Cross Border Insolvency Regime: Will It Trump The Gibbs
40

Rule? Updated: 24 July 2018, India's Proposed Cross Border Insolvency Regime: Will It Trump The ...
www.mondaq.com/india, (accessed on 4th april 2019, 11.00 p.m)
for foreign representatives to apply to the Indian courts to deal with assets in India in a manner
consistent with the insolvency laws of the jurisdiction where foreign main proceedings have
been initiated, in relation to a debtor, with assets in India.

For foreign proceedings to be recognized in India, the process set out under the Civil Procedure
Code, 1908 will be applicable, together with English common law principles, though it should be
noted that it is not broad enough to cover some insolvency related proceedings.

Likewise, for Indian proceedings to be recognized abroad, the procedural rules of that foreign
jurisdiction will apply. Those countries that have adopted the UNCITRAL Model Law (which
include most industrialized countries) are required to provide recognition, assistance, cooperation
and appropriate relief in relation to insolvency proceedings commenced in India, except where
that country has otherwise required reciprocity.

As of June 2018, 44 states have adopted the UNCITRAL Model Law, including the United
States, the United Kingdom and Singapore. Note, however, that certain countries that have
adopted it may have made reservations to it, and may require reciprocity41.

Clearly, while the Code permits the government to enter into treaties to implement the
UNCITRAL Model Law, negotiating up to 200 separate bilateral treaties in a relatively short
space of time is just not practical, and it would further complicate matters, with the Indian courts
having to take into account the nuances of each treaty in any cross border insolvency matter.
Surely, the simplest solution would be for India to simply sign and ratify the UNCITRAL Model
Law and then incorporate that into the Code.

While the Notification proposes to essentially adopt the UNCITRAL Model Law, there are a
couple of key nuances and it appears to apply only to corporate insolvency, and not in relation to
the insolvency of individuals. There is a general public policy restriction, which essentially says
that India will not give effect to the treaty provisions if it violates public policy, though it should
be noted that this reservation is a common one amongst most contracting states and the nuance is
how the courts in India might interpret the principle, and whether they will accord it narrow, or
For a further discussion of the principle and implications of reciprocity, see 'Should Reciprocity Be a Part of the
41

UNCITRAL Model Cross Border Insolvency Law?' by Keith D. Yamauchi (2007), International Insolvency Review
Vol. 16., pages 145-179
broad status, potentially frustrating the rights of foreign representatives in actions before the
Indian courts.