Cross-border insolvency – recognition of insolvency judgments; enterprise groups – UNCITRAL Working Group V, Vienna 2016-New York 2017

I earlier reported on my attendance in Vienna, on behalf of LAWASIA, and UNCCA, the United Nations Commission on International Trade Law [UNCITRAL] session of Working Group V (Insolvency Law) from 12-16 December 2016. WGV is working on two model laws, each of which has the potential to provide significant assistance in cross-border insolvencies. The following provides a more principles-based report on the Vienna session; a shorter version appears on my website here.

Both the draft law on the Recognition and Enforcement of Insolvency-Related Judgments (“Insolvency-Related Judgments”) and the draft law on the Cross-Border Insolvency of Multinational Enterprise Groups (“Enterprise Groups”) are framed as stand-alone laws, with the result that they contain many provisions that are already in the UNCITRAL Model Law on Cross-Border Insolvency (“Model Law”). For example, the definitions of “foreign proceeding” and “foreign representative” are substantially similar to those in the Model Law, along with many other such articles.

Each one could therefore simply be added to the Model Law. One reason for proposing to keep them separate is that, if they become model laws, they each could be adopted by countries that have so far not adopted the Model Law.

lawasia vienna

It follows that each draft seeks to address issues not dealt with, or dealt with adequately, in the Model Law or cross-border law generally.

By way of final opening comment, delegates of many countries attended, including the US, UK, Canada, Germany, Italy, Chile, Thailand, Singapore, Japan, China, Russia, Panama, and many of the eastern European nations. Organisations attending included the World Bank, the EU, and INSOL International.

Australia was not represented and has not sent a delegate for some years.[1]   

I. Draft Model Law on Recognition and Enforcement of Insolvency-Related Judgments

This draft law appears to be the most progressed.

Its impetus was the decision of the UK Supreme Court in Rubin v Eurofinance [2] which held that a default judgment of a US Bankruptcy Court in an insolvency avoidance decision could not be enforced against an English defendant who had not specifically appeared in the US proceedings. That defendant could only be pursued for payment in a new proceeding under English law.

What has been seen as a narrow procedural interpretation of the Model Law has flowed through into decisions that the Model Law does not, for example, allow for the enforcement in England of relief available in a foreign insolvency proceeding where English law would not provide such relief, at least where the contract at issue is governed by English law. This is the case despite the Model Law allowing the courts to provide any “appropriate relief, including …. “.[3]

In contrast, the US courts have taken a construction of the Model Law that is more open to the enforcement of foreign insolvency laws.[4]

In light of Rubin and its aftermath, the work of WGV aims to provide for enforcement of an “insolvency-related judgment”, encompassing not only an insolvency judgment, such as under a voidable transaction claim, but also one related to insolvency, such as an order of discharge, or confirmation of an arrangement.   

The limits of what might be an “insolvency-related judgment” were in issue, an example being whether it would cover the pursuit of rights of the insolvent, or be restricted to post-appointment actions accruing to the insolvency administrator. Broadly, the WGV meeting in Vienna revealed a division between the EU member countries wanting the narrower interpretation and the US and other common law countries supporting the broader definition. 

Hague Convention

It should be noted that the development of the Hague Convention on the recognition and enforcement of judgments is proceeding separately, and given its wide scope, is proceeding slowly. See The proposed draft text of the Hague Convention on the recognition and enforcement of foreign judgmentsFranzina, 29 April 2016. WGV decided to proceed with its draft law with the intention of settling it more quickly, but at the same time keeping it generally congruent with the Hague Convention.

A judgment is proposed as enforceable only if it is enforceable in the state where it was ordered; hence a judgment on appeal can be recognized and enforced only if the originating state would allow it to be enforced pending the appeal.

Recognition and enforcement of an insolvency related judgment is intended to be straightforward in principle, although with rights to refuse on grounds that are a significant feature of the draft, being the “due process” objections to enforcement under the “public policy” exception in the draft, which refers to “the fundamental principles of procedural fairness” of the local state. This addresses concern to preserve the primacy of the court ordering the judgment, given the variable global rule of law standards.

The draft carries over some of the provisions of the Model Law regarding recognition only of main and non-main proceedings, except that a judgment relating to the recovery of assets of the debtor would be able to be enforced even though the location of assets in a jurisdiction is not, on its own, sufficient to support either a main or a non-main proceeding under the Model Law.

II. Draft Model Law on Facilitating the Cross-Border Insolvency of Multinational Enterprise Group

This draft is not as far advanced but its principal provisions seem to be in place.

“The current Model Law is limited in that it applies only to the insolvency of individual entities. It does not have provisions that explicitly provide for group insolvencies. The internationalisation of business means that multinational enterprises operate in a number of countries via companies incorporated under distinct local laws. … In such circumstances, the reality is that there are no global laws at present to regulate the insolvency of groups of corporations where one or more entities within the group are situated in different countries. Separate proceedings have to be commenced in each jurisdiction for each group member.

All this

“generates generate uncertainty for parties and hence, in efficiency in the form of transaction costs”: Cross-Border Insolvency Law, Gopalan and Guihot, at [5.5-5.6].[6]

This draft Model Law on Group Insolvencies is also proposed as a stand-alone law, rather than an amendment to the existing Model Law. It therefore also repeats many of the Model Law provisions.

Unlike the current Model Law, the enterprise insolvency draft contains many provisions that deal with a domestic insolvency proceeding, when an adopting nation would be the home venue for a “group proceeding”.

The new draft creates a basis for cooperation and communication between a local court and foreign courts and group representatives, and between group representatives, foreign representatives and foreign courts. It provides explicit authority for entry into protocols or agreements, and it identifies several forms of cooperation including sharing and disclosure of information, negotiation of agreements and protocols, allocation of responsibilities and coordination of the administration of group members and the negotiation of a group insolvency solution.

Significantly, it provides that a single insolvency representative may be appointed over proceedings in more than one jurisdiction, subject to qualification and the supervision of the local court.

The draft law provides for a “group representative” in a cross-border “planning proceeding” who attempts to coordinate the insolvency proceedings of foreign “enterprise group members.”

One member of an “enterprise group”, defined as “two or more enterprises … that are interconnected by control or significant ownership,” may be authorized to act as the “representative of a planning proceeding in which enterprise group members are participating for the purpose of developing a group insolvency solution.”

A “planning proceeding” is a “main proceeding” commenced in respect of an enterprise member “that is a necessary and integral part of a group insolvency solution, in which one or more additional group members are participating for the purpose of developing a group insolvency solution and in which a group representative has been appointed.”

The COMI (centre of main interests) of an enterprise is retained, but WGV has not addressed the location of the “group COMI” or how to determine the identity or location of the COMI of the “principal” member of the group. The “planning proceeding” need only take place in the jurisdiction of an enterprise group member that is “a necessary and integral part of a group insolvency solution”.

Any enterprise group member in an insolvency proceeding in a foreign court may then participate in a planning proceeding, subject to the power of the domestic court to limit or control such participation.

The purpose of a planning proceeding is to develop a

“group insolvency solution,”

proposed to be defined as

“a set of proposals” for the reorganization, sale or liquidation of some or all of the operations or assets of one or more group members “that would be likely to add to the overall combined value of the group members involved.”

The proposals must be submitted for approval in the jurisdiction in which a particular group member has its COMI or an establishment, but it is not clear that each group member must file in its COMI or in a jurisdiction in which it has an establishment under the Model Law.

The draft law is structured so as to give the “group representative” appointed in a “planning proceeding” limited powers to affect or influence insolvency proceedings pending in other jurisdictions. For example, the group representative may seek and obtain interim relief in aid of the recognition of the planning proceeding. After recognition, the local court may grant “any appropriate relief,” including the approval of the treatment in the group proceeding of creditors located locally, and it may entrust the distribution of assets located locally to the group representative provided the interests of local creditors are adequately protected.

The group representative has standing to participate in a local proceeding and the local court may approve “local elements of a group insolvency solution”.

The current draft has been described by Allan Gropper as “modest” in the authority it provides to the court of the group proceeding to affect or influence a court with authority over a local proceeding of a member of the group.

While the draft emphasises the principle of local control, the emphasis on cooperation among courts and insolvency representatives with authority over the separate proceedings of members of an enterprise group is significant.  It seeks to address the complex and difficult circumstances found at present, of little or no cooperation with limited concern for reorganization or the interests of the group.

As Allan Gropper has also written,[7] a goal of this Model Law is to change this attitude, with cooperation being superimposed on a system that also seeks to protect local interests and local courts.

The need for primacy of local courts was a focus of several delegations in Vienna, leading to the need for some overriding principles of the draft law, including that it not limit the jurisdiction or process of the local courts with respect to that enterprise group member, or the commencement of local insolvency proceedings.

WGV has not decided on the extent to which the court administering the group proceeding can grant local creditors the recovery rights they would have received locally whether or not a local proceeding has been opened.

Virtual or synthetic proceedings

Decisions of the English courts, notably, Collins & Aikman,[8] have developed the principle of virtual or “synthetic proceedings” in lieu of commencing non-main proceedings. In order to deter local creditors from opening or maintaining an expensive and potentially burdensome local proceeding, the court of the main proceeding may authorize distribution to local creditors of what they would have received in a local proceeding, notwithstanding the order of distribution of the main proceeding. The US provides for somewhat similar relief on a non-statutory basis through its “first-day orders”.   

The current draft law provides for synthetic relief with respect to non-main local or secondary proceedings, in that the Court administering the group proceeding may provide creditors in a foreign state “the treatment in this State that they would have received in a non-main proceeding in that other State.” The same relief is available to creditors who have opened or have threatened to open a local “main” proceeding. These aspects of the draft are however drafted as “supplemental” or optional provisions.

The next meeting of WGV – New York, 10-19 May 2017

The next meeting will continue with the drafting of both laws, all delegates having had time to seek the instructions of their respective states and stakeholder groups.  The provisional agenda, and extensive background information, is here.

Reading list

For those interested, this is a short reading list to which I am indebted in writing this commentary.

  • The Hon Allan Gropper, Memorandum on Projects of UNCITRAL Working Group V, March 2017
  • Cross-Border Insolvency Law, Sandeep Gopalan (Deakin) and Michael Guihot (QUT), LexisNexis, 2016
  • Perram, Justice Nye — “Issues in recognition and enforcement of foreign insolvency judgments – An Australian perspective” (FCA) [2016] FedJSchol 11
  • McCormack, Gerard; Hargovan, Anil — “Australia and the International Insolvency Paradigm” [2015] SydLawRw 18; (2015) 37(3) Sydney Law Review 389




[1] Perhaps costs of travel and accommodation is an issue.  My self-funded outlays for my attendance were around AU$3,700, though my unfunded remuneration approached $20,000.

[2] Rubin v Eurofinance [2012] UKSC 46, [2013] 1 AC 236

[3] See De Akers as a joint foreign representative of Saad Investments Company Limited (in Official Liquidation) v Deputy Commissioner of Taxation [2014] FCAFC 57


[4] See In re Rede Energia SA, 515 BR 69 Bankr SDNY 2014; In re OAS SA, 15-10937 Bankr SDNY 2015.

[5] See The proposed draft text of the Hague Convention on the recognition and enforcement of foreign judgments, Pietro Ietro Franzina, 29 April 2016.

[6] The authors proceed in their Chapter 5 to examine the Nortel Networks and Lehman Brothers insolvencies, Australian domestic law on corporate groups, and then lead into the work of WGV on enterprise groups.


[7] Memorandum on Projects of UNCITRAL Working Group V, Allan Gropper, March 2017


[8] In re Collins & Aikman, [2005] EWHC (Ch) 1754

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