The world economy is not in great shape. The UK is bearing up, but it is gloomy news in the US, Japan and most of Europe. Restructuring lawyers, then, are in demand.
The nature of restructuring and insolvency work for lawyers has changed over the years to become more cross-border, reflecting the increasingly global nature of the businesses with which they are dealing. The range of stakeholders has widened, with most businesses having operations, bank lenders, bondholders and shareholders in other countries.
But has the law kept pace with these developments? While businesses have become global, insolvency laws governing troubled companies are local. This is where Insol International comes in. This 20-year-old organisation represents the leading insolvency trade bodies from 64 countries around the world. It is also the leading forum for tackling these cross-border and multijurisdictional problems. In 2000, Insol, with the backing of the World Bank, produced its 'Statement of Principles for a Global Approach to Multi-Creditor Workouts', which provides an orderly framework for debtor companies and their creditors to find solutions to the problems of financial difficulty across the world.
However, despite the multijurisdictional nature of the market, there is currently no possibility of a set of global or even EU insolvency laws to harmonise procedure. Indeed, even within the UK, Scotland has separate laws to England. Respect for other countries' laws is the way forward, and two current initiatives are important to note: the United Nations Commission on International Trade Law (Uncitral) model law on cross-border insolvencies, and the EU Bankruptcy Regulation. Both have a similar aim – to enable foreign insolvency procedures to be recognised by local courts. At the moment, if a UK liquidator wants to pursue assets in Belgium, for example, they may have difficulty in gaining recognition from the local courts, let alone a legal claim over those assets.
|“The regulation at least creates a level playing field in the EU”|
Uncitral, based in Vienna, is funded by the UN. It started work on its model law in 1994 and completed it three years later. The law sidesteps the issue of harmonisation; it recognises differences between countries' laws but works with the grain by enabling easy recognition of the foreign proceedings. It is not a convention and has to be enacted country by country. Melanie Johnson, the UK Government minister responsible for the insolvency profession, opened the Insol quadrennial conference in July; she declared that the Government intended to enact the Uncitral model law, but no specific date was given.
The EU has also taken an interest in cross-border harmonisation of insolvency laws. For almost 40 years attempts have been made to produce a European convention. A previous attempt fell victim to a beef war over BSE and Anglo-Spanish sensitivities over Gibraltar. But from 31 May 2002, the EU Bankruptcy Regulation applies to all EU member states.
The EU regulation will enable all insolvency office holders from member states to be recognised in any relevant court in the EU. A Greek liquidator, then, can be recognised as such by English courts and can pursue assets here, and vice versa. There are also provisions for cooperation between primary and secondary insolvencies. Up until now, UK insolvency law has on the face of it not appeared to give much in the way of recognition to officeholders outside the old Commonwealth. Section 426 of the UK Insolvency Act 1986 gives recognition to former Commonwealth and British Empire countries, such as Canada, Australia, Malaysia and South Africa.
English judges would say that foreign insolvency representatives can be recognised under the common law, but there is little doubt that the existence of a regulation like section 426 – and the model law when it comes in – will make recognition easier.
Some hold reservations about the type of 'automatic' recognition implied by the regulation and the model law. “What's in it for us?” and “What if the foreign practitioners don't operate to the same standards?” are typical questions. It was a shock to some to find that countries given recognition under section 426 had in most cases not introduced similar reciprocal legislation in their own jurisdictions. But the regulation at least creates a level playing field in the EU. The model law must be passed into law by a country before UK practitioners will be able to take advantage of it there. But the concerns about the quid pro quo and fears that foreigners may turn out not to play cricket are perhaps misplaced.
First, simple recognition in the UK should cut insolvency costs, which should improve returns for all creditors, including UK creditors, whether or not reciprocal laws are in place in the other country. And if the other party turns out to be less than forthcoming, then it is likely that they will be doing the most damage to the assets of the company under their control in their home jurisdiction, which they would be doing model law or no model law (moral: do not lend to companies in those jurisdictions if that is your worry), and if there is evidence of fraud, the English courts will not be found wanting.
So, in conclusion, in a time of ever-increasing globalisation, the EU Bankruptcy Regulation and the Uncitral model law are to be warmly welcomed.
Gordon Stewart is a partner at Allen & Overy
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Recent high-profile collapses of a number of joint ventures (JVs) should prompt corporations to wonder how it could all have gone wrong. Corporate lawyers might worry privately whether their advice on JV structures and exit provisions has been up to the mark.