Bankruptcy Jurisdiction Over Foreign Entities: Exorbitant or Congruent?

By Adrian Walters (Chicago-Kent College of Law, Illinois Institute of Technology)

As Oscar Couwenberg and Stephen Lubben have demonstrated, foreign firms commonly file for bankruptcy in the United States in order to take advantage of chapter 11 of the Bankruptcy Code. But overseas critics tend to balk at the ease with which global bankruptcy jurisdiction can be engineered in the United States through a combination of the Bankruptcy Code’s low bar to entry and the worldwide effects of a bankruptcy case. They complain that the formal structure of U.S. eligibility and jurisdictional rules promote abusive bankruptcy forum shopping and the harmful imposition of U.S. norms on non-U.S. stakeholders.

This article advances a revised account of U.S. bankruptcy jurisdiction over non-U.S. debtors from a distinctively Anglo-American standpoint. The article’s thesis is that critics overemphasize formal jurisdictional rules and pay insufficient attention to how U.S. courts actually exercise jurisdiction in practice. It compares the formal law “on the books” in the U.S. and U.K. for determining whether or not a domestic insolvency or restructuring proceeding relating to a foreign debtor can be maintained in each jurisdiction and provides a functional account of how U.S. bankruptcy jurisdiction over foreign entities is exercised in practice, using the concept of jurisdictional congruence as a benchmark. While the American and British approaches to abusive forum shopping are developing on different legal cultural paths, the article also identifies reasons for thinking that they are trending towards a rough functional equivalence influenced, at least in part, by the U.S.’s commitment to the UNCITRAL Model Law through chapter 15 of the Bankruptcy Code.

In sum, the article lays foundations for further critical reflection on the roles that judges, practitioners, and the “center of main interests” standard play in configuring the market for international bankruptcy case filings and in facilitating and regulating forum shopping in that market. Through the lens of legal development, it also presents some practical and policy challenges for universalism, international insolvency law’s dominant theory.

The full article is available here.

Emerging Economies and Cross-Border Insolvency Regimes: Missing BRICs in the International Insolvency Architecture

By Steven T. Kargman, President, Kargman Associates

SK-Roslyn (July '14) (1) Many of the world’s major advanced economies are subject to some form of cross-border insolvency regime, such as Chapter 15 in the United States. However, despite this clear and important progress in the adoption of cross-border insolvency regimes among many advanced economies, there appears to be a glaring gap in the international insolvency architecture. Specifically, very few of the major emerging economies – and, in particular, none of the BRIC countries (Brazil, Russia, India and China) – have adopted the UNCITRAL Model Law on Cross-Border Insolvency or otherwise enacted effective alternative regimes for handling cross-border insolvencies.

With their growing integration into the global economy, these emerging economies may face a rising number of cross-border insolvencies at some point in the coming years. Nonetheless, while the current absence of cross-border insolvency regimes in major emerging economies may not represent an immediate problem in the next few years, it may pose challenges for the international insolvency framework over the longer term given that these economies are playing an increasingly important role in the global economy.

This two-part article, originally published in 2012-2013 in Insolvency and Restructuring International, reviewed the status of the adoption among major emerging economies of comprehensive insolvency regimes along the lines of the UNCITRAL Model Law and outlined possible pathways that emerging economies might pursue that could lead to the adoption of such cross-border insolvency regimes in these jurisdictions. The article also explored intermediate steps that emerging economies might adopt as a means of growing more comfortable with the concepts that are central to any meaningful cross-border insolvency regime.  Such intermediate steps might serve to pave the way ultimately for the adoption by these emerging market jurisdictions of a more comprehensive cross-border insolvency regime.

Part I of the article (September 2012) can be found here and Part II (April 2013) can be found here.  (This article was first published in Insolvency and Restructuring International, Vol. 6 No. 2, September 2012 and Vol. 7 No. 1, April 2013, and is reproduced with the kind permission of the International Bar Association, London, UK © International Bar Association.)