Complex multi-jurisdictional insolvencies are an
inevitable consequence of the increasingly global nature of big business. The
collapse of the likes of Barings, Enron and most recently Lehmans (the latter
involving insolvency proceedings in some 16 jurisdictions) have highlighted the
growing need for legislative action to promote cross-border co-operation and
protect the interests of international creditors. Comprehensive reform is
needed, not least to curtail the inequitable practice of forum shopping.
In an ideal world, a global harmonised
insolvency system is the logical next step in insolvency policy evolution.
However, for the moment it is Europe that is leading the charge. Reform at a
European level has been a long term goal since the 60’s but the European
Commission’s 2014 recommendations placed harmonisation firmly at the top of the
agenda.
With international policy powerhouses such as Insol International, The
Capital Markets Union and the UN Commission on International Trade also turning
their attention to the issue, it seems that a European wide insolvency regime
could at last become a reality.
But can one size ever fit all? Kuwait’s recent
rejection of proposed insolvency reforms, which essentially sought to impose
the US Chapter 11 process, serves as timely reminder that achieving comity will
not be as straightforward as exporting one nations system to all. National
insolvency regimes have evolved to meet the particular social, economic and
legal needs of that state. The Irish examinership process introduced in 1990 to
deal with the insolvency of the Goodman group of companies and Italy’s Marzano
law which was implemented to save Parmalat, and later amended to deal with the
Alitalia case, are both clear examples of this in action.
Whilst there are regional similarities, domestic
policy objectives will inevitably clash and so it is widely accepted that
effective harmonisation must retain some flexibility, most probably through a
best practice or minimum standard approach. The most obvious route is for
European wide reform to take its lead from successful national insolvency
policy reform where legislators have cherry picked effective and compatible
insolvency practices from around the world to implement. This should avoid the
resistance encountered in Kuwait where the banks in particular felt they were
being shoe horned into the US model.
The UK, French, German and US regimes, all
advocates of the rescue culture, are already key influencers in both
established and developing economies. As matters stand, the UK scheme of
arrangement and the US Chapter 11 process are viewed as the leading
cross-border restructuring regimes with international debtors keen to take
advantage of their protections. Tunisia and Morocco have both implemented the
French procedures of ‘reglement amiable’ (which promotes pre-insolvency
settlement)and ‘redressment judiciare’ (the preparation of restructuring plans
during insolvency proceedings).
Germany adopted debtor in possession
proceedings analogous to those found in Chapter 11 and it is anticipated that
the forthcoming UAE system will be heavily influenced by the French regime
whilst also bearing the hallmarks of both the German and US models. It is
therefore a natural progression to assume that these four heavy weight national
insolvency regimes, should and will form the basis of a harmonised European
insolvency system.
Such a bespoke regime, adopting international
best practices, with universally applicable characteristics has a realistic
prospect of success if implemented appropriately. The foundations for this
revolutionary step have now been laid but there is undoubtedly a long road
ahead to be navigated with caution, particularly if the new system is to meet
the specific needs of developing economies whilst preserving and enhancing the
position of the more economically sophisticated nations in the global financial
markets.
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