A Study On The Recognition And Assistance System Of Cross-Border Insolvency

While economic globalization has been expanding,the world's economic and trade ties are tighter than ever before,which leads to new international division of labor that attracts most of the countries into the global economic chain.With the aid of electronic communications and international transportation,a good many enterprises sign up for international investment and trade activities.They go from strength to strength and grow into multinational enterprises,even multinational enterprise groups.In this regard,when a multinational enterprise becomes insolvent,its assets and liabilities are located in different countries.For a cross-border insolvency case as such,courts in the countries concerned must cooperate to solve it in an impartial and efficient way.In particular,they should reach a consensus on the recognition and assistance of the main insolvency proceeding,which is of vital importance to the case,because by doing so,they can protect the concerned parties' legitimate interests and secure the stable development of economic and trade cooperation around the world.The concept of recognition and assistance of cross-border insolvency shall be interpreted in a broad sense—a court in a jurisdiction recognizes the insolvency proceeding and related judgments from outside and provides judicial assistance,e.g.relief or enforcement,for it.The recognition and assistance system of cross-border insolvency comprises three major issues: first,conflicts and coordination of jurisdiction in cross-border insolvency cases;second,cross-border insolvency practitioners' right of access,responsibilities and cooperation;third,recognition,relief or enforcement of foreign insolvency proceedings and related judgments.The truth is,cooperation of cross-border insolvency cases is not that achievable due to the fact that each country has its own insolvency law as well as the underlying tenet and values.In the context of global markets,modified universalism can to the maximum extent bridge the gap among the insolvency laws and values of various countries and help strike a balance between national interests and international cooperation to ensure the justice and efficiency of cross-border insolvency cases and improve the interests of all concerned parties.To achieve it,the international community has made a lot of effort,such as the UNCITRAL Model Law on Cross-Border Insolvency(“Model Law”),the Regulation(EU)2015/848 of the European Parliament and of the Council of 20 May 2015 on Insolvency Proceedings(“Insolvency Regulation(EU)”),the IBA Cross-Border Insolvency Concordat,Inter-Nordic Insolvency Convention,and Principles of Cooperation among the NAFTA Countries.They all exerted a profound influence on the legislation and judicial practice of the recognition and assistance system of crossborder insolvency.With respect to jurisdiction rules,a jurisdiction system for cross-border insolvency has been established.It consists of “main proceeding” and “non-main proceeding” on the basis of “center of main interests(COMI)” and “establishment” with a set of recognition and assistance rules of cross-border insolvency.Identifying a debtor's COMI must be based on the circumstances when an insolvency proceeding starts and involve the factors including where the debtor's central administration,principal business and principal properties are located,with emphasis on the transfer of COMI during an insolvency proceeding.For identifying establishment,“non-temporariness of establishment” and “externality of business activities” must be emphasized.Particularly in an insolvency case of a multinational enterprise group,its parent company,subsidiaries,branch companies and other legal entities enter into insolvency proceedings in different jurisdictions at the same time,which results in a large number of main proceedings and non-main proceedings and thus poses a significant obstacle to the group's multinational restructuring and liquidation.There are two options of insolvency proceeding: one is to see a multinational enterprise group as a whole and determine its COMI according to its central administration and let the local court take over its main insolvency proceeding.The other is to respect the independent personality of the enterprise and allow all the relevant parties to exercise their autonomy of will and sign a cross-border insolvency agreement to coordinate the jurisdictions of the insolvency case.By comparison,signing an agreement is more feasible because the legal representative can arrange the jurisdictions of the case economically according to the operation needs of the multinational group,thus to make up for the existing rules.In the context of global markets,jurisdiction rules of cross-border insolvency call for improvements.We should build center forums in New York,London,Hong Kong,etc under the Model Law system and meantime seek and set up coordination courts for cross-border insolvency cases.Furthermore,during the cases,actual circumstances should be taken into consideration under the criterion of substantial relationship so that the local interests of host countries can be protected.In regard to the rules of foreign representatives' access,duties and cooperation,there are three issues should be taken into consideration.First,foreign representatives' direct access to the courts in host countries should be granted,given their position as subjects applying for recognition and assistance to the courts,which is fundamental to the functioning of the recognition and assistance system of cross-border insolvency.The formality for proving foreign representatives' qualification should be simple enough with notarization and consular authentication waived to allow “direct” access.Moreover,market access for foreign representatives should be opened step by step to make it possible for them to double as practitioners in host countries so that they can better manage and coordinate cross-border insolvency affairs.Second,speaking of foreign representatives' duties,they should conform to the insolvency laws of host countries while performing duties there when there are no international treaties.When there are international treaties,they can refer to Insolvency Regulation(EU)and adhere to the insolvency law of the requesting state.In addition,foreign representatives also have the duties of information notification,cross-filing of creditors' claims and hotchpot,apart from the general duties of care and being subject to supervision.Third,foreign representatives are obliged to communicate and cooperate with competent courts and insolvency practitioners in parallel proceedings.Communication and cooperation matters include: a).the information about insolvency cases,especially about creditors' declaration of claims,insolvent assets,composition agreements and restructuring schemes;b).cooperation in managing and handling assets,declaring and verifying creditors' claims,devising and approving restructuring schemes;c).the coordination of parallel insolvency proceedings in different countries through joint hearing and group coordination proceeding.The rules of recognition,relief and enforcement are the core rules of the recognition and assistance system of cross-border insolvency.They play a significant role in protecting the completeness of debtors' assets and maximizing their values,and safeguarding the overall interests of creditors and debtors.There are a few rules of recognition.First,the objects of recognition include both foreign insolvency-related judgments and foreign insolvency proceedings.Second,the basis of recognition can be divided into international treaties and the reciprocity principle.Without the presence of available conventions on cross-border insolvency cooperation,the reciprocity principle is the cornerstone of various countries' recognizing foreign insolvency proceedings and related judgments.In practice,countries should adopt the criteria of presumed reciprocity while getting rid of the demands for reciprocity bit by bit.Third,the review for foreign insolvency proceedings is different from the jurisdiction rules over insolvency-related judgments,the former following the rules of “main proceeding” and“non-main proceeding” sternly while the latter only seeking no conflict with the jurisdiction rules in host countries.Fourth,foreign proceedings must meet the criterion of due process and all creditors should be treated equally thereunder.The due process means that the concerned parties must be given legal service of process and convenient access to voting on cross-border insolvency matters.Equal treatment means national treatment for foreign creditors who must not discriminated because of their nationality or domicile.Fifth,the public policy of host countries shall not be violated,but this rule must be interpreted restrictively.In practice,only when the international public policy of the host country is manifestly violated by the outcome of the recognition of foreign proceeding or judgement,can the public policy be applied.There are also a few rules of relief.First,the ancillary proceeding from Chapter 15 of the U.S.Bankruptcy Code is applicable to the domestic legislation of cross-border insolvency and the extension model of Insolvency Regulation(EU)is applicable to the establishment of international cross-border insolvency treaties.Second,relief measures consist of provisional relief,automatic relief and discretionary relief,for protecting the values and completeness of debtors' assets.Third,in order to ensure the effectiveness of relief measures,it should be stipulated that relief measures have a retrospective effect in terms of time with bonafide creditors' reasonable expectations being protected.In terms of property,properties owned by debtors,equipments leased and goods transported on behalf of others should be included reasonably too according to the specific conditions of cases.Fourth,relief measures for parallel insolvency proceedings in different countries follow the principles of “proceeding in host countries first” and “main proceeding first”.There are a few rules of the enforcement of insolvency-related judgments too.First,insolvency-related judgments should be defined as “judgments deriving directly from insolvency proceedings and closely linked with them” and therefore judgments commencing foreign insolvency proceedings and provisional judgments shall be excluded.Second,the equivalent effect shall be prescribed in case that the contents to be enforced in foreign judgments cannot be found in the domestic law.Third,the rule of severability must be set so that the enforcement of other judgments shall not be refused when part of the judgments fail to meet the conditions.China is the second largest economy and the largest trading country in the world and ranks among the top in terms of two-way investment.It is bound to have a wealth of cross-border insolvency cases,but its recognition and assistance rules of cross-border insolvency are a little underdeveloped,only to be found in the Article 5 of Enterprise Bankruptcy Law(2006),which will obviously jeopardize the judicial cooperation of cross-border insolvency in China.Hence,China should draw lessons from foreign theories,rules and practices,especially the rules of the United Nations,to improve and enrich the specific rules of the recognition and assistance system of cross-border insolvency,so as to provide legal support for creating a legalized international business environment and the “Belt and Road” initiative.Lessons include: a).determining the jurisdictions over cross-border insolvency proceedings according to international standards such as COMI;b).constructing the rules of access,duties and cooperation for foreign representatives;c).enlarging the scope of recognition of cross-border insolvency and nailing down relevant bases and conditions;d).enriching relief measures for foreign insolvency proceedings and determining their scope of effectiveness;e).clarifying the scope of foreign insolvency-related judgments and prescribing their enforcement measures.