The Way Ahead Protocols in International Insolvency Cases
Cross-border and multinational cases have always produced some of the most complex situations and issues that the insolvency community must face. Historically, there has never been much cooperation among courts in different countries in cross-border cases, even though under the traditional international insolvency rules everyone loses in a multi-national insolvency.
The tremendous advances in information technology within the last 15 years have made it possible for businesses to operate in a variety of different countries at the same time and to link all of these operations as if they were next door. An insolvency case, however, stops all that and turns the business into a series of disconnected segments in several different countries. In a typical international insolvency, different sets of creditors assert different kinds of claims to different assets under different rules in different countries. The international business that was once carried on comes to an end and separate, unconnected remnants of the organization attempt to continue until they either starve or implode. It is almost as if a cross-border insolvency system had been set up deliberately to promote failures and liquidations.
Consider what would happen if traditional international insolvency rules applied to a business in financial difficulty that had operations in New York, Ohio and Colorado instead of England, Germany and the United States. After a filing, the New York, Ohio and Colorado portions of the business would all be run separately by different court-appointed officials. None of the courts would be obliged to recognize orders made in the others, and there would be severe pressure from local creditors for the local courts to ignore the proceedings in the other courts entirely. Legislation would typically prefer local creditors over others. Transactions between jurisdictions would grind to a halt. Receivables would be collected in the jurisdiction of the account debtor and would not be released to any of the other courts or creditors. This has been the traditional result in cross-border cases. It is only relatively recently that the insolvency profession and the courts have been able to work toward a system that pays more attention to the interests of the stakeholders than to issues of the national sovereignty of the jurisdictions involved.
The insolvency profession has been able to achieve some very positive progress in this bleak landscape. Assisted by more constructive approaches that are becoming more accepted in the courts of the major trading countries, practices are developing under which courts in different countries can cooperate with each other to harmonize their administrations in cross-border cases. In some cases (see the Journal, Volume XVII, No. 1, February 1998) describing the joint cross-border court hearing in the Solv-Ex Corp. case), courts have actually begun communicating with each other on a real-time basis in cross-border cases to preserve opportunities for a successful reorganization. This harmonization can only be to the advantage of the stakeholders of the business, and it permits value to be saved for the stakeholders when, under traditional rules, the best that the creditors might have hoped for would have been an advantageous liquidation.
The concept of cross-border arrangements among courts of different countries in international cases had its most prominent modern origins in the U.S./U.K. proceedings in Maxwell Communication in 1991-1992. Two years later, a modest form of Cross-Border Insolvency Protocol was entered into between the United States and Canada in In re Olympia & York Developments. Subsequent to Olympia & York, the International Bar Association developed its Cross-Border Insolvency Concordat. The Concordat provides guidelines to be used by the courts in different countries to harmonize proceedings in cross-border cases. An increasing number of protocols have now been entered into based on the examples shown by Maxwell, Olympia & York and the Concordat.
In connection with the American Law Institute's Transnational Insolvency Project, a listing was prepared of the major Cross-Border Insolvency Protocols in recent international cases. This analysis derived from an investigation of international experience in coordinating cases between different countries. This listing appears with the permission of the American Law Institute at the end of this article and comprises all of the recent cross-border insolvency protocols known to the author.
As the insolvency profession and the insolvency judiciary in the major trading countries become familiar with the International Bar Association's Cross-border Insolvency Concordat and the cross-border insolvency protocols that have been negotiated and approved in recent cases, more frequent use of the protocol concept can be expected. Protocols are not only a reasonable commercial solution to complex international issues but they also inevitably produce a better result for the stakeholders involved than would be possible under almost any other scenario.
ABI members who have had successful cross-border experiences with protocols or protocol-type arrangements are highly encouraged to provide the details and particulars of the arrangements and copies of the actual court orders and protocols involved to add to our listing. Please forward details and any of the appropriate documentation to Bruce Leonard, c/o Cassels Brock & Blackwell, 40 King Street West, Suite 2100, Toronto, Ontario M5H 3C2, Facsimile: (416) 360-8877.
The increasing use of cross-border insolvency protocols will be of benefit to all stakeholders who become involved in cross-border cases and, with the help of the readers of the Journal, we can expect that the number of reported examples of cross-border insolvency protocols can be substantially increased.
Recent Cross-border Insolvency Protocols
- Cross-border Liquidation Protocol in In re AIOC Corporation and AIOC Resources AG between United States and Switzerland: U.S. Bankruptcy Court for Southern District Court of New York (April 3, 1998)
- Cross-border Insolvency Protocol in In re Solv-Ex Canada Limited and In re Solv-Ex Corporation between Alberta Court of Queen's Bench and U.S. Bankruptcy Court for the District of New Mexico (January 28, 1998)
- Cross-border Insolvency Protocol in In re Tee-Comm Electronics Inc. between Ontario Court of Justice and U.S. Bankruptcy Court for the District of Delaware (June 27, 1997)
- Cross-border Insolvency Protocol between the United States and Israel in In re Nakash: U.S. Bankruptcy Court for the Southern District of New York; and District Court of Jerusalem (May 23, 1996)
- Order Coordinating Canadian and U.S. Reorganizational Proceedings in In re Everfresh Beverages Inc. (Ontario Court of Justice: May 15, 1996)
- Cross-border Insolvency Protocol between Canada and the United States in In re Everfresh Beverages Inc.: Ontario Court of Justice, Toronto and U.S. Bankruptcy Court for the Southern District of New York (December 20, 1995)
- Cross-border Protocol between Ontario Court of Justice and U.S. Bankruptcy Court for the Southern District of New York in In re Olympia & York Developments Ltd. (July 1993)
- Cross-border Insolvency Protocol between the United States and the United Kingdom in In re Maxwell Communication plc: (U.S. Bankruptcy Court for the Southern District of New York: January 15, 1992 and the High Court of Justice, Chancery Division, Companies Court: December 20, 1991)
ABI International Networking
ABI's extraordinary resources are continuing to prove helpful to its members, and a recent example shows the value of the ABI's resources on the international scene.
An ABI member had a complex legal issue involving the insolvency legislation of an overseas country. Where to turn? The answer, of course, was ABI World. It only took a few minutes to locate another ABI member who had experience that was highly relevant to the situation. The matter is becoming an interesting issue, about which the ABI Journal welcomes an article. We reiterate our continuing invitation to all ABI members to contribute their international experiences to ABI World and to share materials with other members at ABI World's International Committee area.
E-mail contributions to Carolyn Kanon at [email protected] or send them to her at ABI, 44 Canal Center Plaza, Suite 404, Alexandria, Va. 22314.