r3 and insol europe international restructuring conference
TRANSCRIPT
www.duanemorris.com
©2016 Duane Morris LLP. All Rights Reserved. Duane Morris is a registered service mark of Duane Morris LLP. Duane Morris – Firm Offices | New York | London | Singapore | Philadelphia | Chicago | Washington, D.C. | San Francisco | Silicon Valley | San Diego | Shanghai | Boston | Houston | Los Angeles |
Hanoi | Ho Chi Minh City | Atlanta | Baltimore | Wilmington | Miami | Boca Raton | Pittsburgh | Newark | Las Vegas | Cherry Hill | Lake Tahoe | Myanmar | Oman | Duane Morris – Affiliate Offices | Mexico City | Sri Lanka | Duane Morris LLP – A Delaware limited liability partnership
prepared for:
R3 & Insol Europe International Restructuring Conference
presented by:
Patrick N.Z. Rona, Esq., Duane Morris LLP
22 April 2016
Global Developments Coming Our Way – An Insolvency Convention
0DM3\3879586.1
www.duanemorris.com1
Patrick N.Z. Rona – Speaker
Patrick N.Z. Rona is an international corporate finance and
insolvency lawyer. He works on cross-border restructurings,
mergers and acquisitions, as well as debt and equity offerings
(public and private). Mr. Rona started his legal career in emerging
markets working for Baker & McKenzie in Budapest and has
worked as a CEO or CRO of distressed companies in the U.S.
and Europe. Mr. Rona is multilingual and has worked in many
jurisdictions. Early in his career, Mr. Rona served as law clerk to
the Honorable Stuart M. Bernstein and the Honorable Arthur J.
Gonzalez of the U.S. Bankruptcy Court for the Southern District of
New York, and he spent two years training in General Electric's
Financial Management Program prior to entering law school. Mr.
Rona is an Officer of the IBA and Co-Chair of the Legislation and
Policy Subcommittee of its Insolvency Section. Mr. Rona
represents the IBA at the United Nations Commission on
International Trade Law, Working Group V and has formed a Task
Force of the IBA that works on the development of an Insolvency
Convention.
www.duanemorris.com2
GLOBAL LAW REFORM THROUGH AN INTERNATIONAL INSOLVENCY CONVENTION
“IN ALL MERCANTILE TRANSACTIONS THE GREAT OBJECT SHOULD BE CERTAINTY: AND THEREFORE, IT IS OF MORE CONSEQUENCE THAT A RULE SHOULD BE CERTAIN, THAN WHETHER THE RULE IS ESTABLISHED ONE WAY OR THE OTHER.” VALLEJO V.
WHEELER (1774) 1 COWP 143, 153 (LORD MANSFIELD)
“THE ONLY ANSWER TO THE PUZZLE OF THE IMMORTAL BUT INCOMPETENT NATION STATE IS EFFECTIVE CO-OPERATION BETWEEN THOSE STATES FOR ALL THE PURPOSES THAT LIE BEYOND THE REACH OF ANY ONE OF THEM.” DOUGLAS HURD, THE SEARCH
FOR PEACE (LONDON: 1976) P.6
“THE RULE OF THE JUNGLE IS NO MORE TOLERABLE IN A BIG JUNGLE.” TOM BINGHAM, THE RULE OF LAW (LONDON: 2010) P. 112
For the International Bar Association
Insolvency Section
www.duanemorris.com
Overview of Key Int'l Insolvency
Instruments1
Bilateral or regional efforts
- Latin America: Montevideo (1889, 1940), Havana (1928)
- Europe: Nordic countries (1933) + various bilateral conventions
- Africa (French speaking): OHADA Uniform Bankruptcy Law (1998)
Istanbul Convention (Council of Europe)
- Opened for signature since 5 June 1990
Model law on cross-border insolvency (UNCITRAL)
- Model law + Guide (1997, 2013), enacted cca 20 in States
- Legislative guidance (2004 + supplemented in 2010 and 2014) + Practice Guide
(2009)
IBA developed Model Instruments
EU Insolvency Convention (1995) >> EU Insolvency Regulations (2000, 2015)
1 Kurt H. Nadelmann, Bankruptcy Treaties, 93 U. Pa. L. Rev. 58 (1944-1945).
3
A Global Insolvency Convention
www.duanemorris.com
The European Union and the Council of
EuropeEU Convention on Insolvency Proceedings (1995)
– by 23 May 1996 signed by 14 out of 15 EU Member States at that time (with the
exception of the United Kingdom)
– Virgos-Schmit (explanatory) report (not approved by the Council)
– Revived in 1999 as a project of EU Regulation
EU Regulations on (general) insolvency– Regulation (EC) No 1346/2000 on insolvency proceedings, Regulation (EU) 2015/848
on insolvency proceedings (the latter replaces the former as of 26 June 2017)
– concern the applicable law, jurisdiction and recognition and enforcement of
judgments + rules on coordination of cross-border group insolvency
– do NOT concern: insurance undertakings, credit institutions, investment firms and
collective investment undertakings
4
A Global Insolvency Convention
www.duanemorris.com
Is There a Future for More Universality?
Efforts to develop a workable international convention
– Problem: reluctance of certain States to change the
recently attained mitigated universality result
– Light of hope: still willingness and energy to move
forward
Harmonisation of substantive insolvency law
– Problem: how to find consensus?
– Light of hope: 2014 Insolvency Recommendation,
without structural reforms low-growth forecast due to
unresolved debt-overhang (insolvency in the forefront)
5
A Global Insolvency Convention
www.duanemorris.com8
A Global Insolvency Convention
http://www.ibanet.org/LPD/Insolvency_Section/Insolvency_Section/Projects.aspx#uninsolvencyconvention
www.duanemorris.com9
A Global Insolvency Convention
Despite its accolades, the UNCITRAL model law on cross-border
insolvency has been adopted by less than 20 of the 60 UNCITRAL
member states over a period of 19 years (1997)!2
How can it be that with explosive growth of the global marketplace,
UNCITRAL member states have shown so little interest in legislation that
deals with international business risk failure? Why have Germany,
France, Brazil and the Asian economic giants of India and China not
come onboard?
How many countries like Greece, Eritrea, Montenegro or Mauritius were
compelled to adopt as part of a debt restructuring or as a condition of
IMF or World Bank Financing of assistance?
2 The states are Eritrea (1998), Japan, Mexico, South Africa (2000), Montenegro (2002), Poland,
Romania (2003), Serbia (2004), British Virgin Islands, United States of America (2005), United Kingdom,
Korea, Colombia, New Zealand (2006), Slovenia (2007), Australia (2008), Mauritius, Canada
(2009),Greece (2010), Chile (2014).
www.duanemorris.com
According to a Singapore Management University Study
of 2012, Countries That Have Not Adopted the Model Law
Are:3
• About 49 of the 60 UNCITRAL member states (82%)
• 22 of the 27 European Union Countries (81%)
• 11 of the 19 G20 countries (58%)
• 23 of the 34 OECD countries (66%)
• 5 of the 8 G8 countries (largest economies of the world)
(66%)
• Of the 38 countries regularly represented by UNCITRAL
WGV, about 82% have not adopted the Model Law
10
A Global Insolvency Convention
3 Data as of 2012, but has not materially changed since then.
www.duanemorris.com
Most Model Laws Have a Higher Take-up Rate
Than the Cross-Border Insolvency Law:
• Model Law on International Commercial Arbitration
of 1985 (67 adoptees)
• Model Law on Electronic Commerce of 1996
(44 adoptees)
• Model Law on Procurement of Goods, Construction and
Services of 1994 (29 adoptees)
• Model Law on Electronic Signatures of 2001
(21 adoptees)
11
A Global Insolvency Convention
www.duanemorris.com
Model Laws Allow Countries to Make Changes to the Text
and Most Changes Have Been Significant in Insolvency:
• Reciprocity (more than 1/3rd of countries)4;
• Certain businesses excluded (UK and U.S. have
exclusions for investment, insurance and credit institutions
without strong reasons which justify exclusion);
• Manifestly contrary to public policy;
• The role and powers of the foreign representative and the
interests of creditors being “adequately protected”
(Mexico, U.S., Canada and Poland have significant
modifications to Articles 9, 10, 11, 19, or 21).
4 South Africa, Mexico, the British Virgin Islands, Romania and Maurtius.
12
A Global Insolvency Convention
www.duanemorris.com
Are These the Sins of the Model Law that
Must be Avoided in a Convention?• our insolvency law was made before the Model Law and we do not benefit
from soft law;
• our law is based on the incorporation/registered seat principle unlike the
Model Law;
• as a civil law country, we expect clear consequences of a recognition (not an
undetermined “relief”);
• the EC Insolvency Regulation would be a model that is closer to our legal
concepts than the common-law oriented Model Law;
• the Model Law is not mutually obligatory and does not offer reciprocity;
• the Model Law allows countries to make changes to the text and those
changes have been significant;
• the Model Law allows forum shopping which is unfair and creates distrust; and
• the Model Law provides a pre-eminent role to a Foreign Representative which
is undesirable.
13
A Global Insolvency Convention
www.duanemorris.com
The Case for an International Insolvency
Convention• Cross-border insolvencies, including those of corporate groups and
industries beyond the Model Law’s scope, require global solutions
• Legislative guides and model laws are unilateral—do not provide a
“super-structure” for mandatory international cooperation but
encourage “cherry picking” by national legislatures
• Practitioners increasingly acknowledge the need for an international
convention in cross-border insolvency proceedings
– IBA: WORLD’S LAW SOCIETIES/ BAR ASSOCIATIONS WHICH ARE MEMBERS
OF THE IBA strongly support promulgation of an insolvency convention
• A convention enforceable on the basis of reciprocity would
establish a reliable international framework affording
coordinated, consistent administration of cross-border
insolvency proceedings, and should include those of enterprise
groups.
14
A Global Insolvency Convention
www.duanemorris.com
Nations are Agreeing to Conventions at
the HCCH• On 1 October 2015, further to the work of the Hague Conference on Private International Law (the
“HCCH”) and the deposit of the instrument of approval by the European Union (EU), the Choice of
Court Convention, which applies to choice of court agreements concluded on or after 1 October
2015, entered into force. At present, 28 States (all EU Member States with the exception of
Denmark, as well as Mexico, which was the first State to accede to the Convention on 26 September
2007) are bound by the Convention. In 2009, the United States of America signed the Choice of
Court Convention, but it is still considering the best means of domestic implementation of the
Convention. Singapore became the second signatory to the Convention on 25 March 2015, and
expressed its intention to ratify the Convention in the course of 2016. In the Asia Pacific region,
Australia is continuing to work towards the implementation of the Convention and the People’s
Republic of China is actively studying it. Several Latin American States, such as Costa Rica and
Argentina, are also considering the Convention. In addition, the HCCH has developed over the
course of five meetings of a HCCH Working Group a proposed draft text of a convention that applies
to the recognition and enforcement of judgments relating to civil or commercial matters, but which
presently excludes applicability to “insolvency, composition and analogous matters.
• Queries: Should the HCCH provide for the recognition and enforcement of insolvency
related judgments?
And
Is the HCCH “more convention capable” than UNCITRAL?
15
www.duanemorris.com
What are the Benefits of an International
Insolvency Regime?• Universalism or some workable modification thereof can
only be achieved through formal international agreement;
• Resolves choice of law and conflicts of law issues;
• Resolves differences in substantive bankruptcy laws;
• Provides for automatic recognition and enforcement of
bankruptcy court orders or judgments throughout the world;
• Fosters the distribution of assets and setting of interests
rates without distortion, leading to more efficient
investment patterns and increased global welfare.5
5 Lucien Arye Bebchuk and Andrew T. Guzman, Analysis of Transnational Bankruptcies, An, 42 J.L. &
Econ. 775 (1999)
16
Preparing for the Next Crash
www.duanemorris.com
Six Types of Regimes for International
Bankruptcy Exist:1. Territoriality;
2. Universality or universalism;
3. Modified universalism of the EUIR;
4. The Rasmussen corporate charter contractualism (a form of universality);
5. The Westbrook world bankruptcy court International organization for the
adjudication of transnational bankruptcy cases via treaty or
6. LoPucki´s cooperative territoriality, a system of secondary bankruptcy, a
hybrid between territoriality and universality. Courts secondary proceedings
administering would have authority to distribute all of the debtor´s estate in
that court´s country, possibly as modified by Kipnis (automation of claim
allowance process and cooperation on fraudulent transfers).6
Most of these require a Treaty or Convention in order to be Effective …6 See Alexander M. Kipnis, Beyond UNCITRAL: Alternatives to Universality in Transnational Insolvency, 36
Denv. J. Int’l. L. Pol’y 155, 186 (2008)
17
Preparing for the Next Crash
www.duanemorris.com
Comparative Advantages of a Cross-Border
Insolvency Convention #1: Reciprocity• Different law reform objectives/instruments:
1. Focus of model law: change, harmonize, modernize substantive insolvency law
2. Aim of convention: Create regime among states for intergovernmental official
cooperation by governmental bodies & courts; this is the realm of treaty/convention, where
rights and duties apply between signatories (mutually obligatory)
• Reciprocity Nations hesitate to modify legal rules, cede jurisdiction or grant privileges in a manner, or
to an extent, that might not be reciprocated by other nations; Model Laws are not
conditioned upon, nor do they promise, reciprocity. A Convention binding and effective
only between contracting states would address that objection.
Without reciprocity, many nations are unwilling to enact a general principle of insolvency
law recognizing foreign insolvency proceedings “on an equal footing” with those of the
home jurisdiction
TRUST AND POWER CONSIDERATIONS IMPACT DECISIONS AT NATIONAL LEVEL
• Effective for EU Interface EU could be a signatory: an effective way to develop a consistent, EU-wide interface with
non-EU nations and regional systems
Should build on concepts and approaches already enshrined in EIR
18
Preparing for the Next Crash
www.duanemorris.com
Comparative Advantages #2: Limited
Contractual Exception to National Law Model laws—designed for enactment as an integral part of national
law. Some Model Law provisions cannot be enacted because they
differ too fundamentally from a legal system’s basic norms to be
integrated into a nation’s substantive law.
By contrast, international conventions, while fully binding under,
and technically a part of, national law, are seen as creating limited
exceptions to otherwise applicable national laws (and judicial
traditions) as a matter of state contract to address a discrete need
for international cooperation.
Model law provisions varying jurisdictional standards or commonly
accepted norms of judicial conduct are often contentious.
Some inconsistency with otherwise applicable principles of national law is
often more acceptable in the context of an international convention calling
for compromise by all contracting parties to achieve common objectives.
Treat issues traditionally subject to bi- or multilateral agreement
19
Preparing for the Next Crash
www.duanemorris.com
Convention Substantive Provisions-Open for Discussion
• Be consistent with the European Insolvency, the most developed cross-
border insolvency legislation of our time
• Possible subjects: Cross-border access & recognition of other proceedings, trustee, Administrators, DIP
Judicial communication/cooperation: joint hearings, orders
Joint notice procedures, sharing of creditor/shareholder lists, etc.
Joint administrative orders, enforcement of stays
Authorize national courts to designate Group Coordinating Court
Recognition & enforcement of insolvency court judgments, orders
Authorize additional dispute resolution (States and private parties)
• Limit carve outs? Attempt a “universal solution” across wide range of cases (including protected industries
currently beyond Model Law) by agreed procedural mechanisms, not substantive law
• One test: What is the minimum content required for the Convention’s regime
to succeed, without scaring away potential signatories? Focus on areas in which law currently harmonized
Future Optional Protocols might treat other subjects as nations’ laws grow together
20
Preparing for the Next Crash
www.duanemorris.com
Please refer any questions or follow-ups to:
Patrick N.Z. Rona
DUANE MORRIS LLP
1540 Broadway
New York, NY 10036
Tel: 212-692-1048
Fax: 212-692-1020
www.duanemorris.com
Disclaimer: These materials and panel’s comments are intended for discussion purposes only and are
not intended as legal advice. The views expressed are the personal opinions of the speakers and not
those of the institutions or organizations with which the speakers are affiliated, or of the International
Bar Association or its officers (which make no representation as to the accuracy of the information
communicated).
Thank you for your participation!
21