Document Type

Article

Publication Date

2005

Abstract

The headline-grabbing business failures of late have brought increased attention to the relatively unresolved area of multinational bankruptcies. Parmalat, Global Crossing, and United Airlines are among the few international juggernauts that have foundered. In the financial meltdowns of these cross-border institutions, assets and creditors are dispersed throughout commercial environments that rarely end neatly at national borders. There has been heated debate, both in scholarly literature and the practical battlefield, over how best to resolve these transnational insolvencies, and there is nothing yet approaching a consensus. Reform efforts of various stripes have almost uniformly failed to gain meaningful international support. At the hub of this inability to generate international consensus is a theoretical rift. The essence of disagreement revolves around the competing theories of "territorialism" and "universalism" as the preferred normative models for resolving multinational failures. While territorialism counsels following strict sovereign borders in allocating regulatory jurisdiction among nations over globally dispersed assets, universalism embraces a one-law approach: the application of one "exporting" country's law extraterritorially to other "receiving" jurisdictions. Given that this theoretical debate between territorialism and universalism remains ongoing and unresolved, we should be unsurprised at the historic inability to craft an international agreement among nations, by treaty or other means. Indeed, we should remain pessimistic in our prognosis. Nevertheless, an important and fresh development in international bankruptcy has recently defied our bearish expectations. After decades of disagreement, one recent attempt at reform has bucked the trend of failure and actually won widespread international support: the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency (Model Law). Since the Model Law, there has been an explosion of international bankruptcy reform. These efforts include UNCITRAL's best practices Draft Legislative Guide, designed for countries seeking to revise their insolvency laws; the American Law Institute's (ALI's) Transnational Insolvency Project (TIP), a series of proposals for crossborder insolvencies in the three NAFTA countries; and the European Union's Insolvency Regulation, a legal enactment covering intra- European Union multinational bankruptcies. Accordingly, these recent developments present something of a puzzle: why, in the face of so many false starts, and especially in the face of ongoing disagreement over the theoretical benefits of universalism compared to territorialism, did international bankruptcy reform finally take off? Was it simply a matter of fortuitous historical timing? Was there something specific about the mechanism of the UNCITRAL Model Law (perhaps its status as a model law, as opposed to a treaty, or perhaps its substantive content) that accounted for its ability to break the loggerhead? What makes a mechanism such as a model law effective at galvanizing reform in international bankruptcy law?


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