Abstract
The Hertz bankruptcy got a lot of attention, including for its bizarre equity trading. A less heralded but more significant legal aspect of that insolvency, however, was its complex interaction of cross-border insolvency proceedings.
This article discusses the “centripetal” and “centrifugal” forces in the Hertz case that counselled a U.S.-based centralized solution for an international enterprise comprising over 10,000 branches centripetally but also accommodated centrifugal European resistance to subject directors to the consequences of filing their entities in a foreign jurisdiction. This not uncommon constellation of incentives required not a COMI shift but what this article terms a jurisdiction shift of the primary Eurosub’s debt from the Netherlands (where the new scheme-like WHOA law was not yet in force), to the United Kingdom, so that the British scheme mechanism could be deployed to deal with the relevant Eurodebt outside chapter 11. This jurisdiction shift was effected via a consent solicitation that (i) added a U.K. sub, evocatively named Hertz UK Receivables Limited, as a co-issuer of the Dutch sub debt and (ii) changed applicable law of that bond issuance to English law, thereby opening the doors to a scheme’s prerequisite “sufficient connection.” Cross-affiliate guarantees, however, stymied global reach of the scheme and thus required, with no shortage of irony, a U.S. chapter 15 filing alongside the primary U.S. chapter 11 case to deal with the Eurobonds, resulting in what this article deems quasi-parallel proceedings—cross-border parallel proceedings not of the same debtor but of affiliated debtors within a corporate group.
This complex web of ping-ponging proceedings could have been greatly simplified by the application of the new UNCITRAL Model Law on Enterprise Group Insolvency (Groups Law), which comprises both planning and execution provisions to facilitate cross-border cooperation and enable jurisdictional hierarchy. In addition to confronting the theoretical and doctrinal challenges of the Hertz proceedings, this Article test drives (sorry) the Groups Law to see how it could have eased financial distress resolution of an unruly but increasingly common form of international group enterprise: that replete with trans-oceanic inter-affiliate guarantees.
Disciplines
Bankruptcy Law | Law and Economics | Litigation
Date of this Version
3-15-2023
Working Paper Citation
Pottow, John A. E., "Love Hertz: Corporate Groups and Insolvency Forum Selection" (2023). Law & Economics Working Papers. 243.
https://repository.law.umich.edu/law_econ_current/243