International Insolvency

International insolvency refers to the management of debtors facing financial difficulties when they possess assets or creditors in multiple countries. It primarily focuses on the insolvency of companies operating across different jurisdictions rather than the insolvency of individuals.

An international or cross-border insolvency occurs when a debtor who is insolvent has assets in multiple jurisdictions, or when at least one creditor involved in the insolvency proceedings is based outside the jurisdiction where those proceedings have been initiated.

As technology and trade continue to grow rapidly, cross-border issues are becoming increasingly relevant and play a significant role in insolvency law.

The UNCITRAL Model Law on Cross-Border Insolvency, adopted in 1997 (“Model Law”), is intended to assist contracting states in creating a harmonized and equitable insolvency framework. This framework addresses cross-border proceedings involving insolvent debtors or those facing significant financial distress.

As cross-border insolvency proceedings involving affiliated debtors within a corporate group have become more common, the UNCITRAL Model Law on Enterprise Group Insolvency was issued in 2019. This law addresses insolvency proceedings for multiple debtors that are part of the same enterprise group, even if those debtors are located in different jurisdictions.

Once a court recognizes foreign insolvency proceedings, the Model Law gives the court the discretion to provide various remedies. However, it also permits differences in interpretation by the courts in the countries that have adopted the Model Law, which include the US, Canada, and the UK.

The current Chapter 15 of the US Bankruptcy Code was introduced in 2005 to facilitate cooperation between US and foreign courts when foreign bankruptcy proceedings impact US financial interests. The purpose of Chapter 15 is to achieve the following goals:

• Promote collaboration and coordination among US courts, non-US courts, and parties involved in insolvency cases filed outside the United States.

• Minimize the risks for creditors and stakeholders of foreign companies.

• Assist financially-troubled companies

• Make legal proceedings regarding international bankruptcies more predictable and fair for debtors and creditors.

• Protect the value of the debtor's assets across jurisdictions.

• Allow a representative in a corporate bankruptcy case that has been filed outside the US to gain access to the US court system so as to better deal with assets connected to more than one country.

• Create a stronger legal framework for international investment and trade.

• Provide for better administration of cross-border insolvencies to safeguard all parties' interests.

Chapter 15 of the U.S. Bankruptcy Code establishes a mechanism for recognizing foreign insolvency, liquidation, or debt restructuring in the United States.

Chapter 15 is the main way for a foreign representative to gain access to US federal and state courts. Once recognized, a foreign representative can seek further relief from bankruptcy courts or other federal and state courts. This recognition permits them to initiate a full bankruptcy proceeding, rather than just an ancillary one. Additionally, Chapter 15 allows foreign creditors to participate in US bankruptcy proceedings.

The Model Law was adopted in Canada in 2009 as Part IV of the Companies’ Creditors Arrangement Act. While it closely resembles the Model Law, Part IV includes some distinct features. Additionally, Canadian courts have broad discretion to issue any order they deem necessary to protect the property of a debtor or the interests of a creditor, as long as such an order does not contradict “public policy.”

In the UK, the Model Law was implemented through the Cross-Border Insolvency Regulations 2006 (“CBIR 2006”), although it contains some distinguishing features.

Under the CBIR 2006, a representative administering foreign insolvency proceedings can request the UK courts to issue an order for the recognition of those proceedings, which are subject to the supervision and control of a foreign court.

At Kramer International Law, we provide assistance to creditors, debtors, lenders, and shareholders regarding insolvency-related issues such as administration, liquidation, and restructuring.

We assist liquidators in recovering funds using various methods, including negotiation and litigation. We represent liquidators in lawsuits against corporate insiders, auditors, and others seeking to recover money that has been stolen or lost due to fraud or breach of fiduciary duty.

Should you have any insolvency issues relating to the US, Canada or the UK, we can assist you.