Beyond UNCITRAL: Alternatives to Universality in Transnational Insolvency

Abstract

The rapid growth of international economic activity in the recent decades has brought forth a unique and formidable policy challenge. The challenge consists of reconciling two goals which sometimes compete directly with one another: creating a regime that allows economic interaction between private actors to occur with the highest possible degree of efficiency, and allowing sovereigns to ensure that the regime does not thwart their public policy to induce those sovereigns' cooperation. The tension between these competing goals is patently evident in transnational bankruptcies. On one hand, considerations of efficiency call for three things: ex ante predictability, elimination of wasteful duplication of work by the courts, and incentives for optimal ex ante allocation of resources. On the other hand, any proposed regime must be sufficiently attractive to sovereign actors for adoption, and actually become widely adopted, if it is to become a genuine international regime. To that end, it must allow sovereign actors to satisfy the needs of their own domestic public policy if they are to cooperate. This paper discusses the need for a comprehensive system for the resolution of transnational bankruptcies. It then examines the various bankruptcy systems that are discussed in the scholarship or implemented in practice in the present day, including the various flavors of territoriality, universality, and contractualism, along with a solution predicated on the establishment of an international body for administering transnational insolvency proceedings. It further addresses the UNCITRAL Model Law on Transnational Bankruptcy and its implementation, in particular, in the United States. It discusses the advantages and disadvantages of each regime and offers thoughts on how each may be improved or tailored to suit various economic needs. The paper concludes by advocating a modified form of cooperative territoriality as an imperfect but most workable framework for an international bankruptcy regime.