Abstract
The decade since the financial crisis has witnessed a proliferation of various ‘light touch’ financial restructuring techniques in the form of so-called pre-insolvency proceedings. These proceedings inhabit a space on the spectrum of insolvency and restructuring law, somewhere between a pure contractual workout, the domain of contract law, and a formal insolvency or rehabilitation proceeding, the domain of insolvency law. While, to date, international insolvency instruments have tended to define insolvency proceedings quite expansively, discussion of the cross-border implications of pre-insolvency proceedings has barely begun. The question is whether pre-insolvency proceedings should qualify as proceedings related to insolvency for the purpose of private international law characterization. The risk is over-inclusivity of cross-border insolvency law, which, where it is based on universality and unity, might defeat contractual expectations. This article argues, however, that we should be slow to exclude pre-insolvency proceedings from cross-border insolvency law: these proceedings are initiated in the zone of insolvency, their effectiveness depends on a statutory mandate and not purely on private ordering, they interact and intersect with formal proceedings, and can benefit from the unique system developed by cross-border insolvency law. We suggest, though, that modified universalism (the leading norm of cross-border insolvency) and international insolvency instruments, should, and are able to, adjust to the peculiarities of pre-insolvency proceedings to address concerns about inclusivity and accommodate pre-insolvency proceedings adequately.
Highlights
Insolvency is typically excluded from international instruments harmonizing the private international law of commercial and civil law matters.1 It is a ‘unique’ subsystem of commercial law, linked to issues of public interest and aiming to promote a fair process taking account of interests of multiple groups of stakeholders, to maximize value, minimize waste, and, enable rescue of viable businesses
This article argues, that we should be slow to exclude pre-insolvency proceedings from cross-border insolvency law: these proceedings are initiated in the zone of insolvency, their effectiveness depends on a statutory mandate and not purely on private ordering, they interact and intersect with formal proceedings, and can benefit from the unique system developed by cross-border insolvency law
Though, that modified universalism and international insolvency instruments, should, and are able to, adjust to the peculiarities of preinsolvency proceedings to address concerns about inclusivity and accommodate preinsolvency proceedings adequately
Summary
Insolvency is typically excluded from international instruments harmonizing the private international law of commercial and civil law matters. It is a ‘unique’ subsystem of commercial law, linked to issues of public interest and aiming to promote a fair process taking account of interests of multiple groups of stakeholders, to maximize value, minimize waste, and, enable rescue of viable businesses. Based on the norm of modified universalism, this emerging cross-border insolvency system prescribes efficient levels of centralization of proceedings, recognized and assisted by foreign authorities, to maximize value and enable business rescue, considering all relevant stakeholders wherever located This special system seeks to transcend domestic private international law rules to provide a harmonized framework for international insolvencies. Pre-insolvency proceedings are typically designed for use by debtors whose businesses are profitable, in that operating revenues exceed operating expenses, but whose balance sheets are overleveraged with the consequence that they will not be sufficiently profitable to repay their financial creditors as these creditors’ loans mature They usually offer the prospect of effective early intervention in situations where contractual workouts are not possible because there is deadlock among creditors, by providing voting mechanisms that enable assenting majorities of creditors to bind dissenting ‘holdout’ creditors to the terms of a restructuring deal.. While we suggest that crossborder insolvency law needs to be flexible, we see no compelling reason to change the current course or reinvent the wheel
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