Celebrating & Reflecting on 25 Years of the Model Law on Cross Border Insolvency

The International Insolvency Institute’s 22nd Annual Conference was held in Toronto on 6-7 September, 2022. Day One of the conference featured an expert panel of lawyers, judges and academics from around the world reflecting on the past 25 years of cooperation, communication and comity facilitated by the UNCITRAL Model Law on Cross Border Insolvency. The panel considered the experience their respective jurisdictions have had with the Model Law, celebrating its many successes, while also acknowledging where the Model Law has fallen short or diverged from the intentions of the original drafters. They concluded by providing helpful recommendations for how the Model Law can be more useful in the future.

Participating in the panel were:

• Professor Jay Westbrook, University of Texas, Austin, USA (moderator)

• Kathryn Esaw, Partner, Osler Hoskin & Harcourt LLP, Toronto, Canada

• Professor Irit Mevorach, University of Nottingham, UK

• Justice Aedit Abdullah, Supreme Court of Singapore, Singapore

• Hon. Daniel Carnio Costa, First Bankruptcy Court of Sao Paolo, Brazil

Jenny Clift was also honoured for many years at the UN and service to the Model Law.

The History of the Model Law

Professor Jay Westbrook regaled the audience with stories about how the Model Law came to be. He shared that when the Model Law began in Vienna, the Insolvency Group at UNCITRAL was assured that they were wasting their time, since there was no chance that different and complex insolvency laws in the world could work together. 

Over time, the Group developed a few basic goals, including that recognition should be based on a simple set of facts easily shown to a foreign court, that it should result in worldwide control of the assets of the debtor by one court, and that there should be statutory authorization for courts to pursue cooperation and communication. Professor Westbrook reflected on these goals, concluding that a couple of salient issues remain before us know, 25 years later. First, it is undesirable for COMI to be decided solely on the basis of the jurisdiction of incorporation, where the company has no other significant economic connection to the jurisdiction. Second, there has not been enough use of the communication and cooperation provisions of the Model Law – the original drafters had in mind active communication and coordination between the courts, not just recognition.

The International Experience

Professor Irit Mevorach touched on the various successes of the Model Law in the UK – which adopted the Model Law in 2006 – and abroad, commenting that the Model Law has promoted modified universalism and international cooperation, allowed for quick recognition of main proceedings and facilitated the approval of various types of relief, which otherwise would not have been possible.

In terms of weaknesses and challenges going forward, Professor Mevorach noted that the discretionary relief provisions have been enforced broadly, but that objections have frequently been raised, which has sometimes revealed territorialist intentions. She also pointed out that the Model Law is vague, flexible and does not provide explicit rules with respect to COMI in the context of enterprise groups.

In response, UNCITRAL adopted the Model Law on Recognition and Enforcement of Insolvency-Related Judgments in 2018, which requires that insolvency related judgments be recognized and enforced, and provides explicit reasons for refusing to enforce. It also adopted the Model Law on Enterprise Group Insolvency in 2019, which provides tools to centralize group proceedings. However, Professor Mevorach acknowledged that there may be even more challenges in implementing the new Model Laws, in that they are complicated, jurisdictions may be reluctant to adopt them and, in the case of the Model Law on judgments, there is significant overlap and sometimes inconsistency with the original 1997 Model Law. The UK is now consulting on adopting these Model Laws.

Kathryn Esaw provided insights into the Canadian experience. Canada adopted the Model Law in 2009 as part of a broader overhaul of its insolvency legislation. Since then, it has had a disproportionate number of cross-border insolvency proceedings with the US and has developed various ways to streamline recognition proceedings. Two of the most notable are the use of an information officer, which acts as an independent set of eyes and ears for the court, providing it with real-time information and recommendations, and the adoption of various guidelines pertaining to cross-border communications and cooperation, including the JIN Guidelines and the Guidelines Applicable to Court-to-Court Communications in Cross-Border Cases.

Kathryn provided the example of RSM Richter and Aguilar, a Canadian main proceeding with a US recognition proceeding where it was proposed that there would be no jury trial or an opportunity to present viva voce evidence, contrary to US law. Rather than outright rejecting the relief sought as contrary to US public policy, the US Court worked with the Canadian Court to come to a resolution that would be acceptable to both jurisdictions, and the relief was approved by both Courts.

The “Newbie” Jurisdictions

Panelists from two jurisdictions which have adopted the Model Law relatively recently also spoke about their experience as the new kids on the block. Justice Abdullah Aedit of the Supreme Court of Singapore, which adopted the Model Law in 2017, spoke about how it has had the opportunity to build on the experience of other jurisdictions, adopting what it views as the best from each jurisdiction. For example, when it comes to COMI, Singapore has settled on approaches from the US and the UK, and has considered objective factors discernible to creditors in determining where the main proceeding should take place.  It has focused on the need to be pragmatic, and its main aim has been to rescue the company and, if this cannot be accomplished, to achieve an orderly dissolution and maximise creditor recoveries. Justice Aedit also spoke about the opportunities for other countries in South East Asia to adopt the Model Law, but noted various challenges, including the lack of a common language or legal tradition.

Judge Daniel Carnio Costa of the First Bankruptcy Court of Sao Paolo, Brazil, which adopted the Model Law in 2020, spoke about how far the country has come in the last decade. An economic crisis in the country in 2014, which saw the GDP drop 7%, put the insolvency system under significant pressure and laid bare its flaws. At the time, Brazil did not have DIP financing or cross-border regulations, so the government formed a working group, of which Judge Costa was a member, to improve its insolvency laws. The country has since adopted the Model Law on Cross Border Insolvency, but not the Model Laws on judgments or group enterprises, as it is waiting to observe the experience of other countries before doing so. It has also adopted the JIN Guidelines.