With the onset of globalization in the latter part of the 20th century,
companies started believing in the "no borders policy" for businesses. Whenever
a business fails, it goes into heavy debt and declares bankruptcy; each country
has some specific rules, regulations, and laws to deal with this problem of
their demise, resurgence, or reincarnation as any other company, for example,
insolvency and Bankruptcy code,2016 in India. Bankruptcy law, like any other
product of a state authority's sovereignty, is national in scope and cannot
reach all of a worldwide debtor company's overseas subsidiaries.
The end of the 20th century and the beginning of the 21st century marked the
beginning of progress in the field of transnational bankruptcy law. The problem
became more critical as a consequence of the oil crisis in the 1970s When
Herstatt and other banks failed, the problem came more into the limelight than
In the 1980s and 1990s, the number of bankruptcy cases involving many
jurisdictions increased, prompting several efforts to spread cross-border
insolvency legislation around the world. Nonetheless, global acceptance of
cross-border insolvency legislation needs to catch up to the spread of
Many countries, or the majority of the countries in the world, have still not
made any laws relating to transnational insolvency, and there have not been many
treaties in this regard. The lack of predictability and transparency created by
these rules, exacerbated by the appalling philosophical and procedural
variations among bankruptcy legislation around the world, was poised to become a
major source of concern for insolvency practitioners worldwide.
Role of s.304
In 1978, the United States Congress adopted the now-revoked s.304 as a part of
the US Bankruptcy Code. For 20 years, it remained one of the pioneer
legislations in the world in matters relating to trans-national insolvency laws.
The legislative purpose of s.304 was to empower courts in the United States in
dealing with bankruptcies ancillary to foreign insolvency proceedings.
Section 304 set forth a set of rules for US courts to use when deciding whether
or not to award relief, such as enjoining the start or continuation of an action
enforcing a judgment to obtain a judgment against a debtor, or ordering the
estate's property or revenues to be distributed surrendered to the
representative of a foreign country.
UNCITRAL Model Law on Cross-Border Insolvency
The UNCITRAL Model Law aims to assist countries in building a modern, unified,
and fair framework for cross-border insolvencies. It tries to achieve this by
acknowledging the disparities in national procedural laws while avoiding
substantive law concerns.
The preamble of the Model Law states:
- Cooperation between courts and other competent authorities where the
debtor has assets
- Greater certainty for trade and investment
- Fair and efficient administration
- Fortification and value maximization of the debtor's assets
- Successful financial reorganization of troubled businesses
- The Model Law has a very broad scope. It essentially covers any foreign
process involving the debtor's insolvency where the debtor's assets are
subject to a foreign court's jurisdiction. The Model Law does not cover
individual creditors' actions because it only relates to collective creditor
actions. Although the Model Law embraced the state-of-the-art of
cross-border insolvency developments, it left room for further improvements
and additional forms of cooperation. "Nothing in this Law limits the power
of a court [�] to provide additional assistance to a foreign representative.
- The Model Law encourages the formation of a transnational system of
Maxwell Communication Corporation case
Maxwell Communication Corporation case was the case that established standards
for cases to come in the future about cross-border cooperation. Robert Maxwell
had established a media empire comprising both public and private companies
Robert Maxwell was the CEO and Chairman of the Maxwell publishing group from
1981 till 1991. He abused his extraordinary powers and stole approx. 727 million
Euros which resulted in the biggest scandal of the 20th century.
The majority of Maxwell Communication's creditors (as well as its management)
were based in London, but there were a few exceptions. Certain operational
companies in the United States, which made up the majority of the company's
assets, were turned over to the foreign representative.
The case was governed on two fronts- one in the UK and the other under ch.11 in
the USA. Under the Chapter 11 case in the USA, an examiner was appointed, and he
was directed to collaborate with the administrators in England. Although none of
the proceedings could be classified as "primary" or "ancillary," they achieved
unprecedented levels of coordination. The joint administrators prepared a
document known as the "protocol".
This governed their cooperation to harmonize the proceedings to increase value
while minimizing costs and conflicts. The protocol was accepted by both the
courts and a scheme of reorganization was planned according to the laws of both
these countries though they were dependent on each other.
Everfresh Beverages case
In this case, the cooperation was to be held between the USA and Canada in the
case of an insolvency proceeding. This was governed by a protocol drafted under
the Cross-Border Insolvency Concordat. The Concordat was prepared by the
Business Law of International Association prevailing in the contemporary 1990s.
The Concordat was nothing but a set of practical recommendations targeted toward
international bankruptcy case cooperation.
It is not, by any means, a set of legally enforceable provisions. Nevertheless,
it was utilized to reach agreements in several insolvency cases involving many
jurisdictions, and the protocol in the Everfresh case was the first of its kind.
The Nakash case was a landmark case as, for the first time in the history of
transnational insolvency cases, the protocol was entered into by a civil law
country. Civil law courts, unlike common law courts, do not have the authority
to diverge from statutory legal provisions and, as a result, do not have the
authority to decide whether a company should enter a cross-border insolvency
The protocol did not involve two insolvency proceedings for the same debtor, as
it did in Maxwell, Everfresh, and other cases; rather, it regulated the
coordination between the insolvency proceedings of Joseph Nakash and North
American Bank, Ltd., two different debtors, to resolve the jurisdictional
conflict between the courts in these countries.
From the above analysis of the existing laws and judicial precedents, we can
clearly say that there has been a lack of proper legislation in the areas of
transnational insolvency laws in the international sphere. In many ways, it has
failed to defend the interest of both the local and the foreign creditors.
The Insolvency and Bankruptcy Code(IBC), was introduced in 2016 as one of the
most important reforms in the legal history of the Indian banking sector but it
failed miserably to address the most important aspects of transnational
Furthermore, Sections 234 & 235 of IBC are ineffective in resolving
transnational insolvency issues because bilateral agreements take time to
negotiate, and having to negotiate such an agreement with every country is not a
practical solution to the problem, and foreign judgments of only those countries
can be enforced that are already listed under Section 44A of the CPC and that
has been notified by the government in the official gazette.