CHAPTER THREE MODERN CROSS-BORDER INSOLVENCY REGULATION: A NEW PARADIGM OF CO-OPERATION INTRODUCTION

Under the traditional principles of universality and territoriality the cross-border

insolvency dilemma is bound to end in a 'struggle over jurisdiction'. One commentator

has argued that it is unlikely that unilateral state action could end this struggle and

'spontaneously' produce an adequate level ot co-operation. Without a treaty or similar

instrument states would be likely to find themselves perpetually locked in a 'struggle

over jurisdiction'.1 However, contrary to this rather Hobbesian scenario, unilateral

state action geared towards co-operation between jurisdictions appears to be exactly

what modern cross-border insolvency regulation is about.

The financial failure of the German-based bank Herstatt could be regarded as the

unofficial benchmark of modern cross-border insolvency regulation. Not so much

because the case was resolved in a spirit of internationalism and co-operation, but

rather because it made painfully clear the state of" underdevelopment that existed in

this area of the law." Problems similar to those exposed in the }ier$tatt case prompted

the United States to introduce its sections on ancillary proceedings, allowing courts

to assist in foreign insolvency proceedings. Since then, cross-border insolvency regulation

has seen a steady shift away from the traditional principles towards more pragmatic

approaches.1 As Balz observes:

A trend toward undogmatic, flexible, and problem-oriented mutual recognition

and cooperation in insolvency is sweeping the World. The barren choice of either

universality or territoriality of bankruptcy has almost lost its meaning. Intermediate

principles and a functional outlook will rule the future of international insolvency.

It would be going too tar to regard this 'trend' as an inchoate form of international

customary law.' On the other hand, co-operation in insolvency has certainly become

more than a buzz-word. Modern cross-border insolvency regulation is no longer preoccupied

with the principles of universality and territoriality. Its principal aim is not

to provide a set of hard and fast rules; rather, it is to provide frameworks which induce

the jurisdictions involved to co-operate. The reliance on and accommodation of cooperation

between jurisdictions has become the focus of legal discourse as well as

legislative reforms and initiatives." In this sense, one could rightly regard this 'trend'

as the emergence of a new paradigm of cross-border insolvency regulation.

This chapter seeks to further analyse this new paradigm of cross-border insolvency

regulation. How and to what extent has it enabled states to end their struggle over

jurisdiction and provide for an effective, fair and predictable way to handle crossborder

insolvencies? These questions will be addressed later in this chapter. First,

however, the emergence of the new paradigm as well as its basic elements will be

illustrated by providing a brief overview of various national regimes ol cross-border

insolvency regulation. These national regimes differ on various points but, as will be

A New P a r a d i gm of C o - o p e r a t i o n I

shown, they share the same co-operative approach. The Model l aw drafted bv the

United Nations Commission on International I rade l aw (UNCITRAL) is of particular

importance in this regard and will be dealt with extensively. The Model Law builds

on and integrates the experiences gained by individual states and constitutes the most

comprehensive framework for cross-border insolvency co-operation to date. As such

the Model Law may be said to confirm the potential and, indeed, ambition of the new

paradigm of cross-border insolvency regulation.