1.3.2. The Criteria for Relic] and Conflicts of Low

Considering the virtually unlimited scope of the powers of the courts in ancillary

proceedings, the real question becomes how courts are informed in their decisions

whether or not to grant relief and, if so, in what form. Such a decision tie facto

determines the extra-territorial effect of the foreign proceeding and, if relief is granted,

requires a choice of insolvency law.

Section 3 0 4 ( c ) lists several factors which provide guidance for the courts in exercising

their powers in ancillary proceedings:

[i jn determining whether to grant relief ( . . . ) , the court shall be guided by what will

best assure an economical and expeditious administration of the estate, consistent

with-

( 1 ) just treatment of all holders of claims against or interests in such estate;

(2) protection of claim holders in the United States against prejudice and inconvenience

in the processing of claims in such foreign proceeding;

(3) prevention of preferential or fraudulent dispositions ot property ot such estate;

(4) distribution of proceeds of such estate substantially in accordance with the

order prescribed by this title (i.e. Bankruptcy Code ;'/);

( 5 ) comity; and

( 6 ) if appropriate, the provision of an opportunity for a fresh start for the

individual that such foreign proceeding concerns.'

According to Booth these factors are an attempt at balancing the various interests

involveci. 'J However, in fact no such attempt is made at all. The factors listed are intrinsically

competitive, and can be used 'to support or criticize any d e c i s i o n ' . ' ' Whereas

the first and third of these factors strongly indicate the need for an approach inspired

by universality on the part of the courts, the second and fourth appear to indicate

exactly the opposite. (Comity, on the other hanti, encompasses notions of both universality

and territoriality.'1 Not surprisingly, therefore, the result has been a degree of inconsistency in the use of ancillary proceedings by the courts."' For instance, in

Culmerthe court held that 'comity was to be accorded unless egregiously unjust consequences

would flow from its implementation'. Local administration would then be

limited to matters ot convenience. Short of fundamentally unfair foreign insolvency

law, the court should apply the foreign lex fori conciirstis. However, //; re Toga Manufacturing

illustrates an interpretation more motivated by concerns of territoriality. 1

liven as to the central examination under section 3 0 4 ( c ) judicial authority is divided.

Sometimes it is considered to be whether the relief sought 'will afford equality of

distribution of the available assets' ; other cases take economical and expeditious

administration by 'preventing the piece-meal dismemberment of estate' as their point

ot departure."

The guidance provided by section 304 therefore appears to leave the courts with

basically the same difficulties and conflicts which historically have governed crossborder

insolvency. The critical limitations of the 'guidelines' are pointedly observed

by Trautman:

At the outset, it should be observed that nothing is said in the guidelines about the

intensity ot the interest which various countries may have in the debtor, the

debtor's activities, or the creditors. That is, there is no private international law

or choice-of-law thinking reflected in the section 304 guidelines.

Legislative history indicates that the guidelines were designed to give courts maximum

flexibility in handling ancillary cases.1" The court in Banco de Descuenta, relying on

both lit re Culmer and Linens Areas II", emphasised the role of'flexibility available

under section 3 0 4 to apply the statutory criteria to the specific circumstances of each

case to arrive at a fair result'.1 As one would expect, uncertainty and unpredictability

as to the exact consequences of insolvency are reflected in pre-insolvency transactions,

making them more difficult and costly.'' But, it is submitted, the open-ended nature

of this law, though it inevitably has its costs in terms ot predictability, is also its

strength.1 ' As will become apparent, the open-ended nature ot co-operation is a recurring

theme as well as a defining feature of (the paradigm ot) modern cross-border

insolvency regulation."