2.5.2. The Effects of Recognition

Only the recognition of a foreign proceeding as a 'foreign main proceeding' will result

in automatic effects in the state of recognition. These effects essentially involve an

automatic stay in order to initially protect the estate against dismemberment, thus

allowing for fair and orderly cross-border insolvency proceedings. The actual administration

of the estate and distribution, however, are subject to the discretionary

powers of the court of the recognising state.

The Model Law provides for an automatic stay of all individual actions concerning

the debtor's assets, rights, obligations or liabilities, and divestment of the debtor/

The Model Law does not envisage 'the importation of the consequences of foreign

insolvency law into the insolvency system of the Enacting state' in this regard.1 '"

Rather, as the Guide to Enactment states, under the provisions of the Model Law

recognition has its own effects, much as is the case with uniform private law. However,

although the uniform effects of recognition are the starting point, the exact scope and

contours of the stay are determined by the enacting state. The Model gives the enacting

state the opportunity to subject the scope, modification and termination of the stayto

any exceptions known in local insolvency law.'"1 The automatic stay does not affect

the right to request the opening of domestic proceedings, or the right to file a claim

in such proceedings.1 " However, such requests will not necessarily be honoured.

Recognition does not produce any other automatic effects in the recognising state.

Instead the Model Law provides for relief that may he granted upon recognition but

i s neither mandatory nor automatic. On the other hand, the relief i s available to b o th

foreign main and non-main proceedings.1"" The Model Law provides that where it

is necessary to protect the assets of the debtor or the interests ot the creditors, 'any

appropriate r e l i e f may be granted.1 ' 1 A non-exhaustive list of types of relief that are

'typical or most frequent in insolvency proceedings' is provided. These include, for

instance, the stay of proceedings and suspension of the debtor's power to dispose of

assets, to the extent that such relief is not already in place as the consequence of

recognition of a foreign main proceeding, and the examination ot witnesses and taking

of evidence. In its decision to grant or deny relief the court must be satisfied that the

interests of the creditors and other interested parties, including the debtor, are

adequately protected. In order to strike a careful balance, the court may subject any

relief"granted to any conditions it considers appropriate.1"''

Two types of relief are particularly noteworthy. The court may entrust the administration

or realisation of all or part of the debtor's assets located in the recognising state,

to the foreign representative or another person appointed by the Court.'"" This type

of relief does not as such involve an order for the turning over ot assets in the sense

of, for instance, Ihiited States ancillary proceedings. The turning over of assets, unless accompanied by specific conditions on the part of t he foreign representative, involves

the complete surrender oi assets to the foreign representative. In other words, in addition

to the administration and realisation (deployment) of the assets, it would also

entail adding the assets (or the proceeds from them) to the general pool, for purposes

ot distribution in accordance with the lex conewsus of the foreign proceedings. The

approach taken in the Model Law, however, separates the question of deployment from

that of distribution. Under a separate heading, the court may entrust (at the request

of the foreign representative) the distribution of all or part of the assets - and the

proceeds thereof - provided that the court is satisfied that the interests of local

creditors are adequately protected. "

1 he distinction between deployment and distribution may prove to be an important

improvement. If followed through by the courts, it should contribute to co-operation

which may further enhance the value of the debtor's estate, because consolidation of

the estate for deployment purposes does not in itself imply consequences for distri

bution.