CHAPTER TWO PRINCIPLES OF CROSS-BORDER INSOLVENCY AND THE STRUGGLE OVER JURISDICTION

I N T R O D U C T I ON

Cross-border insolvency as a t e rm denotes those situations in which a debtor's assets

and/or liabilities are located in more than one jurisdiction, or where the debtor's

circumstances are such that s/he is subject to the jurisdiction of two or more states.

Even at a basic level, cross-border insolvency confronts states with various choices.

States have to decide under what circumstances they are willing to exercise jurisdiction;

i f so, what position they should take regarding that part of the debtor's estate which

is situated beyond their territorial limits; whether they should take control over those

assets and liabilities; and, if so, what law to apply. Conversely, other jurisdictions will

have to decide how to respond to proceedings commenced abroad; whether and under

what conditions they will recognise insolvency proceedings opened abroad; and, if

so, what the consequences of recognition are.

Traditionally, most of these questions have been addressed by reference to the dogmatic

principles of universality and its conceptual counter-part, territoriality. The

former, at least in its strict form, means that insolvency proceedings opened in one

state take effect everywhere, covering all assets and liabilities of the debtor wherever

they are located. The l a t t e r - t h e principle of t e r r i t o r i a l i t y - i s shorthand for a situation

where the effects of insolvency proceedings are limited to the territory oi the insolvency

forum.

Nowadays it is generally accepted that both principles are too extreme, and that neither

presents a realistic option for states. Indeed, the reduction of the cross-border insolvency

dilemma to a territoriality-universality dichotomy has prevented rather than

stimulated the emergence of effective cross-border insolvency regulation. In the words

of Nadelmann: 'The old dogmatic controversy in the civil law between those who

declare bankruptcy 'single and universal' and the others who hold it 'multiple and territorial' has had but little effect internationally on the .solution ot the problem'.

In the bifocal world of territoriality and universality, states have found themselves

locked in a 'struggle over jurisdiction'.

In contrast, modern cross-border insolvency regulation is no longer pre-occupied with

taking an absolute stance on either one of these principles. Instead, its task is the

formulation of structures which enable legislators, courts and practitioners to reconcile

the various opposing interests underlying the principles of territoriality and universality.

Rather than by'principles' and 'struggle', modern cross-border insolvency regulation

may be characterised by 'pragmatism' and 'co-operation'.

The move from principles to pragmatism, from struggle to co-operation in crossborder

insolvency regulation forms the subject of the f i r s t section of this book. Modern

cross-border regulation is discussed in the second chapter. The current chapter seeks

to provide insights into the basic structure of the cross-border insolvency dilemma.

Although the above-mentioned principles may have lost much of their significance

in modern cross-border insolvency regulation, that regulation has nonetheless

developed against the background of these traditional notions.' They therefore remain

convenient tools with which to initially outline the structure of t he cross-border insolvency

dilemma. As will become clear during the course of this chapter, a 'struggle over

jurisdiction' is the natural state of affairs when universality and territoriality are the

only two alternatives thought available for the regulation ot cross-border insolvency.