International Insolvencies: An English-American Comparison with an Analysis of Proposed Solutions

Abstract

Robert Maxwell's recent demise and the subsequent collapse of his international empire,(1) coupled with the global reorganization of Olympia & York Developments Ltd.,(2) are compelling examples of the complexities that confront nations whose current legal systems are ill-equipped to deal with international insolvencies. International insolvency, a complex and growing issue, can be examined by contrasting and comparing the two economic powers whose insolvency laws will be closely monitored during the Maxwell and Olympia & York bankruptcy proceedings: England and the United States. This Article first discusses the fundamentals of the universality and territoriality theories of jurisdiction over a debtor's international assets.(3) Second, this Article analyzes the procedures followed in England(4) and the United States(5) for dealing with international insolvencies, especially with regard to the subject of comity as it appears in the U.S. Bankruptcy Code at 11 U.S.C. sec 304.(6) The two systems are then compared by illustrating the difficulties encountered in either merging these two views or implementing them separately.(7) Finally, this Article examines several of the more prominent proposals currently under consideration that attempt to unify the many distinct systems of nations into a single, or at least functional, network of solutions. Included is a discussion of the direction in which the English and U.S. laws are headed.(8) II. JURISDICTION OVER A DEBTORS INTERNATIONAL ASSETS A. TERRITORIALITY Under the territoriality theory of bankruptcy, only proceedings within the jurisdiction where the debtor's assets are located may affect those assets. An example of a strict territorial approach can be found in Japanese bankruptcy law, which states that a! bankruptcy adjudged in Japan shall be effective only with respect to the bankrupt's properties which exist in Japan, and that a! bankruptcy adjudged in a foreign country shall not be effective with respect to properties existing in Japan.(9) Thus, under a territoriality approach, bankruptcy proceedings can occur in many countries simultaneously, with the debtor's estate in each one consisting only of the assets available within that country. If the debtor does not have sufficient assets to cover his debts within a particular jurisdiction, the creditors must obtain a judgment and seek to attach the foreign assets in he country or countries where the assets are located.(10) In addition to this inconvenience for foreign creditors, under this system there is the possibility that local creditors will receive better treatment in the courts of their own country than creditors who subject themselves to foreign laws while vying for the same assets.(11) All of this leads to costly litigation, the potential for conflicting decisions, and preferences for the savvy creditors in assets located abroad.(12) Adding to the confusion of territoriality is the debtor's ability to dispose of assets in foreign countries according to his or her own choosing. This is possible because these assets are not part of the debtor's estate for purposes of his or her domestic bankruptcy. The debtor is free to use these assets to satisfy creditors based on the debtor's personal preference,(13) effectively under mining the equitable distribution system upon which bankruptcy laws are founded. However unfair or disconcerting these prospects may seem, the territoriality theory, in some form, prevails among most nations today.(14) B. UNIVERSALITY Conversely, the universality theory grants exclusive jurisdiction over all of the debtor's assets, wherever located, in the court where the bankruptcy case is pending.(15) The laws of the country in which the case is pending are used exclusively.(16) Ideally, the universalist approach results in an equitable distribution of the estate because every claim is subject to one body of law and is satisfied from one estate. …

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