As the globalisation of commerce continues unabated, more companies find themselves either establishing foreign subsidiaries or becoming multinational in scope, to maintain their competitiveness and to further their business interests abroad. In other instances, an international merger renders the company a domestic subsidiary of a foreign parent corporation. In the absence of insolvency, this arrangement works well: a domestic company can hire local managers and professional service firms to navigate local business practices and customs, while at the same time building a global brand with support from its foreign affiliates. Centralised cash management, marketing and advertising, global strategy and the like from the ‘home office’ (whether in New York, Paris, or Tokyo) allow for efficient global management and allocation of resources. Finally, international affiliates of the enterprise are free to innovate and expand commercial operations in their respective country of operations.
In the case of insolvency, however, matters become very complicated because there is little or no international uniformity on the law of debtor-creditor relations. The international community has recognised this void and has taken initial steps through United Nations Commission on International Trade Law (UNCITRAL) to address some of these issues. For example, UNCITRAL has in recent years completed a Legislative Guide on Insolvency Law, as well as a Model Law on Cross-Border Insolvency, the latter of which has been adopted by many nations, including the US. Yet much more remains to be addressed. It is my hope and expectation that this book will provide a valuable building block for the international community’s efforts to address the complex issues that arise in connection with the insolvency or restructuring of a multinational company.
The insolvency of the parent or one or more affiliates of a multinational enterprise immediately raises many questions, the first being which nation’s insolvency laws will prevail. Yet the inquiry does not end there: even after determining whether one set of laws, or many sets of laws, will govern the insolvency of the entire enterprise, there is still the issue of allocation of value among the creditors of the various affiliates. Further, creditor claims may warrant different levels of scrutiny and priority, depending on the different governing law for each affiliate. This includes intercompany claims, which are often a matter of mere internal bookkeeping outside of bankruptcy, but can materially change the amount of value allocated from one affiliate to another in a bankruptcy setting. Creditors of the ‘poorer’ insolvent affiliate may also seek ‘consolidation’ to gain access to the value of the ‘richer’ insolvent affiliate. In each of these matters, further complications arise if more than one court is involved for the various affiliates of the international corporate group.
The law of the many nations in this field is not harmonised. Indeed, the study of international insolvency matters remains in its infancy and, as a result, most companies facing multinational insolvency issues have proceeded on an ad hoc basis. While many multinational bankruptcy cases have benefited from the use of court-to-court communication procedures adopted for those cases, this approach typically only addresses procedural rather than substantive issues. Thus, each multinational insolvency case must often begin from scratch, instead of having established rules to resolve the substantive matters that are unique to multinational insolvencies.
The purpose of this book, Multinational Enterprise Liability in Insolvency Proceedings, is not to suggest or advocate a uniform law. Rather, at this point in the early evolution of these issues, we hope to provide our readers with a starting point of thorough analysis of how each country explores these complicated matters. In addition, the chapters highlight new initiatives or rulings in various countries that touch on the insolvency of corporate groups. This includes matters of corporate law, which often overlap with insolvency law where a multi-tiered corporate group is involved.
No nation has a monopoly on good ideas, including how best to allocate losses in a wasting corporate enterprise. The study of other countries’ treatment of insolvent corporate groups enhances the ability of all corporate and insolvency professionals to assist their clients, and also to shape policy and development of the law at home. UNCITRAL has recently identified the topic of insolvent corporate groups as a priority area of study, and many other organisations are advancing the development of this subject, including the International Association of Restructuring, Insolvency and Bankruptcy Professionals and the International Insolvency Institute. This book has benefited from the first steps taken by these organisations. By working together, and through continued, vigorous study and analysis of the different legal regimes covering insolvent corporate groups, we can further develop this area of international law, while also providing better advice to our international commercial clients. Those were the twin goals of this book; it is up to you to determine if they have been achieved.
I am deeply indebted to the authors of each chapter of this book for contributing their time, talent and professional energies to this project. I am also thankful for the wonderful staff of The European Lawyer Ltd, including Patrick Wilkins, Dawn McGovern, Lisa Naylor, Sian Dudley and Julian Roskams, who helped me take this project from a kernel of an idea to an international treatise. I, of course, am responsible for any errors herein.
I am cautiously optimistic that this edition, although the first, will not be the last. Rather, I look forward to your comments to assist in expanding future editions, as the international legal and financial community works closely together to further advance this area of law.
J. William Boone
General Editor
Alston & Bird LLP
Atlanta, Georgia, US
August 2006
