Are Bangladesh, India and Pakistan Ready to Adopt the UNCITRAL Model Law on Cross‐Border Insolvency?

• Published date: 01 December 2016
• Date: 01 December 2016
• DOI: http://doi.org/10.1002/iir.1262
• Author: Morshed Mannan

Are Bangladesh, India and Pakistan Ready

to Adopt the UNCITRAL Model Law on

Cross-Border Insolvency?

Morshed Mannan*

,†

Company Law Department, Leiden Law School, Leiden University, The Netherlands

Abstract

The development of business laws in key markets has not kept pace with the expo-

nential growth of foreign investment they have experienced. Countries such as

Brazil, Russia and China either do not consider the issue of cross-border insol-

vency in their legislation or they explicitly provide for a ‘territorialist’approach

to cross-border insolvency proceedings, whereby each country grabs local assets

for the benefit of local creditors, with little consideration of foreign proceedings.

This has led to uncoordinated, expensive attempts at cross-border reorganisation.

The UNCITRAL Model Law on Cross-Border Insolvency (1997) was adopted

with the objective of modernising international insolvency regimes and enhancing

cross-border cooperation. In its 19 years of existence, it has been adopted by 41

countries in a total of 43 jurisdictions but by none of the BRIC states or the

‘Next-11’nations of Bangladesh and Pakistan. While it has entered into policy-

level discussion in China, India and Russia, it would seem that there is still

scepticism regarding the efficacy and suitability of the Model Law for adoption

into their national systems. This paper seeks to establish whether the Model Law

can adequately plug, what Steven Kargman calls, ‘the glaring gap in the interna-

tional insolvency architecture’, looking particularly at the context of the South

Asian states of India, Bangladesh and Pakistan. It will question whether its

adoption will improve the ability of these jurisdictions to handle the challenges

of cross-border insolvencies, especially in light of their existing legal landscape,

their market policy objectives and the existing alternatives available to the Model

Law. Copyright © 2016 INSOL International and John Wiley & Sons, Ltd.

*E-mail: m.mannan@law.leidenuniv.nl

†LLM (Leiden), LLB (Hons.) (Warwick), Barrister-at-

Law. Meijers PhD Candidate, Company Law Depart-

ment, Leiden Law School, The Netherlands. The

author wishes to thank Professor Dr Bob Wessels for

supervising his LLM thesis on which this article is

based and the anonymous reviewers for their helpful

comments.

Copyright © 2016 INSOL International and John Wiley & Sons, Ltd Int. Insolv. Rev., Vol. 25: 195–224 (2016)

Published online 17 October 2016 in Wiley Online Library

(wileyonlinelibrary.com). DOI: 10.1002/iir.1262

I. Introduction

In 2015, the World Bank reported that South Asia is the geographical region

experiencing the fastest economic growth rate in the world.

1

Bolstered by low

oil prices, increased capital inflows and low rates of inflation, the economies of

countries like India are booming. Along with the four other BRICS nations, they

account for over 15% of world trade (US$ 5.9 trillion).

2

Corporations of Indian

origin, like Tata and Reliance, now operate globally in the energy, mineral, oil,

gas, manufacturing and agricultural sectors.

3

At the same time, India is a ninth

largest recipient of foreign direct investment, amounting to US$ 34 billion in

2015.

4

Pakistan and Bangladesh are growing emerging markets for foreign

investors and are significant participants in global trade.

5

This is evidenced by

the fact that as of July 2016, Pakistan has a GDP of US$ 269.97 billion and

Bangladesh of US$ 195.08 billion.

6

Even in the wake of the Rana Plaza disaster,

Bangladesh continues to enjoy the status of being the second largest exporter of

ready-made garments in the world

7

and is home to a ‘surging consumer

market’.

8

Part of the reason behind this economic growth and integration into the global

economy is a series of business and investment-oriented legal reforms undertaken

by the governments of these countries. However, these recent reforms have not

kept pace with international developments regarding cross-border insolvency, a

phenomenon of great importance in the aftermath of the recent global recession

and the collapse of multinational groups like Lehman Brothers.

When Lehman Brothers became bankrupt in 2008, its assets had to not only

been liquidated in the USA and Europe but also as far afield as Singapore and

Hong Kong. As a result of the global financial crisis, Brazil saw a drop of 32%

in the value of its currency within one month,

9

Russia experienced a volatile

1. The World Bank, South Asia Economic Focus Spring

2015:Making the Most of Cheap Oil (World Bank 2015) 9.

2. Joseph Purugganan, Afsar Jafri & Pablo Solon,

‘BRICS: A global trade power in a multi-polar world’

(2014) Shifting Power: Critical Perspectives on Emerg-

ing Economies Working Paper Series, 2 <https://

www.tni.org/files/download/shifting_power-trade.

pdf>accessed 12 September 2016.

3. Fortune, ‘Global 500’(Fortune, 31 March 2016)

<http://fortune.com/global500/>accessed 1

September 2016.

4. UNCTAD, World Investment Report 2015:Reforming In-

ternational Investment Governance (United Nations 2015) 3.

5. Goldman Sachs categorised them as part of the ‘Next

11’for their potential to rival G7 countries D. Wilson &

A. Stupnytska, ‘Beyond the BRICS: A Look at the Next

11’, in Goldman Sachs, BRICs and Beyond (The

Goldman Sachs Group, Inc. 2007) 161; UNCTAD re-

ports that Bangladesh received US$ 1.5 billion and

Pakistan US$ 1.7 billion in FDI as of 2015 UNCTAD,

World Investment Report 2015:Reforming International Invest-

ment Governance (United Nations 2015) A5.

6. The World Bank, ‘GDP Ranking’(The World Bank

Data, 22 July 2016) <http://data.worldbank.org/

data-catalog/GDP-ranking-table>accessed on 12

September 2016.

7. Alissa Ayres, ‘Bangladesh: Behemoth Garment In-

dustry Weathers the Storm’Forbes (Singapore, 20 June

2014) <http://www.forbes.com/sites/alyssaayres/

2014/06/20/274/>accessed 10 September 2016.

8. Zarif Munir, Olivier Muehlstein and Vivek

Nauhbar, ‘Bangladesh: The Surging Consumer

Market Nobody Saw Coming’bcg-perspectives (Boston,

22 October 2015) <https://www.bcgperspectives.

com/content/articles/center-customer-insight-go-to-

market-strategy-bangladesh-surging-consumer-mar-

ket/>accessed 12 September 2016.

9. John Williamson, ‘The Impact of the Global Finan-

cial Crisis on Brazil’(Brazilian–American Chamber of

Commerce Meeting, Washington DC, 13 October

2008); Jonathan Goodman and Andre Soliani,

‘Brazil Emerges From Recession, Led by Domestic

Demand’,Bloomberg (New York City, 11 September

2009).

INSOL International Insolvency Review196

Copyright © 2016 INSOL International and John Wiley & Sons, Ltd Int. Insolv. Rev., Vol. 25: 195–224 (2016)

DOI: 10.1002/iir