New UNCITRAL Model Law To Facilitate Cross-Border Restructuring And Insolvency

Summary

UNCITRAL has adopted and published a second model law to promote universalism of restructuring and insolvency. This new model law is now readily available for domestic implementation across the world. The earlier model law has been implemented in only 44 U.S. states since its publication in 1997. This client alert explains the differences between implementation in the UK and the U.S., and highlights barriers to implementation in the UK as well as the lack of an imperative for implementation in the U.S. This alert will be of particular interest to those focusing on the development of cross-border restructuring and insolvency.

How Is UNCITRAL's New Model Law Affecting Insolvency?

The United Nations Commission on International Trade Law ("UNCITRAL") has published its final version of 'The Model Law on the Recognition and Enforcement of Insolvency-Related Judgments' ("Model Law on IRJ"). The Model Law on IRJ provides a framework for the recognition and enforcement of judgments made in foreign jurisdictions which arise out of insolvency proceedings.

This is the second model law adopted by UNCITRAL which promotes a universalist approach to restructuring and insolvency proceedings. The Model Law on IRJ is drafted as a standalone law but is largely viewed as a supplement to the UNCITRAL Model Law on Cross-Border Insolvency ("Model Law on CBI"), which was adopted by UNCITRAL in 1997.

Much like the Model Law on CBI, the Model Law on IRJ does not have any legal effect until it is implemented domestically. The implementation of the Model Law on CBI has been gradual: only 44 states in total have adopted the Model Law on CBI into their legislative framework since 1997. The Model Law on CBI was introduced in the U.S. in the form of Chapter 15 of the U.S. Bankruptcy Code by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 and in the UK in the form of the Cross-Border Insolvency Regulations 2006 ("CBIR").

Universalism v Territorialism in Restructuring and Insolvency Proceedings

The principle of universalism in the context of cross-border insolvency is that proceedings in relation to a debtor should be applicable worldwide, thereby necessitating only one primary insolvency proceeding. This obviates the need for multiple proceedings as well as the potential for conflict arising from a territorial approach.

As an instrument, the Model Law on CBI promotes universalism. The U.S. Bankruptcy Court held in 2014 that: "Chapter 15 of the...