Presentation_ Preparing for the Next Crash

www.duanemorris.com

Preparing for the Next Crash: a UN Insolvency Convention,

EU Amendments and National Law Reform

October 5, 2015

0

www.duanemorris.com

Preparing for the Next Crash

Preparing for the Next Crash: a UN Insolvency

Convention, EU Amendments and National Law Reform

Session / Workshop Chair(s)

Patrick Rona Duane Morris LLP, New York,

USA; Co-Chair Legislation

and Policy Subcommittee

Description

The next global economic crisis is inevitable,

and it could be worse than the last – are we

prepared? A panel of visionary leaders of law

reform at national, EU and UN levels will

discuss what is needed, what has been done

and what must still be accomplished to

facilitate restructuring, rather than

disintegration, of global business concerns in

the next downturn.

Speakers

James Giddens Hughes Hubbard & Reed

LLP, New York, USA

Thomas McInerney Loyola University of

Chicago School of Law;

Treaty Effectiveness

Initiative, Rome, Italy

Ondrej Vondracek European Commission,

Brussels, Belgium

Robert van Galen NautaDutilh, Amsterdam,

Netherlands; European

Liaison Officer

Insolvency Section

LocationHall K1, Level -2

1

www.duanemorris.com


Panel, cont’d

Patrick N.Z. Rona – Moderator & Speaker

Patrick N.Z. Rona is an international corporate finance and insolvency

lawyer. He works on cross-border restructurings, mergers and

acquisitions, as well as debt and equity offerings (public and private). Mr.

Rona started his legal career in emerging markets working for Baker &

McKenzie in Budapest. He was president and CEO of the U.S.

subsidiary of a publicly listed company. Mr. Rona is multilingual and has

worked in many jurisdictions. Early in his career, Mr. Rona served as

law clerk to the Honorable Stuart M. Bernstein and the Honorable Arthur

J. Gonzalez of the U.S. Bankruptcy Court for the Southern District of

New York, and he spent two years training in General Electric's Financial

Management Program prior to entering law school. Mr. Rona is an

Officer of the IBA and Co-Chair of the Legislation and Policy

Subcommittee of its Insolvency Section. Mr. Rona represents the IBA at

the United Nations Commission on International Trade Law, Working

Group V.

2


www.duanemorris.com


Panel, cont’d

Robert van Galen

Mr. Galen is specialises in insolvency law with an emphasis on cross-

border issues and is heading NautaDutilh’s Insolvency and restructuring

Group. He has been involved in virtually all major cases in the

Netherlands over the past 25 years, such as Barings, Fokker, GTS,

KPNQwest, Lehman, Yukos and OSX. He is furthermore admitted to the

bar of the Dutch Supreme Court and has been involved in a number of

important cases decided by the Dutch Supreme Court.

NautaDutilh’s Insolvency and Restructuring Group has been listed

already for many years in the top tier in all the major league tables and

to the extent such tables also rank individuals, Robert is consistently

listed in the top tier. Chambers quotes him as "incredibly clever and very

academic, as well as very calm under fire. The star of the Netherlands in

this field".

3

www.duanemorris.com


Panel, cont’d

James W. Giddens

Mr. Giddens is chair of Hughes Hubbard’s Corporate Reorganization and

Bankruptcy Group. He is generally recognized as the country’s leading

expert on brokerage firm liquidations, having been selected by the

Securities Investor Protection Corporation (“SIPC”) to be Trustee on

several of the largest and most complex liquidations in history. In

addition to brokerage liquidations, Mr. Giddens represents financial

institutions and companies in major corporate reorganization and

insolvency matters.

4

www.duanemorris.com


Panel, cont’d

Tom McInerney

Mr. McInerney is the founder and director of the Treaty Effectiveness

Initiative. He serves as legal counsel and consultant to multilateral

organizations, treaty secretariats, international NGOs, governments, and

companies on international law and development, regulatory, and treaty

strategy. Previously he was Director of Research, Policy, and Strategic

Initiatives for the International Development Law Organization, where he

built a research function and led a significant publication effort, directed

the Organization’s partnerships with the United Nations, and led strategic

planning. In 2013, he developed and taught the course “Operationalising

Treaties” for the LLM program on Law, Governance, and Development at

Australian National University and was a Visitor with the Regulatory

Institutions Network (RegNet). He also teaches on the socio-economic

aspects of state-building and development for the Rule of Law for

development LLM program at Loyola University of Chicago.

5

www.duanemorris.com


Panel, cont’d

Andrej Vondracek

Mr. Vondracek is the Legal and Policy Officer for the European

Commission, DG Health & Consumers in Brussels, Belgium. He is

legal and policy officer in the area of product safety, market

surveillance, internal market, WTO and FTA issues (Awards: Best impact

assesment on small and medium enterprises (by EUROCHAMBERS).

6

www.duanemorris.com


7

www.duanemorris.com


Outline of our Programme Today

• We start by describing the EC Regulation on Insolvency Proceedings and its “Modified Universality” approach;

• Robert van Galen who has been involved in virtually all major cases in The Netherlands over the past 25 years will tell us if his experience is more like “Universalism within Europe” and “Territoriality” outside of Europe;

• We will discuss “Synthetic Proceedings” and “Group Insolvencies” that can be managed in one court within Europe;

• Andrej Vondráček, Legal and Policy Officer of the European Commission will address the evolution and the history behind the adoption of the European Insolvency Regulation -- has universalism or modified universalism been achieved within Europe?;

8

www.duanemorris.com


Outline of Programme Today, cont’d

• We discuss the UNCITRAL Model Law and how its ability to enhance unity in worldwide bankruptcy proceedings is in doubt;

• We ask are we “On the Road to Universalism” and do we want universalism?;

• Liquidation Trustee Jim Giddens will describe how far we are from unity in Cross-Atlantic Insolvency Proceedings and how his liquidation of Lehman Brothers, Inc. (LBI) and MF Global can best be described as “Trial by Combat.”;

• Ondřej and Robert will also address the EU Commission’s new approach to business failure and insolvency -- are most of the substantive law disparities between member states resolved or close to being resolved?;

9

www.duanemorris.com


Outline of Programme Today, cont’d

• Ondřej will tell us if the building blocks for the Capital Markets Union by

2019, will include provisions to facilitate Cross-Border Insolvencies and

what that may mean regarding any insolvency convention efforts;

• The panel will discuss past attempts at a convention and what the current

hurdles may be; and

• Prof. Thomas McInerney, the Founder and Director of the Treaty

Effectiveness Initiative with appointments in Australia, Italy and the

U.S., will address how effective or ineffective treaties and/or

conventions can be.

10

www.duanemorris.com


The European Union Convention on

Insolvency Proceedings• Passed in 1995 with final adoption in 2000

• The E.U. Convention adopted a “Modified Universality” approach:– The Convention seeks to reconcile the principle of

universality and the protection of local interest and also the principles of respective legal systems ... permits local proceedings governed by their own lex fori concursus (law applicable to the place of insolvency) to co-exist with the main universal proceeding. Single universal proceedings are always possible within the EC, but the Convention does not exclude the opening of local proceedings, controlled and governed by its rules, to protect those local interests.

11

www.duanemorris.com


Modified Universalism

• Modified Universalism, while embracing the core concept

of one main proceeding, allows for countries other than

the home country of a multinational, to “evaluate the

fairness of the home country procedures and to protect the

interests of local creditors.”¹ Thus, it permits secondary

proceedings to be entered on a case-by-case basis.²

1 Michalis E. Diamantus, Arbitrator Contractualism in Transnational Bankruptcy, 35 Sw. L.

Rev. 327, 336-37 (2006).

2 Maxwell Communication Corp. PLC v. Barclays Bank, 170 B.R. 800, 816 (Bank,

S.D.N.Y. 1994).

12

www.duanemorris.com


Has Modified Universalism Been

Achieved Within Europe?

A. Synthetic Proceedings

− In 2006, a UK administrative proceeding managed to avoid opening a non-union proceeding in Spain while protecting the treatment of trade creditors in Spain. See Collins v. Aikman; see also Nortel Networks; and MG Rover. What are the limitations of these cases?

B. Group Insolvencies (Art. 60)

− Right to be heard in any group proceedings

− Right to request a stay of any measure in group proceedings (max 3//6 months)

A restructuring plan has been proposed which would be to the benefit of the creditors in the proceedings for which the stay is requested

The stay is needed for the implementation of the restructuring plan

no coordination proceedings opened with respect to either company

13

www.duanemorris.com


Are we “On the Road to Universalism”?

• Prof. Irit Mevorach in 2011, formerly of The World Bank, concluded as follows:

“The ability of the UNCITRAL Model Law on Cross-Border Insolvencyto enhance unity in bankruptcy (i.e., universalism) has been doubted.Unlike the EC Regulation on Insolvency Proceedings, it does notprovide rules on international jurisdiction and automatic recognition.Thus, both recognition of foreign proceedings and relief should besought. The Model Law (like the EC Regulation) also lacks rules forcorporate groups. For these reasons, commentators have predictedthat countries implementing the Model Law will exploit the discretionand flexibility enshrined in this regime to protect local interest and willavoid maximum cooperation and deference to foreign jurisdictions.Nonetheless, this paper suggests that the Model Law has the potentialof facilitating unified and centralised proceedings both for single andgroup companies.” 3

3 Irit Mevorach, On the Road to Universalism: A Comparative and Empirical Study of the UNCITRAL Model Law on

Cross- Border Insolvency, 12 Eur. Bus. Org. L.Rev. 517, (2011)

14

www.duanemorris.com


Universalism

• Back in the 1980’s and 1990’s, most academic

commentators viewed universality as “the proper goal” of

international bankruptcy law.4

• The problem with Universality is that it needs a treaty or

convention in order to be truly effective.

4 Jay Lawrence Westbrook, Choice of Avoidance Law in Global Insolvencies, 17 Brook. J.

Int’l L. 499, 515 (1991).

15

www.duanemorris.com


Universalism (cont’d)• The International Bar Association and our esteemed

colleagues Bruce Leonard and Christopher Besant

published a third draft of the Model International

Insolvency Cooperation Act in 1988 and advised: “insofar

as possible, …universality should be the guiding principle

of all efforts, towards international insolvency cooperation,

for it alone is truly compatible with the realization of equal

treatment of all creditors, debtors, assets and liability, and

the swift and effective administration of the estate.5

5 Model International Co-Operation Act (International Bar Association, third draft 1988), reprinted with

current issues in cross border insolvency and reorganizations APP. 1, at 262. (E. Bruce Leonard and

Christopher W. Besant., 1994)

16

www.duanemorris.com


Universalism (cont’d)

• “Universalism” is a system in which a single bankruptcy

court controls the administration of the debtor’s assets and

makes distributions to creditors worldwide. That single

bankruptcy court may be the court of the country

designated in the articles of incorporation, the court of the

country in which the debtor is incorporated, the court of

the country in which it has its headquarters, of the court of

the country has the bulk of its assets or operations.6

6 Lynn M. Lo Pucki, Cooperation in International Bankruptcy: A Post Universalist Approach, 84 Cornell Law

Review 696, 704 (1999)

17

www.duanemorris.com


What Specifically Does the Model Law not

Address?• The Model Law does not provide uniform Choice-of-Law Rules and

each jurisdiction involved may apply its own private international laws.

• Universalist types of relief such as enforcement of a foreign discharge or turnover of assets.

• The inefficiencies and loss of value which still arise among Model Law countries that adopt the Model Law in different ways.

• Countries, like Korea, Canada and Mexico, refrain from enacting the more ambitious, universalist parts of the Model Law, such as recognition based on a set of objective criteria (COMI), automatic relief and other discretionary relief.

• Most OECD countries like Austria, Belgium, Finland, France, Germany, Italy, The Netherlands, Norway and Sweden have not adopted the Model Law and, indeed, most of the UNCITRAL member states (60 in all) have not.

18

www.duanemorris.com


Lehman Brothers & MF Global:

Trial by Combat

• Universalism under the Model Law is not being applied on a substantive basis,

it only exists as a procedural accommodation;

• Territorialism is absolutely triumphant on the crucial and substantive economic

issues;

• In Lehman, there were 76 separate insolvency proceedings, with three major

ones in the US and UK;

• Both Lehman & MF Global required settlements with UK entities that were

very difficult to reach.

19

www.duanemorris.com


Overview of key int'l insolvency

instruments7

Bilateral or regional efforts

- Latin America: Montevideo (1889, 1940), Havana (1928)

- Europe: Nordic countries (1933) + various bilateral conventions

- Africa (French speaking): OHADA Uniform Bankruptcy Law (1998)

Istanbul Convention (Council of Europe)

- Opened for signature since 5 June 1990

Model law on cross-border insolvency (UNCITRAL)

- Model law + Guide (1997, 2013), enacted cca 20 in States

- Legislative guidance (2004 + supplemented in 2010 and 2014) + Practice Guide

(2009)

IBA developed Model Instruments

EU Insolvency Convention (1995) >> EU Insolvency Regulations (2000, 2015)

7 Kurt H. Nadelmann, Bankruptcy Treaties, 93 U. Pa. L. Rev. 58 (1944-1945).

20

www.duanemorris.com


The European Union and the Council

of EuropePhase 1: In and out of Brussels Convention (60s-80s)

– Convention on jurisdiction and the enforcement of judgments in civil and commercial

matters (insolvency excluded from its scope at the outset)

– Preliminary Draft (Bankruptcy) Convention (1970) >> Draft (Bankruptcy) Convention

(1980): abandoned

>> Council of Europe: Istanbul Convention on Certain

International Aspects of Bankruptcy (1990)– Signed by 7 CoE Member States but never ratified

– never entered into force (condition: ratification by 3 CoE Member States)

Phase 2: Towards a Bankruptcy Convention (90s)– Adaptation of the Istanbul Convention and certain Phase 1 concepts

– 23 November 1995 – draft Convention and Explanatory Report submitted for

signature

21

www.duanemorris.com


The European Union and the Council

of EuropeEU Convention on Insolvency Proceedings (1995)

– by 23 May 1996 signed by 14 out of 15 EU Member States at that time (with the

exception of the United Kingdom)

– Virgos-Schmit (explanatory) report (not approved by the Council)

– Revived in 1999 as a project of EU Regulation

EU Regulations on (general) insolvency– Regulation (EC) No 1346/2000 on insolvency proceedings, Regulation (EU) 2015/848

on insolvency proceedings (the latter replaces the former as of 26 June 2017)

– concern the applicable law, jurisdiction and recognition and enforcement of

judgments + rules on coordination of cross-border group insolvency

– do NOT concern: insurance undertakings, credit institutions, investment firms and

collective investment undertakings

22

www.duanemorris.com


Is there a future for more universality?

Efforts to develop a workable international convention

– Problem: reluctance of certain States to change the

recently attained mitigated universality result

– Light of hope: still willingness and energy to move

forward

Harmonisation of substantive insolvency law

– Problem: how to find consensus?

– Light of hope: 2014 Insolvency Recommendation,

without structural reforms low-growth forecast due to

unresolved debt-overhang (insolvency in the forefront)

23

www.duanemorris.com


UNCITRAL has Sponsored some 10 Conventions …

Key Factors in Developing and Implementing a

Convention Effectively

• Knowledge: starting point for process is good understanding of comparative

experience

• Political: frame issue; raise awareness; identify demand from users; state

support

• Epistemic: cultivate shared understanding of basic norms among relevant

stakeholders (e.g. judicial and regulator network)

• Implementation: gather resources; in kind support through capacity

development, good practice guides

• Strategy: use to guide each stage of process: treaty development,

ratification, and implementation

24

www.duanemorris.com


What are the Benefits of an International

Insolvency Regime?• An International Insolvency Regime would:8

– Minimize economic and social costs;

– Maximize each multinational´s going concern value by

instituting a proceeding (or a set of concurrent

proceedings) to authorize an orderly way for the

multinational; and

– Provide a distribution priority that maximizes social

value, while being mindful of disparate and, at times,

mutually exclusive national policies that value certain

kinds of creditors and claims over others.8 See Alexander M. Kipnis, Beyond UNCITRAL: Alternatives to Universality in Transnational Insolvency,

36 Denv. J. Int’l. L. Pol’y 155, 157(2008)25

www.duanemorris.com


What are the Benefits of an International

Insolvency Regime?• Universalism or some workable modification thereof can

only be achieved through formal international agreement;

• Resolves choice of law and conflicts of law issues;

• Resolves differences in substantive bankruptcy laws;

• Provides for automatic recognition and enforcement of

bankruptcy court orders or judgments throughout the world;

• Fosters the distribution of assets and setting of interests

rates without distortion, leading to more efficient

investment patterns and increased global welfare.9

9 Lucien Arye Bebchuk and Andrew T. Guzman, Analysis of Transnational Bankruptcies, An, 42 J.L. &

Econ. 775 (1999)

26

www.duanemorris.com


Five Types of Regimes for International

Bankruptcy Exist:1. Territoriality;

2. Universality or universalism;

3. The Rasmussen corporate charter contractualism (a form of universality);

4. The Westbrook world bankruptcy court International organization for the

adjudication of transnational bankruptcy cases via treaty or

5. LoPucki´s cooperative territoriality, a system of secondary bankruptcy, a

hybrid between territoriality and universality. Courts secondary proceedings

administering would have authority to distribute all of the debtor´s estate in

that court´s country, possibly as modified by Kipnis (automation of claim

allowance process and cooperation on fraudulent transfers).10

Most of these require a Treaty or Convention in order to be

Effective …10 See Alexander M. Kipnis, Beyond UNCITRAL: Alternatives to Universality in Transnational Insolvency,

36 Denv. J. Int’l. L. Pol’y 155, 186 (2008)

27

www.duanemorris.com

Please refer any questions or follow-ups to:

Patrick N.Z. Rona

[email protected]

DUANE MORRIS LLP

1540 Broadway

New York, NY 10036

Tel: 212-692-1048

Fax: 212-692-1020

www.duanemorris.com

Disclaimer: These materials and panel’s comments are intended for discussion purposes only and are

not intended as legal advice. The views expressed are the personal opinions of the speakers and not

those of the institutions or organizations with which the speakers are affiliated, or of the International

Bar Association or its officers (which make no representation as to the accuracy of the information

communicated).

Thank you for your participation!

28

http://www.duanemorris.com/

Presentation_ Preparing for the Next Crash

Documents

Transcript of Presentation_ Preparing for the Next Crash